Official statistics are compiled by honest professional people, and tell the 'truth' in simple numerical terms. But much can be done to interpret them, either favourably or unfavourably, according to the wish of the interpreter. Hence, although the United Kingdom now has the highest proportion of its available adult citizens in employment since 1975 [one of the three years during which the mixed economy was tested most severely] it is sobering to note that in almost every way the present pattern of employment is massively more fragile than was that which NeoKeynesian inflation undermined. The effect of the inflation of prices, especially after the oil price hike of 1973, was that production was interrupted by strikes when the authorities took action to suppress wage rises in their clumsy attempts to cap the wage-price spiral. In each period of pay 'restraint' government costs rose while government revenues declined, and the balance of payments with the rest of the world became strongly negative. In those circumstances, the Labour government [which relied on minority parties to retain control of the House of Commons] sought a loan from the International Monetary Fund; and the conditions applied to that loan [in retrospect] can be seen as a demand for the state to bring in Monetarist policies to replace they failed pseudo Keynesianism that the Economic establishment had applied.
The Labour Party was torn apart by the consequent dissent from the new policy, with the trade unions - the traditional paymasters of the party - doggedly opposed to the government. Consequently the Conservatives won the 1989 general election. The new Tory leader, the largely-unknown and completely untested Margaret Thatcher, embraced monetarism enthusiastically; and she deplored the less-than-half-hearted attitude towards her radical policies from most of the Tory establishment [including most of her cabinet]. They had been broadly content with the mixed economy and were scared by the new radicalism. Mrs Thatcher and her close cohort dismissed the majority as 'wets', and became more intent on radical change in the economy. As to the social consequences of disruptive economic policies, Mrs Thatcher was simply to say 'There is no such thing as Society'.
The people who could be identified as the 'enemies' of the new Monetarist policies began with the Economists, 364 of whom signed a letter to the TIMES condemning her policies from a standpoint of NeoKeynesianism [and who succumbed thereafter, with amazing speed, so that those who remained in their 'profession' become locked in to the new Econocracy by the millennium]. Next among the 'enemies' were the trade unions, that had frustrated the attempts by the Labour government of 1974-79 to control the wage-price spiral. Here the Thatcher gang decided on a radical solution: if you close the coal mines and a large section of the iron and steel industry [including shipbuilding] you take the cash and the members away from the unions, leaving them as shell organisations with no real power. These radical solutions were adopted; and the majority of the electorate was unmoved by the pleas of miners and steel workers whose communities were largely isolated geographically and socially from the cities where banking, finance and smart retailing were providing more nice, clean jobs for the middle classes. While the traditionally unionised areas continued to return Labour MPs from constituencies with very high percentages of the industrial and ex-industrial population, other urban centres and the less-densely-populated majority of constituencies were content to return Tory [or, in some cases, irrelevant Liberal] MPs; and thus the wrecking job was done.
It is now more than thirty years since the steelworks of Sheffield, the pit sites across the country with their unmistakable winding-gear, the massive cranes on the dockyards to the Tyne and the Tees and the Upper Clyde, and other symbols of the most basic and essential industries were first left derelict; then cleared away. It is hard to believe that Meadowhall in Sheffield was once the world's leading steel and engineering centre, or that the placid banks of the Upper Clyde were once the proudest shipyards in the world.
No thanks to successive governments, pharmaceutical and biological companies have developed lucrative new products; creative industries [including computer games] have developed magnificently and - despite the idiocies that created the financial crisis of 2007-9 - the financial services based in London lead the world in expertise and innovation. So Britain has high spots, and remains uniquely innovative; but fools in government have congratulated themselves on 'attracting inward investment' as one after another the innovative firms [along with the intellectual capital] are snapped up by aliens. This almost-constant alienation of the most valuable assets that the British continue to create means that the balance-of-payments becomes increasingly adverse, as British consumers have to pay foreign firms to access British inventions, even if they are manufactured here.
The final knell of heavy industry has been sounded today, with the news that Tata is selling its steelworks in the UK to Thyssen-Krupp: whatever promises are made [and especially if we really do leave the European Economic Area] Port Talbot will go; and with it the last evidence of heavy industry will be consigned to the film archives and to history books.
Showing posts with label balance of payments. Show all posts
Showing posts with label balance of payments. Show all posts
Wednesday, 20 September 2017
Saturday, 2 September 2017
Doctor Fox and Free Trade
A former medical practitioner, Liam Fox PC MP, the Secretary of State for Trade, is chafing at the bit He cannot begin any substantial work towards the task that he has supposedly been given - to arrange post-Brexit trade agreements with countries outside the European Union - until it is finally decided to what extent [if any] the United Kingdom will remain in the European Economic Area after 2020. It is beginning to dawn on Mrs May that a 'hard Brexit' will be calamitous for the British economy. Far from enabling the country to hold its head high among the major powers, solitary Britain would be seen for what it is: an ill-managed struggling economy with more legacy issues than thriving new world-class companies, with a huge and growing balance-of-payments deficit and massive external indebtedness.
Nevertheless, Dr Fox is apparently buoyed-up by the dogma that free trade is a universal 'good thing'; because that is what members of the Econocracy tell him. The professors who can no longer con their more intelligent students still hold sway with the headbanging Brexiteers who seem to control the present government; partly because the sorts of things that they say make the current policy ['no deal is better than a bad deal'] seem almost rational.
In the ever-narrowing intellectual universe that the professors inhabit, inconvenient facts can simply be ignored. So they chose not to notice that the eighteenth century, when Britain pursued protectionist policies, was a period of high economic growth during which the agricultural and industrial revolutions were accomplished. The period when so-called free trade was at its peak, 1848-1914, was the age of imperialism, when European monarchies led by Britain with its globally dominant navy and Russia with its serf army conquered all of northern Asia. The European empires controlled the world, with the exception of the United States.
For every free trade agreement that now exists between countries there are hundreds of inhibitions on free trade. Smoking, alcohol and mind-changing drugs are to varying degrees controlled by law, penal taxation and religious interdiction. Health and safety laws can easily be used to control imports when a government agency chooses to use such rules to restrain some trades. 'Free trade' in sex is increasingly subject to controls and bans. Point protectionism remains a powerful tool of government, when a country slaps a tax on a competitively-priced import on the grounds that the import is too disruptive to the market for competing products made in the country concerned.
Free trade is, and always was, a fantasy; and the more democratic a country may be - in the sense that the government has to respond the the demands of statistically-important minorities of its citizens - the less chance there is of that country implementing free trade arrangements that can do damage to the economic interests of such minorities. This, and no 'ideal' of free trade preached by Econocratic professors, is the reality of the trading world; and always will remain so.
Nevertheless, Dr Fox is apparently buoyed-up by the dogma that free trade is a universal 'good thing'; because that is what members of the Econocracy tell him. The professors who can no longer con their more intelligent students still hold sway with the headbanging Brexiteers who seem to control the present government; partly because the sorts of things that they say make the current policy ['no deal is better than a bad deal'] seem almost rational.
In the ever-narrowing intellectual universe that the professors inhabit, inconvenient facts can simply be ignored. So they chose not to notice that the eighteenth century, when Britain pursued protectionist policies, was a period of high economic growth during which the agricultural and industrial revolutions were accomplished. The period when so-called free trade was at its peak, 1848-1914, was the age of imperialism, when European monarchies led by Britain with its globally dominant navy and Russia with its serf army conquered all of northern Asia. The European empires controlled the world, with the exception of the United States.
For every free trade agreement that now exists between countries there are hundreds of inhibitions on free trade. Smoking, alcohol and mind-changing drugs are to varying degrees controlled by law, penal taxation and religious interdiction. Health and safety laws can easily be used to control imports when a government agency chooses to use such rules to restrain some trades. 'Free trade' in sex is increasingly subject to controls and bans. Point protectionism remains a powerful tool of government, when a country slaps a tax on a competitively-priced import on the grounds that the import is too disruptive to the market for competing products made in the country concerned.
Free trade is, and always was, a fantasy; and the more democratic a country may be - in the sense that the government has to respond the the demands of statistically-important minorities of its citizens - the less chance there is of that country implementing free trade arrangements that can do damage to the economic interests of such minorities. This, and no 'ideal' of free trade preached by Econocratic professors, is the reality of the trading world; and always will remain so.
Monday, 28 August 2017
More Lessons from British Home Stores
The defunct chain of shops that was British Home Stores has had more publicity in the past year than it enjoyed in any decade when it was an active business. This has largely been due to the pathetic way in which the life of the business ended, and the way its deferred pensioners were treated by the last two majority owners of the firm. The penultimate owner, Sir Philip Green, has in my view unfairly been lambasted: he has made a donation to the pensions fund that has been acceptable to the Trustees [who cannot be excused of negligence] and to the Pensions Regulator. The circumstances of his sale of the declining business to a twice-bankrupt chancer are murky, but there has been no indication of criminality. The final owner might well have been out of his depth, but he pushed his luck and took what he could out of the struggling business in a way that can at best be characterised as cynical.
For many years I had wondered how the business survived: and the one commonly recurrent answer was that it was the best place for lampshades and other lighting, especially for the home. I used the BHS shops for that purpose because they really were at least as good as anywhere else in the range, variety and taste of the wares in their lighting department. I became surprised at the longevity of that lead in one aspect of the business, over a couple of decades when all other departments seemed to get more run-down and the selection of goods was less attractive than in other stores. I was also surprised when Philip Green took the chain over, because his other shops were focused on particular market segments, which they addressed [in the main] successfully; and I was unsurprised when he dumped the cuckoo from his nest.
It is now a year on from the collapse of the business, and research publicised today makes interesting reading. More than 90 of the 160 BHS shops that closed last year remain empty; but almost all the London shops have been re-let and are in operation [mostly as shops] under new management. But around the rest of the country almost all of the shops are empty: this applies to most of the high street sites, and also to a few that are located in modern shopping centres in relatively prosperous towns. Large stores are less and less needed, as more shopping is done on-line via large warehouses and delivery services; which include the revival of Royal Mail for whom the internet has provided compensation for the decline of letter mail, which is itself largely to product of the internet.
Behind these obvious changes in shopping habits lies the more important fact that all Tory and many Labour politicians fail sufficiently to emphasise: the absolute real-terms decline of the economy in most regions since the Thatcherite destruction of so much of the material capital on which true prosperity ultimately depends. Human beings are material structures: we need the clothes and furnishings that British Home Stores used to offer us, almost as much as we need food and housing. Much of what we eat [and an increasing proportion of what we wear] is imported: so we need to sell countervailing exports to the rest of the world. But we no longer export goods in sufficient volume or with sufficient quality, novelty or other positive characteristics that used to make British goods attractive in global markets.
Britain - hailed as the 'workshop of the world' before 1800 - became a net importer of manufactured commodities early in the Thatcher years: but the residue of old industries and the rise of new sectors, especially in the so-called 'knowledge' and 'technology' sectors as well as pharmacology and financial innovations, meant that until the financial crisis [that became apparent in 2007 and reached its peak in 2009] the balance of payments could from time to time be maintained. Since the 'crunch' a deficit on the UK's balance of payments has become entrenched: even after foreign money has been paid prolifically to UK sellers of London house properties, small estates in the home counties and firms that have made successful innovations. While super-luxury shops proliferate in central London, largely addressing wealthy aliens and the very small top-earning segment of British society, the majority of the country becomes increasingly dependent on pound-shops and charity shops and the most competitive supermarkets. A walk along any high street, especially one that lies more than commuter distance from London, is a salutary experience. It is proof of the material decline of the British economy; which no amount of financial manipulation can conceal.
British Home Stores, both historically in its decline and fall and now through its legacy of unlettable premises, stands as a stark symbol of the disaster that Mrs May and her cabinet have not yet noticed.
For many years I had wondered how the business survived: and the one commonly recurrent answer was that it was the best place for lampshades and other lighting, especially for the home. I used the BHS shops for that purpose because they really were at least as good as anywhere else in the range, variety and taste of the wares in their lighting department. I became surprised at the longevity of that lead in one aspect of the business, over a couple of decades when all other departments seemed to get more run-down and the selection of goods was less attractive than in other stores. I was also surprised when Philip Green took the chain over, because his other shops were focused on particular market segments, which they addressed [in the main] successfully; and I was unsurprised when he dumped the cuckoo from his nest.
It is now a year on from the collapse of the business, and research publicised today makes interesting reading. More than 90 of the 160 BHS shops that closed last year remain empty; but almost all the London shops have been re-let and are in operation [mostly as shops] under new management. But around the rest of the country almost all of the shops are empty: this applies to most of the high street sites, and also to a few that are located in modern shopping centres in relatively prosperous towns. Large stores are less and less needed, as more shopping is done on-line via large warehouses and delivery services; which include the revival of Royal Mail for whom the internet has provided compensation for the decline of letter mail, which is itself largely to product of the internet.
Behind these obvious changes in shopping habits lies the more important fact that all Tory and many Labour politicians fail sufficiently to emphasise: the absolute real-terms decline of the economy in most regions since the Thatcherite destruction of so much of the material capital on which true prosperity ultimately depends. Human beings are material structures: we need the clothes and furnishings that British Home Stores used to offer us, almost as much as we need food and housing. Much of what we eat [and an increasing proportion of what we wear] is imported: so we need to sell countervailing exports to the rest of the world. But we no longer export goods in sufficient volume or with sufficient quality, novelty or other positive characteristics that used to make British goods attractive in global markets.
Britain - hailed as the 'workshop of the world' before 1800 - became a net importer of manufactured commodities early in the Thatcher years: but the residue of old industries and the rise of new sectors, especially in the so-called 'knowledge' and 'technology' sectors as well as pharmacology and financial innovations, meant that until the financial crisis [that became apparent in 2007 and reached its peak in 2009] the balance of payments could from time to time be maintained. Since the 'crunch' a deficit on the UK's balance of payments has become entrenched: even after foreign money has been paid prolifically to UK sellers of London house properties, small estates in the home counties and firms that have made successful innovations. While super-luxury shops proliferate in central London, largely addressing wealthy aliens and the very small top-earning segment of British society, the majority of the country becomes increasingly dependent on pound-shops and charity shops and the most competitive supermarkets. A walk along any high street, especially one that lies more than commuter distance from London, is a salutary experience. It is proof of the material decline of the British economy; which no amount of financial manipulation can conceal.
British Home Stores, both historically in its decline and fall and now through its legacy of unlettable premises, stands as a stark symbol of the disaster that Mrs May and her cabinet have not yet noticed.
Friday, 14 July 2017
Britain-in-Europe Survived as a 'Service Economy'
Yesterday, I hinted at the crucial fact that in 1948 the British people generally accepted that the country needed to rebuild its balance of payments; but their interests as consumes came to predominate over the recognised priority for productive investment in the economy. Following the collapse of neo-Keynesianism, the entry of the UK into the EEC was a vital step in the next major development. Within the cocoon of the EEC, then the EU, Britain was brought within a vast shelter that [it was hoped] could save any member country from economic catastrophe.
After Mrs Thatcher had eviscerated the economy, her successors were obliged to express admiration for her achievement in 'rebuilding' it. So, as the balance of payments worsened and the material economy continued to decay, it became imperative for the European shelter to be toughened. Mrs Thatcher herself huffed and puffed about Europe's exactions - and she gained an unprecedented rebate when other member states admitted that Britain was, indeed, being screwed under the prevailing formula - then she signed up to integrationist agreements. John Major, a hugely under-estimated figure, won a general election and proceeded to lead the country into the 'inevitable' process of political association of the EEC states with the passage of the Maastricht Treaty. A significant number of Conservative MPs, who he apparently classed as 'the Bastards', recognised that a political price was being paid for an economic shelter; and several of them did not like it. Thus they sought to oppose the surrender of ultimate sovereignty to the European Union: and though Britain went fully into the Union, there were many who resented it, in both major political parties.
Tony Blair's contempt for any history but his own, and for any political principle more profound that his convenience, led him to pack the House of Lords with donors who spared him the need to mollycoddle the trade union leaders whose predecessors has dominated the Labour Party through their control of the purse strings. His cavalier attempt to abolish the ancient office of Lord Chancellor showed how superficial he was; and the scandal of the Gulf War has rightly become the basis for an ineradicable contempt for his unconcern with truth; and apparently for the lives of British forces and Iraqui civilians. He allowed the drift towards further integration of EU institutions to continue, while considering himself a 'bridge' between the USA and the EU. Gordon Brown's brief period in office was dominated by the economic crisis, to which he and his Chancellor, Alastair Darling, responded well.
The came the Cameron-Clegg coalition. The LibDems were fanatically pro-'European', so for the five years of the coalition government the subjection of the UK to the EU was welcomed: the economic protection that it gave to the UK was recognised, and as the major financial centre to have survived well when the dust settled after the great crash of 2007-8 London was proven to be an asset to the whole of the EU. Of course, French and German bankers resented this situation; but their banks had to build up their London operations to remain globally competitive. Thus in the period 2010-15 a sub-set of the service sector, the financial services, became central to the economic offering that the EU made to the rest of the world. After five years of coalition the LibDems were adamant that they needed to stand [and to crash] as an independent party in the 2015 general election; while David Cameron [with an arrogant insouciance reminiscent of Tony Blair] promised a referendum on membership of the Union hoping, once and for all, to show that the 'Bastards' were a declining and impotent minority within the British state. Cameron was surprised to win the election, and he decided to call the referendum on the basis that a simple majority was required, with no limiting conditions. He apparently expected something over 70% of those who voted to favour continued membership of the Union. He had not foreseen that the referendum could be opened up as an avenue for the pent-up resentment of large swathes of the nation against his austerity policies, against deindustrialisation, against alien immigration, and simply against authority. The more the odious apostle of austerity, George Osborne, predicted doom and disaster, so the more people were tempted to vote against the government.
Thus came about Brexit. Cameron stood down, shocked at the consequences of his actions. The largely unknown Theresa May became the surprise premier, and she immediately grasped the wrong end of the stick on Brexit. Without comprehension of the importance of the economic cocoon, she set in train a process which - if it were continued to the end - would be calamitous. On her minsters' first presentation of major Brexit legislation - yesterday - it immediately became clear that she would not get away with it. The nation is about to descend into faction, debate and disagreement that will be reflected in both houses of parliament and in all the devolved assemblies. Things are getting interesting: and the only certainty is that Brexit as Mrs May has misconstrued it has gone into protracted death throes,
After Mrs Thatcher had eviscerated the economy, her successors were obliged to express admiration for her achievement in 'rebuilding' it. So, as the balance of payments worsened and the material economy continued to decay, it became imperative for the European shelter to be toughened. Mrs Thatcher herself huffed and puffed about Europe's exactions - and she gained an unprecedented rebate when other member states admitted that Britain was, indeed, being screwed under the prevailing formula - then she signed up to integrationist agreements. John Major, a hugely under-estimated figure, won a general election and proceeded to lead the country into the 'inevitable' process of political association of the EEC states with the passage of the Maastricht Treaty. A significant number of Conservative MPs, who he apparently classed as 'the Bastards', recognised that a political price was being paid for an economic shelter; and several of them did not like it. Thus they sought to oppose the surrender of ultimate sovereignty to the European Union: and though Britain went fully into the Union, there were many who resented it, in both major political parties.
Tony Blair's contempt for any history but his own, and for any political principle more profound that his convenience, led him to pack the House of Lords with donors who spared him the need to mollycoddle the trade union leaders whose predecessors has dominated the Labour Party through their control of the purse strings. His cavalier attempt to abolish the ancient office of Lord Chancellor showed how superficial he was; and the scandal of the Gulf War has rightly become the basis for an ineradicable contempt for his unconcern with truth; and apparently for the lives of British forces and Iraqui civilians. He allowed the drift towards further integration of EU institutions to continue, while considering himself a 'bridge' between the USA and the EU. Gordon Brown's brief period in office was dominated by the economic crisis, to which he and his Chancellor, Alastair Darling, responded well.
The came the Cameron-Clegg coalition. The LibDems were fanatically pro-'European', so for the five years of the coalition government the subjection of the UK to the EU was welcomed: the economic protection that it gave to the UK was recognised, and as the major financial centre to have survived well when the dust settled after the great crash of 2007-8 London was proven to be an asset to the whole of the EU. Of course, French and German bankers resented this situation; but their banks had to build up their London operations to remain globally competitive. Thus in the period 2010-15 a sub-set of the service sector, the financial services, became central to the economic offering that the EU made to the rest of the world. After five years of coalition the LibDems were adamant that they needed to stand [and to crash] as an independent party in the 2015 general election; while David Cameron [with an arrogant insouciance reminiscent of Tony Blair] promised a referendum on membership of the Union hoping, once and for all, to show that the 'Bastards' were a declining and impotent minority within the British state. Cameron was surprised to win the election, and he decided to call the referendum on the basis that a simple majority was required, with no limiting conditions. He apparently expected something over 70% of those who voted to favour continued membership of the Union. He had not foreseen that the referendum could be opened up as an avenue for the pent-up resentment of large swathes of the nation against his austerity policies, against deindustrialisation, against alien immigration, and simply against authority. The more the odious apostle of austerity, George Osborne, predicted doom and disaster, so the more people were tempted to vote against the government.
Thus came about Brexit. Cameron stood down, shocked at the consequences of his actions. The largely unknown Theresa May became the surprise premier, and she immediately grasped the wrong end of the stick on Brexit. Without comprehension of the importance of the economic cocoon, she set in train a process which - if it were continued to the end - would be calamitous. On her minsters' first presentation of major Brexit legislation - yesterday - it immediately became clear that she would not get away with it. The nation is about to descend into faction, debate and disagreement that will be reflected in both houses of parliament and in all the devolved assemblies. Things are getting interesting: and the only certainty is that Brexit as Mrs May has misconstrued it has gone into protracted death throes,
Wednesday, 17 May 2017
Productiveness, Science and Politics
In the book that is promoted in the strapline of this blog, I emphasise the difference that several great nineteenth-century political economists made between productivity and productiveness. Millicent Fawcett, whose statue will soon be unveiled at Parliament Square [the first woman to so be honoured] was an advocate of the distinction, though it is not for her achievements in economic science that she is to become a permanent feature of Westminster.
Productivity means the measured output achieved in a set time from a defined economic activity, set against the cost of the measured inputs: for example, the cost of one hour of one worker's time, plus all the resources required to enable that worker to be effective, set against the estimated 'value' of the output achieved in that hour. I have often pointed out, that a high level of productivity can be achieved by workers who unpack and sell cheap imported clothing: but their work serves to increase the balance of payments deficit and, insofar as the shop's customers borrow money to buy the clothes it increase net personal debt. The turnover of the business that employs these people is included in the national income statistics, and if that turnover increases year after year this shows 'growth' of the business [and is a potential contributor to claimed overall 'economic growth'] while its long-term detriment to the economy is obvious.
Many modern Economists argue that it is not detrimental to an economy if the country buys cheap clothes from other countries, provided it sells them high-tech exports: and that can be true, provided the overall balance of trade is favourable. When the balance of payments is adverse to a country, however, as is the case of the UK, every extension of the deficit is potentially painful [and eventually some trivial import could trigger a catastrophic recognition by global commentators - perhaps in a rating agency - that the country's situation is irrecoverable under the present regime].
Hence comes the importance of productiveness, the business outcome that meets all the costs actual production, plus providing a significant surplus to fund expansion of the factories that produce the surplus, and/or t fund research to devise even better and more innovative products by the firm, and/or to pay high returns to banks and other investors in the firm who can allocate their enhanced income flow to investments in other firms that can have innovative new products and techniques to offer, and/or some of the surplus can be paid as higher workers' wages and increased shareholders' dividends, giving individuals the power to buy the new and improved products. The more money consumers can use at their discretion to buy the products that they most prefer, that will help to steer the next generation of investment into the most lucrative channels, leading to the most successful firms in the market to have the highest level of productiveness.
Most innovation requires scientific input: new applications of proven techniques, modification of techniques, new computer applications, and new materials. A country must have a sufficient output of science graduates and high-level technical experts to serve these activities; and that must be backed up by the highest level of research.
In the current UK election, some lip-service is paid in passing to a perceived need to maintain the science base on which much of Britain's surviving material export industry depends [and which could be threatened by massive tax increases on both firms and on key employees]; but there is a tendency by politicians of all parties to put in the 'too difficult' tray the whole issue of how badly the scientific community can be harmed by a crass approach to Brexit. This key aspect of achieving greater productiveness is not at all understood, anywhere in the political class. Oh dear!
Productivity means the measured output achieved in a set time from a defined economic activity, set against the cost of the measured inputs: for example, the cost of one hour of one worker's time, plus all the resources required to enable that worker to be effective, set against the estimated 'value' of the output achieved in that hour. I have often pointed out, that a high level of productivity can be achieved by workers who unpack and sell cheap imported clothing: but their work serves to increase the balance of payments deficit and, insofar as the shop's customers borrow money to buy the clothes it increase net personal debt. The turnover of the business that employs these people is included in the national income statistics, and if that turnover increases year after year this shows 'growth' of the business [and is a potential contributor to claimed overall 'economic growth'] while its long-term detriment to the economy is obvious.
Many modern Economists argue that it is not detrimental to an economy if the country buys cheap clothes from other countries, provided it sells them high-tech exports: and that can be true, provided the overall balance of trade is favourable. When the balance of payments is adverse to a country, however, as is the case of the UK, every extension of the deficit is potentially painful [and eventually some trivial import could trigger a catastrophic recognition by global commentators - perhaps in a rating agency - that the country's situation is irrecoverable under the present regime].
Hence comes the importance of productiveness, the business outcome that meets all the costs actual production, plus providing a significant surplus to fund expansion of the factories that produce the surplus, and/or t fund research to devise even better and more innovative products by the firm, and/or to pay high returns to banks and other investors in the firm who can allocate their enhanced income flow to investments in other firms that can have innovative new products and techniques to offer, and/or some of the surplus can be paid as higher workers' wages and increased shareholders' dividends, giving individuals the power to buy the new and improved products. The more money consumers can use at their discretion to buy the products that they most prefer, that will help to steer the next generation of investment into the most lucrative channels, leading to the most successful firms in the market to have the highest level of productiveness.
Most innovation requires scientific input: new applications of proven techniques, modification of techniques, new computer applications, and new materials. A country must have a sufficient output of science graduates and high-level technical experts to serve these activities; and that must be backed up by the highest level of research.
In the current UK election, some lip-service is paid in passing to a perceived need to maintain the science base on which much of Britain's surviving material export industry depends [and which could be threatened by massive tax increases on both firms and on key employees]; but there is a tendency by politicians of all parties to put in the 'too difficult' tray the whole issue of how badly the scientific community can be harmed by a crass approach to Brexit. This key aspect of achieving greater productiveness is not at all understood, anywhere in the political class. Oh dear!
Monday, 12 December 2011
Money, Democracy and Economy
Evidence is accumulating that the International Monetary Fund [IMF] is preparing to work closely with the European Central Bank [ECB] to prolong the survival of the euro for long enough to allow Greece to demonstrate whether or not an austerity regime can be imposed with sufficient rigour to allow the country to remain in the eurozone. Whether or not the Greek economy meets the challenge under the very difficult current circumstances, it is highly probable that Chinese resources will also be transmitted via the IMF and the ECB to prop up the rest of the eurozone. Chinese government deposits with the IMF are extremely secure, and China is happy to take a greater share of control of the IMF which is a corollary of increasing its deposits. The USA is watching this situation jealously: so the Americans will most probably also agree to support the ECB to prevent the Chinese becoming too influential.
This set of moves will help to offset the risk of an intensification of the recession that is already gripping the whole of the EU. The recession is already set to last through most of 2012, and could go on longer. Trade between Europe and North America is important on both sides of the Atlantic so it is a direct US interest that Europe will be a good customer for US commerce and industry in a presidential election year. Both China and the sovereign wealth funds that are held by oil-exporting states and by Singapore are looking for businesses in Europe that will be a good buy during the recession. China will gain both the turnover and the institutional experience of the European firms that they may come to own; and - more importantly - they will take control of the intellectual property that the companies have accumulated. They will own the speculative research and the design capabilities of their European subsidiaries, which they can carry forward in China or in Europe as they see fit. They will be able to put their European brand-names on products made in China, greatly increasing the value-added to Chinese industrial output. The Chinese owners will be free to decide whether or not to run-down their European factories, and they will have the option to make their brands in China and sell them at European prices.
Such takeovers, followed by technology transfer to China, will mean that European consumers will still have access to the same brands; but employment and production in Europe will decrease and profits will be exported, so European spending-power will permanently be diminished. The de-industrialisation that has been undermining Britain and the USA for the past half-century will spread rapidly in Europe, even in Germany, unless specific measures are taken to prevent the alienation of ownership.
The massive middle classes in India, China, Brazil and other leading emergent economies are the most avid buyers of quons - brands - [see PPE via the link from this site] and an increasing mass of the population aspire to follow them. Exporting leading brands will be a huge boost to the national balance of payments of the countries that will have bought the brands, and will give them increased profits to apply to new investment. This is the outcome of the operation of the Iron Law of Wages. The EU as a whole has broken the law for decades and the inescapable payback is now being taken by the rest of the world. Proper, provident Germany has not participated in the profligacy; but is straight in the firing line now that redress is being taken. Because of their loyalty to the European fantasy Germans are now at risk of losing some control of their own economy and of the technology in which they have led the world. They have deferred - perhaps permanently - the day on which they would have to open their currency reserves ad lib to bail-out the most profligate members of the euro. But because of their loyalty to the EU they have placed at risk their control of technology and of the brands that they have exported so successfully over recent decades.
Meanwhile there is a daft shouting-match developing in Britain, between those who think that David Cameron has in some degree 'saved' the City of London by declining to support the implementation by the EU Commission and the Court of the Merkel package of financial stringency that has been endorsed by the other 26 member states, and those who argue that Cameron has damaged the vital interests - and the prestige - of the United Kingdom. The Deputy Prime Minister expressed both views, in a perfect vignette of Liberal Democrat policymaking. It is not clear how the new eurozone agreement will be 'policed', and most probably some fudging mechanism will be cobbled together in the drafting of the Compact that is now to begin. It is expected that most of the 26 'inner European' states will agree to impose a Robin Hood Tax, or Tobin Tax, on financial transactions. Britain could veto a tax change, under the Lisbon Treaty; but the veto power would not be applicable to a regulatory change under which the EU might apply service charges or other 'penalties' to the financial services sectors of the UK economy.
The sound and fury of the debate will help nobody. It is, however, incontrovertible that the United Kingdom is again offering itself as a test-bed for seat-of-the-pants economic policy experimentation. Unlike the bowdlerised Keynesianism that was tried in the nineteen-sixties and the crude but clearly articulated monetarism of the nineteen-eighties, the present experiment in austerity management has no underpinning economic theory and no ideology. It stems from a naive pragmatism that was hastily cobbled together by professional politicians from the fundamentally incompatible Conservative and Liberal Democrat parties. It has nothing substantial to contribute to a global dialogue on responding systematically to a crisis which is has reached its high pitch of intensity because the world has allowed the postindustrial countries to breach the Iron Law for almost half a century. The resulting pain is being felt intensely in Greece, and is beginning to cause serious stress in most member countries of the European Union, not always in proportion to the extent to which individual countries breached the Iron Law. It is impossible to predict where this will lead in terms of socio-political tension, but it is inevitable in conventionally democratic societies that the complacency of the democracy itself will be challenged. Nothing can be taken for granted but it becoming common to question whether democratic principles have failed, or whether the disaster is the product of a perverse and irrelevant political class that has emerged in separation from the rest of society.
China has a huge political caste, who have been segregated for the entire length of their careers from the toil and economic stress of life as it is experienced by the vast migrant working class and by both the megarich and the tens of millions of middle-class consumers. There are great hazards in attempting to climb the greasy pole of party hierarchy, and even greater risks if party apparatchiks dabble corruptly with business; but the people who reach the top are generally of the highest quality. The near-miracle of economic and monetary management that has been accomplished over the past two decades is the best evidence of this. Western commentators have regularly predicted disaster, from hyperinflation through 'stagnation' in the property sector to mass unemployment, while standards of living have risen consistently. Democratic rights as defined in Magna Charta or the US Constitution and Bill of Rights have not been matched in China, and the lack of such rights is probably to the detriment of the Chinese people; but it seems generally to be accepted in the country that it is fair enough to concentrate first on economic development, and then to allow for the development of more open institutions. Dissent in China is very much a minuscule minority activity and is often ethnically based or specifically aroused by corrupt land seizures. The internet and mobile technology ensure that dissent and repression are more widely reported when it occurs; and the government is increasingly open to treating the dissentients more fairly. But the western model no longer looks like an inevitable endgame for Chinese youth to aspire to.
This set of moves will help to offset the risk of an intensification of the recession that is already gripping the whole of the EU. The recession is already set to last through most of 2012, and could go on longer. Trade between Europe and North America is important on both sides of the Atlantic so it is a direct US interest that Europe will be a good customer for US commerce and industry in a presidential election year. Both China and the sovereign wealth funds that are held by oil-exporting states and by Singapore are looking for businesses in Europe that will be a good buy during the recession. China will gain both the turnover and the institutional experience of the European firms that they may come to own; and - more importantly - they will take control of the intellectual property that the companies have accumulated. They will own the speculative research and the design capabilities of their European subsidiaries, which they can carry forward in China or in Europe as they see fit. They will be able to put their European brand-names on products made in China, greatly increasing the value-added to Chinese industrial output. The Chinese owners will be free to decide whether or not to run-down their European factories, and they will have the option to make their brands in China and sell them at European prices.
Such takeovers, followed by technology transfer to China, will mean that European consumers will still have access to the same brands; but employment and production in Europe will decrease and profits will be exported, so European spending-power will permanently be diminished. The de-industrialisation that has been undermining Britain and the USA for the past half-century will spread rapidly in Europe, even in Germany, unless specific measures are taken to prevent the alienation of ownership.
The massive middle classes in India, China, Brazil and other leading emergent economies are the most avid buyers of quons - brands - [see PPE via the link from this site] and an increasing mass of the population aspire to follow them. Exporting leading brands will be a huge boost to the national balance of payments of the countries that will have bought the brands, and will give them increased profits to apply to new investment. This is the outcome of the operation of the Iron Law of Wages. The EU as a whole has broken the law for decades and the inescapable payback is now being taken by the rest of the world. Proper, provident Germany has not participated in the profligacy; but is straight in the firing line now that redress is being taken. Because of their loyalty to the European fantasy Germans are now at risk of losing some control of their own economy and of the technology in which they have led the world. They have deferred - perhaps permanently - the day on which they would have to open their currency reserves ad lib to bail-out the most profligate members of the euro. But because of their loyalty to the EU they have placed at risk their control of technology and of the brands that they have exported so successfully over recent decades.
Meanwhile there is a daft shouting-match developing in Britain, between those who think that David Cameron has in some degree 'saved' the City of London by declining to support the implementation by the EU Commission and the Court of the Merkel package of financial stringency that has been endorsed by the other 26 member states, and those who argue that Cameron has damaged the vital interests - and the prestige - of the United Kingdom. The Deputy Prime Minister expressed both views, in a perfect vignette of Liberal Democrat policymaking. It is not clear how the new eurozone agreement will be 'policed', and most probably some fudging mechanism will be cobbled together in the drafting of the Compact that is now to begin. It is expected that most of the 26 'inner European' states will agree to impose a Robin Hood Tax, or Tobin Tax, on financial transactions. Britain could veto a tax change, under the Lisbon Treaty; but the veto power would not be applicable to a regulatory change under which the EU might apply service charges or other 'penalties' to the financial services sectors of the UK economy.
The sound and fury of the debate will help nobody. It is, however, incontrovertible that the United Kingdom is again offering itself as a test-bed for seat-of-the-pants economic policy experimentation. Unlike the bowdlerised Keynesianism that was tried in the nineteen-sixties and the crude but clearly articulated monetarism of the nineteen-eighties, the present experiment in austerity management has no underpinning economic theory and no ideology. It stems from a naive pragmatism that was hastily cobbled together by professional politicians from the fundamentally incompatible Conservative and Liberal Democrat parties. It has nothing substantial to contribute to a global dialogue on responding systematically to a crisis which is has reached its high pitch of intensity because the world has allowed the postindustrial countries to breach the Iron Law for almost half a century. The resulting pain is being felt intensely in Greece, and is beginning to cause serious stress in most member countries of the European Union, not always in proportion to the extent to which individual countries breached the Iron Law. It is impossible to predict where this will lead in terms of socio-political tension, but it is inevitable in conventionally democratic societies that the complacency of the democracy itself will be challenged. Nothing can be taken for granted but it becoming common to question whether democratic principles have failed, or whether the disaster is the product of a perverse and irrelevant political class that has emerged in separation from the rest of society.
China has a huge political caste, who have been segregated for the entire length of their careers from the toil and economic stress of life as it is experienced by the vast migrant working class and by both the megarich and the tens of millions of middle-class consumers. There are great hazards in attempting to climb the greasy pole of party hierarchy, and even greater risks if party apparatchiks dabble corruptly with business; but the people who reach the top are generally of the highest quality. The near-miracle of economic and monetary management that has been accomplished over the past two decades is the best evidence of this. Western commentators have regularly predicted disaster, from hyperinflation through 'stagnation' in the property sector to mass unemployment, while standards of living have risen consistently. Democratic rights as defined in Magna Charta or the US Constitution and Bill of Rights have not been matched in China, and the lack of such rights is probably to the detriment of the Chinese people; but it seems generally to be accepted in the country that it is fair enough to concentrate first on economic development, and then to allow for the development of more open institutions. Dissent in China is very much a minuscule minority activity and is often ethnically based or specifically aroused by corrupt land seizures. The internet and mobile technology ensure that dissent and repression are more widely reported when it occurs; and the government is increasingly open to treating the dissentients more fairly. But the western model no longer looks like an inevitable endgame for Chinese youth to aspire to.
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