Declining Britain: Again!

On a BBC News programme yesterday, I heard the UK defined as 'the world's sixth-largest economy'.  I had been used to us being described as the fifth-largest, and had not seen any report of a new league table that relegated us; but that did not surprise me: I can't monitor everything, and we have become adept at burying bad news [as an unscrupulous civil servant suggested on 9/11].

It is no surprise to recognise that we will sometime be reduced to seventh, tenth and even  - ultimately - twentieth unless policy is radically changed. As the superb Anthony Hilton pointed out in last night's Evening Standard, Mrs May's speech on Monday to the CBI Conference took her [and her government] no further forward on important issues; The 'industrial strategy' is yet to be be unveiled: but it is expected to be much less radical than had been expected in the first year of the May regime. There is no indication of the potential shape of a Transitional Agreement with the European Union after March 2019; to the obvious consternation of managers of large and small businesses in all sectors of the economy. The headbanging advocates of Britain being set adrift to sink - alone, alongside only Ecuador - in the cold waters of the WTO Rules, remain powerful in the government - to the extent that the Brexiteers are demanding that Priti Patel [who includes hard opposition to EU membership, or even close co-operation within the European Economic Area, to the stupidities that made her departure from government inevitable] must be replaced by someone with similar views.

Hilton points out that even the triumphant new-technology companies that now dominate the US stock market - Microsoft, Google, Apple etc - benefit from hugely from research that was done in state-funded laboratories decades ago. This observation does not belittle the originality and drive of those who have carried these concept into intellectual property which can then be marketed to millions of enthusiastic customers: they have - and deserve - their billions of dollars. But it does lead to the painful admission that the UK has no comparable corporation under British ownership; even though the country continues to be hugely generative of both deep concepts and and innovative applications of the highest thought. I have rabbited-on endlessly about the small British firms that have been created to implement such ideas, that have been unable to accumulate the finances necessary to support their voracious needs as they pass through the stages of implementation to the ability to deliver a final product to the market, and thus succumb to foreign ownership. In a few conspicuous cases, opportunist buyers have agreed - for the time being - to keep the company HQ and laboratories in the UK, but they can renege on that at any time; and the intellectual property - the all-important ik - is free for them to exploit anywhere, anytime.

A serious Industrial Strategy would provide finance for such emergent companies - or divisions of existing companies - in sufficient quantity and on sufficiently loose terms to allow developments to reach the global market in good time: recognising that not all the guesses can be correct. There will be losers as well as winners [though history shows that losers often have attributes that can be developed in different directions and circumstances to become successful themselves]. Even the sixth-richest country must be able to afford the few billions that would be involved [which the government could borrow on extremely favourable terms, against all historical comparisons].

The UK is also being criticised, deservedly, for its constant reductions in the size, efficiency and capability of the armed forces. One of the regular themes of this blog has been the symbiosis - over many centuries - of money spent on research for defensive weaponry and dividends later gained from the civil exploitation of those technologies, This is precisely the time when the country should be searching for new, super-effective weapons systems, communications and defence capabilities: in which the UK has led for almost a millennium.

Behind all these thoughts lies the need for investment - especially by the state, in combination with people with ideas - to bring new concepts, new materials and new processes into being. They can only be objectified by manufacturing, and it is through innovation in manufacturing that the productivity of the economy can be increased. Factories that produce highly-desired output [regardless of whether the buyer is the armed forces or the mass market] can make significant profits because the customers are prepared to support the exclusivity of the producer firm's ik, part of the profit can be reinvested in new concepts and processes, thus the productiveness of the firm is increased, which means that the average output per employee - the productivity - of the enterprise can be raised and the economy can grow substantially.

This virtuous circle cannot be achieved without individual entrepreneurship [both inside and outside companies] and the active, continuous support of the government. The cretinous Economics that has stressed free-enterprise and free markets with minimum state input has fostered the disastrous decline into which the British economy has been locked for more than a generation.

I will carry on blogging as a small voice for reason.

Intellectual Property and Corporate Power

One of the key components of my 'dissident' approach to economic science [or political economy] is my assertion that all ownable things - assets - come in four categories:

1. Keyn. anything in the category that J M Keynes described as chartalist in his definitive Treatise on Money. These are all the immaterial creations of the human mind that can be claimed as the possession of the person who invented them, or of the person who was able to capture such command over them as would be recognised in a court of law. Thus people and corporate entities [governments, local government, institutions, companies etc] come to be the 'owners' of control of the land, and owners of shares, stocks, bank deposits, patents, copyrights, brand names, trademarks etc. Most defined keyns can be sold . The most massively increasing category of keyns in the contemporary economy are items of intellectual property [or 'intellectual keyns' shown as ik in my text].

2. Quon. A material asset whose price includes both the costs of assembling the material thing and a charge for the intellectual property that the owner of the object is able to enjoy with the material thing. The owner of the ik sells the user a right to enjoy the benefits of their brand, and the intellectual property that inheres in the object.

3. Jev. A material asset whose price when resold is determined by its perceived rarity and aesthetic quality, rather than by its cost of production or its contemporary usefulness in any material sense to the owner. Thus this category covers antiques, works or art etc; which can be bought and sold and which - over time - often appreciate in retain price, so they can be assets of increasing inventory 'value'.

4. Marcom. These are commodities which are sold at prices that equal, or are close to, the cost of production and delivery [allowing for a reasonable return on capital to the producers and distributors], with no premium for any ik such as occurs in the price of a quon.

There are huge implications that arise from this differentiation of assets. I refer to two today.

A. Firms that are licensed and regulated as 'banks' have huge privileges. In particular, because they manage keynic money for natural and corporate persons they get special guarantees from the state. The most extreme version of this protection was the 'rescue' of the banking system in 2007-9, whose effects are still affecting everybody in the advanced economies. Despite the huge direct and indirect cost of 'saving' the banks, governments and their agents, the central banks [e.g. the Bank of England] have done nothing that definitively separates the socially-necessary and economically-indispensable banking functions of the huge complex firms that include banking divisions from the parts of the firm that trade in stocks and shares, bonds, investment advice, creating and trading in derivatives and futures and other speculative keyns. Thus the entire western world remains at risk from rogue trading or sheer incompetence in these pampered businesses. This remains one of the biggest risks to civilisation; even allowing for jihadism, rogue states, cybercrime, plague and famine.

B. Hundreds of thousands of people and firms own ik that has become increasingly desired by more and more people over the past twenty years. Computer games, films and records and all accessed from cyberspace, and social media have become massive foci of consumption; and although the ownership of such assets is widely diffused, a small number of points of access are used by the vast preponderance of users. Thus Google, Alibaba, Facebook and a few other leading points in the cyberworld are absolutely dominant. The creators of these platforms have established their intellectual property with immense rigour, and are constantly extending their [patented] means of checking on their customers so that they can increasingly tailor 'special offers' that will tempt them to spend their money and their time at the profitable direction of the ik owner. This gives more power over the consumers and their world to a small number of firms than has ever been held by firms that control material commodities. Economic models have not even begun to cope with it: the Econocracy have been content to monopolise their fantasies while Silicon Valley has established a much firmer hegemony than the professors can comprehend. Politicians are increasingly exercised by the new sort of power that is held by the dominant holders of the ik that shapes hundreds of millions of consumer's lifestyle; and don't know what to do about it. They can't even work out how to tax the massive cash flow that they receive.

My basic taxonomy of economic assets forms a basis on which public control, exercised by the political system of the state, can properly be established over the cybernauts within a sensible structure of political economy. One small step for man?

'Free Trade' Deals and Point Protection

Mrs May was apparently very pleased with the offer that President Trump made to her on the side of the recent G20 Meeting, that Britain would have a 'great' free trade agreement with the USA after Brexit. He probably didn't remember that the next day; and even if he did, it does not add up to a string of words. The US Congress, specifically the Senate, has the power to make or to decline to ratify Treaties of all kinds; and Mr Trump has enough hassle with the Congress [even though both houses are controlled by his recently-adopted party] for him to be willing to make a big deal of a mere trade agreement with the UK.

Much more important is the fact that the USA is an instinctively protectionist state. It is the natural reaction of American politicians to set up temporary tariffs or other means of restricting imports, wherever a significant sector of the US economy activates its lobbyists to make Washington aware of any potential existential threat. For post-Brexit Britain - if we ever reach that state - to depend at all on the US as a crucial export market would be even more foolish than it would be to leave the European Economic Area.

British manufacturers' organisations have already issued warnings about the tendency of India, China and other advancing economies to follow the US example. As industries in those countries are developed to be able to offer sophisticated consumer goods, pharmaceuticals, advanced software and the rest of the range of sophisticated products and services, so the tender 'infant industries' can run to their governments for protection against the inroads of alien producers into their markets.

Although the UK has been laggardly in developing the market for inventions that continue to pour from British residents [including immigrants], the potential for the expansion of Britain's global markets continues to be among the best in the world. Shamefully, many innovative British businesses are sold to aliens [and then misrepresented as 'inward investments] simply because their developers have not been able to get development funding. Other brilliant British inventions, that do get adequate investment and build up their markets, are picked off by alien predators before they make anything like the contribution to the balance of payments that they should: and once the ik [the intellectual property] that the companies own has been alienated, the benefit of that ownership goes wherever the alien owners of the business direct it. This depressing pattern has been developed even while the United Kingdom has been within the cocoon of the European Union, and will not be broken by a 'hard Bexit': rather, it will ensure that the economy shrinks drastically.

While the UK is fully within the European Economic Area it will not be subject to point protectionism by Europe. If our government is crazy enough to try to take us out of the EEA, they would expose the country to European point protectionism, whenever a British concept or project caused a scream from EEA firms and interests. That is the way of the world. Lobbies transcend Trade Agreements and set aside solemn international agreements. Ministers seem to be oblivious to this, as to so many other obvious facts. They have no right to cross-party support in the Commons.

Google's ik

It is more than a quarter of a century since I first heard a colleague - Tony Tudor - say "I Googled it" in explanation of how the had ascertained some obscure fact very quickly. I don't remember the data in question, but I do remember exactly where I was at the time. With a quarter of a century behind me as a researcher in the history of political economy and the economy as such I recognised that I was living in a period of revolutionary change. Then, as now, there were several 'search engines' available and the demise of traditional reference libraries was confidently being predicted; but this was the first time that it was obvious to me that Google was way ahead in the market. That dominance has increased; and yesterday the European Commission struck a blow against it.

The particular issue on which the Commission's ruling was made, was whether or not Google so used its mastery of the system and the data within it that its preferred items were presented to inquirers first, when they wished to make a selection between products and services. The Commission decided that such manipulation took place, fined the firm more than two billion euros, and ordered it to mend its ways. Google 'respectfully' disagreed with that ruling.

A bigger issue, that has been the basis for much Eurobabble over many years, is the dominance of US-based 'technology' firms over the entire universe of computing software and devices that connect customers with the data or the experience that they want. A majority of the few Americans who bother themselves with this issue take the view that it is sour grapes: that the tired old continent of Europe still refuses to recognise that the US has been dominant in global technology since the first quarter of the twentieth century. The EU Commission has tried to use competition law to limit the extent to which European consumers simply use the easiest-to-access and best-known. It is simply a fact that the US giants - Google, Facebook etc - had become predominant before any Europeans had presented alternatives. 

One of my biggest gripes with formal Economics is its under-valuation [almost to the point of ignoring] the centrality of intellectual property - which I characterise as ik - in the contemporary world. The ownership and control of ik - patents, copyright,brand names, trademarks, a person's image and reputation, et cetera - is the principal source of wealth, and the biggest differentiator between individuals. The firms, most notably those in so-called Silicone Valley in California, have gained their prominent position by the novelty and innovation in their products and the skill with which they are then promoted globally. Although it is accessed through computers, smartphones etc, the ik has no physical impedimenta. The distributors of the service and the controllers of the content do not need to deliver any physical product to their global customers: they just put it out there, and claim their tribute for doing so. The European Commission, in all its pomp and glory, can do nothing about that.

Human Choice

A new book called Poor Economics - dealing with economic choices by the poor - has been published by an academic who works in the USA and has his ancestry in a new-emergent economy. The text unconsciously encapsulates a clear vindication of my concept of ik: the idea that people allocate any discretionary expenditure that they can afford on buying quons - copyrighted and trade-mark-protected entertainment, branded goods and services and other consumer experiences on which a charge could be levied for enjoying access to the input of intellectual property that makes the 'good' desirable to those who buy or hire it. Give a desperately poor person [who has just enough consumption to survive] a few extra pennies and she or he is more likely to to try to broaden their range of consumer experiences by accessing some ik than they are to buy more of the food that makes up their daily diet.

This behaviour is not what typical Grauniad readers expect, and it is 'irrational'  in terms of formal Economics; but it is what the evidence clearly shows. It is also the basis on which governments [from the earliest human societies] have taxed transactions in markets. While income taxes are fashionably considered 'fair' in the degenerate cisatlantic democracies, History shows that expenditure taxes come closest to being 'discretionary' in that people opt to buy things even though they know that in doing so they are paying a tax [indeed, the majority of the price of cigarettes, alcoholic drinks and motor fuel is tax in many countries]. People are more likely to opt not to earn more taxable income than they are to refuse to purchase highly desired items because of the tax imposed on the transaction.

This experience shows clearly the irrationality of formal Economics, as it has been developed since the eighteen-sixties. Economics as presented in universities and in advice to governments is not based on evidence - it is based on assumptions as to what an ideal or 'perfect' economy might look like. The aim of Economists is to make human life conform to their models: which is a fundamentally inhumane objective. There is no reason for surprise that Economics solutions to real-world issues do not 'work'. The alternative has existed for longer than Economics has been in existence: the science of Political Economy was well-developed, and realistic, well before the pioneers of modern Economics decided to create their own academic dreamland. Lord Keynes - who never bothered with a doctorate in Economics and never held a professorial chair - was deeply learned in Political Economy, and although he was loyal to the memory of his teachers [his father, John Neville Keynes and the family friend Alfred Marshall] his work was anything but mainstream Economics: which is why Economists have so imperfectly understood it, and why so many of them have tried to push it out of consideration

My simple objective is the restore Political Economy as a science that is relevant to the human condition, and perhaps to .take some aspects of the science a small step forwards. Anyone interested in this question should open the link from this blog to my text PPE: Personal Political Economy.

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!

Tragically True: The Political Economy of Population

Sincere people have launched a new campaign which is intended to focus the affluent world's attention on the growing global problem of children who are physically and intellectually stunted by insufficient food in the first two years of life. Causes include the undernourishment of pregnant and breast-feeding mothers, as well as a lack of food and milk ingested by infants themselves. The number of children already exposed and likely to be exposed to these conditions in the next couple of years is being assessed at half-a-billion, five hundred million, 500,000,000. So many children are in this position because so many have been born, and have survived up to now, through an explosion of medical care and in particular of preventative medicine which has issued drugs and supplied vaccines on an unprecedented scale. The medication is also more effective than in earlier decades, though the fecundity of this process is in some cases being challenged by the build-up of resistence by the diseases to the drugs that are in use. There are clear signs that the battle between the mutation of diseases and the development of treatments for those diseases has become increasingly costly.

The vast majority of the population explosion is occurring in less-developed countries where religion is strong, such as the Muslim world, in Catholic [and increasingly evangelical Christian] Latin America, in parts of Africa and in India. Hitherto both the development of drugs and funding programmes for their distribution have been based in the most developed countries. There has been a significant net transfer of resources from the relatively-rich to the relatively-poor: but although the lives of hundreds of millions of people have beneficially been prolonged, and their fertility has been enhanced, the most conspicuous net returns are the catastrophe of physically and mentally stunted young lives and massive unemployment among young adults.

The idealists who have volunteered to lead the new fundraising campaign have ascribed the intensification of the problem of infant malnutrition to short-term factors: referring specifically to the impact of rising global energy prices and the increasing demand for food from the emerging consumer class in China. These market pressures are asserted to be leaving too little affordable food for the poorest families in less developed countries.

The countries that house the majority of the poorest people cannot produce enough food for their population from their own resources, even in years when there is adequate rain and no significent pestilence. Yet rampant population growth continues in those countries as more millions of babies who were saved by international aid agencies reach adulthood and exercise their right themselves to produce babies.

The simple Malthusian principle - that population increase has a tendency to exceed the growth of production of the means of subsistence - appears to be working through in the most brutal form. Millions of people are breeding children for whom they cannot provide enough food, and they live in societies which do not teach parental responsibility for the succour of children; and their rulers do not accept an obligation on the state either to promote population control or to invest sufficiently to provide adequate food for the whole population.

The crucial perception that is explained in PPE [see the link from this blogsite] is that the outputs of human intelligence, applied as ik [protected intellectual property], are capable of transcending Malthus' Principle of Population and any immediately adverse operation of the Law of Diminishing Returns. But it is apparent now that humans' unwillingness to recognise the obvious arithmetic of population growth is the most massive threat that the species has ever faced. Science has been applied to create cures for diseases; and philanthropy has brought the fruits of that science to most groups of the human race, so that the number of humans has expanded to over five billion. Humans must now confront the challenge of how to reduce the rate of growth of the population to that which can experience a good lifestyle given the limitations of the world's current, degenerate economic and political institutions.

Profoundly reconstructed systems of Political Economy and of Government are needed to ensure that the full range of accessible technologies is engaged and optimised to support human beings and to invest for their future. This extent of change will take a long time to implement, even if the principles for reconstruction could be agreed. Naive concepts of equality - either in the demands that will be made on different people in their capacity as producers or in the distribution of rewards to consumers - have given rise to a dangerous delusion that many democratic politicians are still propagating. Those individuals who have most to contribute to a new technological revolution will require - and deserve - exceptional rewards. The creators of the ik that alone can allow humanity to survive and to progress in civilisation must be recognised, protected and rewarded. Many politicians, and even more commentators, baulk at such a simple principle. They avoid quoting the pristine Leninist slogan "From each according to his ability, to each according the his needs!" but Obama's rhetoric of 'change' is based on both psychological and sociological assumptions that have significant traction only among those who feel they are 'disadvantaged' and would benefit from the distribution of more money by the state [from higher taxes on the 'rich']. No credible school of Political Economy - or even of Economics - would advance such a proposition now.

This is not to say that altruism has died: far from it. Bill and Miranda Gates have allocated the bulk of their wealth - that Bill's inventions have fairly and properly generated - to their Foundation. That money has been so well-used [according to fashionable doctrine] that other megarich individuals - led by Warren Buffet - have either pledged funds to the same Foundation or have set up their own. This will accelerate the growth of population in the areas where the Malthusian effect is most conspicuous.  Tragically, infants who have been kept alive by the application of drugs and disinfectants are now at risk of malnutrition: and each individual who grows to adulthood through the involuntary support of foreign taxpayers and the spontaneous generosity of charitable foundations is set to breed children who will themselves present demands to the international community. If the current fashion for taxing the 'rich' until it hurts is enacted, there will be less money available for charitable donation. If unemployment remains high and rates of growth remain low in postindustrial countries, the ability and the willingness of taxpayers to support 'International Development' will decline and eventually disappear. Yet the global problems of poverty, malnutrition and starvation will continue to grow. The reduction or withdrawal of the flow of funds from the relatively affluent parts of the world will cause far more resentment than past and present donations attract gratitude. The simplistic explanation for the antipathy that some British tourists receive in France - "they'll never forgive us for helping them" [in two World Wars] - will apply on a massive scale as the global flow of benefactions is reduced.

It is urgently necessary that the world order is given proper consideration in international institutions. Unless the truths of Political Economy are central to the deliberation, the future phases of the crisis will be far more profound  than the present tragedy of malnourished children. Unless humanity thinks past the immediate problem, we will all become hopelessly mired in it.