Hillary’s war on quarterly capitalism – FT.com

In an interesting article in the FT Hillary’s war on quarterly capitalism – FT.com. Hilary Clinton is credited for her willingness to consider new ideas by Edward Luce. Specifically her attack on “quarterly capitalism” and the long term impact this is having on investment in the US. There has been growing concern over a number of years now for the “shareholder value” model of capitalism.

This model sees executive pay linked to share values which are monitored quarterly and heaven help the executive that fails to deliver an upward quarterly performance. This upward performance in the short term is, however, threatening the long term health of corporations as they fail to invest. Despite high profit levels and record low interest rates according to Luce  US investment is at its lowest since 1947 and for every dollar of investment in the top US public companies $8 or $9 goes to shareholders.

These payments to shareholders are not just through dividends. In 2014/15 Goldman Sachs estimate that S&P 500 companies spent over $500bn in share buy backs. Some have described this as companies eating themselves.

 

Focusing her attack on this quarterly capitalism Hilary Clinton is targeting something which is a genuine and growing problem, has popular support but is also seen as an issue by many individuals who’s credentials as supporters of capitalism are unimpeachable e.g. Larry Fink head of the largest money management corporation in the world.

It is a shame that the non of the contenders for the Labour leadership have shown themselves as open to new ideas. The consensus around the political economy of Austerity is only challenged by Jeremy Corbyn, but sadly with solutions wrought when the problem was different.

Capitalism is unassailable and rightly so. However, “this capitalism” is vulnerable. Capitalism which has no interest in the scale of inequality, and no concern about the longer term is mistaken and dangerous. Inequality might be inevitable but the scale of it is not. It is the outcome of a range of political, social and economic decisions which could be otherwise.

A balance needs to be struck between economic and political power and at the moment the weight has shifted so far to the economic side of the scales that the political power is falling into the economic pans. Those with economic power now have disproportionate access to political power. This will not end well.

Challengers for the Labour Leadership should be coming forward with a new critique for a changed and rapidly changing world.  Instead they are stuck in outdated positions which have little resonance with their bedrock supporters nor the wider electorate. For those of a radical outlook the best that can be hoped for at the moment is that the Tory’s overplay their hand. Fortunately, they might be doing just that.

Taking Your Pound of Flesh – Greek Debt Crisis

The relationship between debtors and creditors is always cast in moral terms where the heroes and villains change occasionally. In medieval Europe usury was despised. Today it is the borrowers who are seen as morally deplorable ne’re-do-wells whilst the lenders are blameless providers of finance. The truth is a rarely visited place somewhere between these two extremes.

Todays model is much in evidence in the debates around Greece and its debt. Creditor nations are demanding the just settlement of their debts with mercy being strained to the point of non-existence. It is difficult to claim that Greece has not tried. Over the years since 2009 the country has seen massive cuts in its social spending as Graph 1 from the OECD shows. It compares the picture between Greece and one of its fiercest critics at the moment, the Netherlands. The graph also shows what has happened to  Greek GDP since the credit crunch. Whilst what it spends has been cut back dramatically so has what it earns.

Greece might have “maxed out” on its credit card, but it has made genuine efforts to address the problems, average pension now in Greece have fallen to around €713 per month (about £500) which is hardly generous particularly in a country where unemployment is running at around 25% and youth unemployment 50% so in some households pensions are the dominant, if not only, income. On top of this those that are unemployed for more than two years no longer receive unemployment benefit or health insurance. No one should be under any illusion about efforts made and how tough life is in Greece at the moment.

In reality when an individual “max’s out” on their credit card and then become unemployed part of the solutions may well include writing off some or all of your debt. At circa 175% of GDP and given the state of the economy there seems to be a consensus that debt write down will happen at some point.

Since the Generals were overthrown in 1974 and liberal democracy established , that fabulous creature which has so many diverse forms, Greek elections have been bidding contests. Parties of all persuasions have offered their supporters ever more ridiculous bribes to vote for them. Lowering the pension age, particularly for those in dangerous occupations, like disc jockeys!; increasing the level of pensions; using the state to soak up those that cannot get jobs; providing tax breaks to the middle and upper classes. No one is saying that the Greek state is anything other than a mess, well described by Yannis Palaiologos in his book the 13th Labour of Hercules.

However, does it make sense to try and correct the mistakes of 40 years overnight. If, as the above graph suggests,  Austerity with a capital A, is adding to the problem by undermining growth who benefits by insisting on even more?

No doubt Mr Tsipras and Mr Varoufakis have got right up the noses of their European partners, however experienced politicians must see through who they are negotiating with to what they are negotiating for. They also need to think very hard about the implications of failing to negotiate a viable settlement.

Germany of all nations knows the price of a currency that has no value. It may well be that, in truth, the Greek banks have already run out of money, if not, they are hours away from it. One of the things which concentrated minds in the credit crunch in the US was the thought of what might happen if cash points closed in a country where there are more guns than people. If a deal is not done and Greece is allowed to collapse no one should be sanguine about the results.

Germany was reportedly, preparing humanitarian aid to support Greece if Grexit becomes a reality. You can imagine how well this will go down. When you are starving you will accept aid from anywhere, but what view will you have of Lady Bountiful who arrives with the soup kitchen the day after she has kicked you off the estate? Greece has the potential to sow division in Europe far beyond its size. When pictures of baby’s going hungry are shown across the world the popular support for the creditors position may shift significantly.

Angela Merkel may do well to reflect upon the words of Portia about the quality of mercy not being strained and that “It is enthroned in the hearts of Kings; It is an attribute to God himself, And earthly power doth then show like God’s when mercy seasons justice.”

If she and her colleagues do not then they may end up with the worst of all possible worlds. Not receiving their pound of flesh yet ripping the heart out of Greece and in doing so spill many a jot of blood. These are frightening times not worrying.

 

http://pension360.org/greeces-pension-paradox/

Good Times Bad Times: The Welfare Myth of “Them” and “Us”

If you only read one work related book this year let John Hills “Good Times Bad Times” be it. It is a rigorous and comprehensive defense of the welfare state and a trenchant critique of the Conservative governments policy towards it. When I had finished reading it I felt like I had been given an incredibly polite invitation to a revolution.

It attacks the welfare myth of “them” and “us” that has been assiduously built up by the Tory’s over the past 5 years. A myth which talks about hard working families, (us) and shirkers and skivers, (them). “They” are an unchanging group of permanently out of work people dependent on over generous benefits, families of them, where three and four generations have never worked. Of course the truth is somewhat different.

Across the period 1997-2009 the average time someone remained unemployed after they lost their job was between 5 and 6 months. Of those who started on jobseekers allowance in April 2007 only 0.7% were still on it after 2 years. In 2013 only 3% of those on jobseekers allowance had been on it for 5 years or more. As to the families that have three generations of workless, 8 months of research in Teeside and Glasgow could not find them leading the researchers’ involved describing their efforts as “hunting the Yeti”.

Hills points out that when the Welfare state was set up its purpose was not to transfer wealth from one group of individuals to another it was rather to smooth out the fluctuations in income that individuals experienced over a normal life span. Insurance saved in times of employment against unemployment and old age. In the 1980’s and 1990’s around three quarters of what the welfare state was doing was “savings bank” redistribution across the life cycle of the individual and about a quarter was “Robin Hood” redistribution between different people. Given that the welfare state is increasingly concentrated on life cycle-related services like health, education and pensions it is probably the case that in recent years the redistributive element is even less.

Hills considers the argument that the poor have got too expensive for us. What he shows is that the cost of transfers to the poor is the same share of average incomes now as it was in 1979. Having said this he then considers why those on middle incomes feel they are getting a raw deal. He points to the fact that since 1979 those on middle incomes have been losing out, their share of national income going down from 18% in 1979 to 16% in 2010/11. Has this gone to the poor? No the share of the bottom 20% of the population has gone down from 10% to 8%, then where has this share of national income gone?

The answer is the top 20% of the population whose share rose over the same period from 35% to 42% and indeed most of that gain went to the top 10%. In fact the ratchet of inequality runs right the way through that top 20% with the top 1% increasing its share of after tax income from 4.7% to 12.6%. The truth of the matter, as more and more commentators are saying, is that we cannot afford the rich.

Hills is clear that there are major policy issues that have to be addressed in relation to the welfare state. He is absolutely clear however that these need to be informed by evidence and not prejudicial stereotypes. His tone throughout is impeccably academic and polite. He lets the facts speak for themselves. They are as incendiary as any political rhetoric and should be as widely read as possible. Even those with a longstanding commitment to the welfare state will find this book inspiring and may even find some parts surprising. It is amazing how prejudice sufficiently often repeated seeps into the consciousness of even those who support a more equal society. Read it.