Economics

Mexico before the election storm

Published by Anonymous (not verified) on Tue, 16/01/2018 - 10:01pm in

Mexico's federal elections will be held on July 1, 2018, and the following federally elected offices will be renewed: the President of the Republic, 128 members of the Senate and 500 members of the Chamber of Deputies. Español

A follower of Andrés Manuel López Obrador (AMLO) holding a flag with the image of AMLO, September 9, 2012 at the Zocalo in Mexico city, Mexico. Photo: Susana Gonzalez/dpa/ef PA Image. All rights reserved.Although the
electoral campaign officially opens in March, the main candidates for the
presidency of Mexico are already defined and take advantage of the
pre-candidacy period within their parties and coalitions to proselytize and
position themselves in the race.

Thus begins a marathon campaign: six months of
wasteful spending of public resources, showers of promises, spots, adverts,
posters, slogans, chants, debates, discrediting, accusations, rumors, intrigues
and, given the country’s context and the actors who inhabit it, also some
episodes of violence whose magnitude and scope are difficult to foresee.

Progressive
candidate Andrés Manuel López Obrador (AMLO for short) got into the
pre-election struggle early, as is his custom, and has been intensifying his
touring of the country since last year and working on the design of the program
and his campaign team - both, by the way, noticeably more conservative than in
his previous two runs for the presidency.

AMLO has chosen a rather less leftist and more popular-national and plebeian profile, with a hint of anti-neoliberalism and democratization calls in an anti-oligarchic sense.

AMLO is currently leading the polls, to a large extent because of his early start,
because this is his third try, because of the visibility and the media exposure
he gets for his charisma and the attacks of his opponents, and because he has
created a national party fashioned in his image and likeness. The Movement of
National Renewal (Morena) has displaced the Party of the Democratic Revolution
(PRD) and taken its place in the center-left of the political spectrum.

Within
the available range of progressive options, AMLO has chosen a rather less
leftist and more popular-national and plebeian profile, with a hint of
anti-neoliberalism and democratization calls in an anti-oligarchic sense.
Within his party, however, political practices are still tinged with
autocratism, centralism, and a lack of open debate and participation. And party
patriotism, to some degree, is hindering alliances and non-instrumental
approaches to other actors of organized and mobilized civil society.

Heterogeneity of
origin and political leanings is the main characteristic of AMLO’s party
leaders, who owe their position to their avowed allegiance to the former mayor
of Mexico City. Over a background in all shades of grey, their sensibilities
range from conservative to progressive, as former members of the Institutional
Revolutionary Party (PRI) coexist with former members of the PRD, and leaders
of organized popular sectors with businessmen and leftist intellectuals.

But
despite this great sociological and ideological diversity assembled under
AMLO’s leadership, Morena is seen by a large proportion of Mexico’s subordinate
classes as the only real option in the current context. So, many of those who
feel the need and the urgency to participate politically in the face of the
country’s dramatic situation, be they critical, resigned or enthusiastic about
this political instrument and its leader, end up gathering behind the candidacy
of the Tabasco leader and the great electoral machinery which Morena is turning
into.

For AMLO himself and the left wing of his party, their one and only purpose is to finally beat what they call the "Mafia in power"

While for
sympathizers and rank-and-file militants, as for AMLO himself and the left wing
of his party, their one and only purpose is to finally beat what they call the
"Mafia in power", many Morena leaders, particularly those who have
joined the party recently and have recycled themselves looking for a post,
would be quite happy to just keep their jobs in public institutions, to enlarge
Morena’s benches so that they can secure a federal parliamentary seat, and to
conquer enough states and city halls so that they can access a significant
portion of public resources.

In particular, the results of
the election of the President, the Chamber of
Deputies and Mexico City’s delegational mayors will give a measure of the
relation between Morena's growth and settling and the PRD’s terminal crisis -
or its capacity for survival. For the last 20 years – ever since the election
of Cuauhtémoc Cárdenas in 1997 -, Mexico City has been a showcase for both the
outreach and the limits of the center-left opposition not only in electoral
terms – that is, the outreach and the limits of the continuing influence of
progressivism in Mexico’s capital city, in contrast with its historical
difficulty to obtain substantial support in other parts of the country -, but
also in terms of its political project and its ability to translate it into
policies.

In fact, the mandates of the four consecutive progressive mayors -
Cuauhtémoc Cárdenas, Andrés Manuel López Obrador, Marcelo Ebrard and Miguel
Ángel Mancera – have not beeninfactvery different, both in form and content,
from the PRI's traditional combination of social handouts, patronage and
neoliberalism, except for some praiseworthy but isolated redistributive
initiatives in the shape of public works and expansion of rights, particularly
during AMLO’s tenure (2000-2006).

Morena shows its best face in
Mexico City, where it fields Claudia Sheinbaum, an academic from the National
Autonomous University of Mexico (UNAM) who combines leftist credentials,
personal virtues and a political career always close and loyal to López
Obrador. Even more than AMLO’s, her profile should attract important sectors of
young and enlightened progressive middle class people, whose weight is
important not only in terms of votes, but for the conformation of public
opinion.

However, maintaining administrative control of the City is of vital
importance for the PRD, which has been bled by an exodus of cadres and members
towards Morena, has lost its ideological contour by accepting President Enrique
Peña Nieto’s Pact for Mexico, and has been subsumed under the logic and
practices of the Mexican political system - the "PRI way" of doing
politics.

To the PRD, Obradorismo has been and will be the enemy.

With its support down to some clientelist bases in Mexico’s capital
city and a handful of other states, the PRD badly needs the oxygen that access
to local government posts and public financing can provide, since the former
center-left opposition party is rapidly becoming a small party destined, by the
workings of the majority voting system, to sell itself to the highest bidder so
as to ensure electoral registration and public financing.

To the PRD, Obradorismo has been and will be the enemy, for it is competing in
the same geographic and political territory - which is quite an interesting
fact for the regime, for both the PRI and the right-wing National Action Party
(PAN), as it can erode and subtract votes from Morena. And the PRD, desperately
needing to remain parasitically embedded in the institutions, has culminated
its drift with an ideological "slip" by entering - as a minority
partner - into an alliance
with the PAN, called Mexico up Front.

Prospects are not
very promising either for the PAN, after its two presidential terms which
disappointed insiders and outsiders alike, although the party enjoys strong
local electoral support in the center-north of the country. Their presidential
candidate, young national leader Ricardo Anaya, has generated some resistance
within the party and even a split with former president Felipe Calderón, who
has decided to promote the independent candidacy of his wife, Margarita Zavala.
Another independent candidate, Jaime Rodríguez, known as El Bronco, is a former PRI member who combines a demagogic
discourse against party politics and very traditional pragmatism as governor of
the state of Nuevo León.

Today's adverse atmosphere and the loss of Zapatista influence mean that even collecting the necessary 800.000 signatures for registering as an independent candidate is proving difficult.

To the left of the
party spectrum, native Zapatista candidate Marichuy  seeks to
take advantage of the situation to revitalize, give consistency and broaden the
visibility of the struggles which, particularly in the native territories and
communities, are currently resisting the dispossession of common goods in rural
and urban environments through devastating megaprojects.

Marichuy's
anti-capitalist discourse for organizing resistance is aimed primarily at the
subordinate classes, which are being aggrieved by the dismantling of social
rights, by educational and energy reforms, and by the recently passed Internal
Security Law. Unlike its Other Campaign of 2006, which Zapatismo organized in a more favourable context both in terms of
opportunities and correlation of forces, the tone of Marichuy's pre-campaign is
markedly defensive. Today's adverse atmosphere and the loss of Zapatista influence mean that even
collecting the necessary 800.000 signatures for registering as an independent
candidate is proving difficult.

The PRI does not have much to offer and bears, to a large extent, the historical and political responsibility for the degradation of the citizens' living conditions and of coexistence in Mexican society.

This
multi-coloured pleiad of candidates foretells a dispersion of the opposition
vote that will inevitably favour the PRI, which is the only true national
party, given that the PAN traditionally fails to gather much support in some
central-southern-western states, and the PRD and Morena do not have significant
strength in several northern areas.

As Peña Nieto's term is nearing
its end, however, the PRI does not have much to offer and bears, to a large
extent, the historical and political responsibility for the degradation of the
citizens' living conditions and of coexistence in Mexican society. Neither the
PRI of bygone years nor the current one enjoy much prestige, but small and big
interests take refuge in it.

Despite the fact that the support of the elites
and the bureaucracy can be taken for granted, it will not be easy to build a
national-popular image of their "citizen" candidate, José Antonio
Meade, not a party member, a technocrat with an Anglo-Saxon surname who has
been Secretary of Finance in the Peña Nieto cabinet but served also under the
previous PAN administrations.

Notwithstanding, the PRI's manifold resources and
the forceful support of the mainstream media could end up producing a nice and
friendly Pepe Toño Meade, a candidate
capable of taking a walk among the crowd and offering bread and circus in the
morning and then, in the afternoon, going on to reassure the markets and
collude with the employers' confederations, the banks and the US government. We
should remember how an uncharismatic candidate like Peña Nieto was manufactured
six years ago, and how not even a powerful movement against him by the
mobilized youth of #YoSoy132 was able
to dismantle that sham.

Ultimately, if the
campaign operations were to fail - media manipulation, the networked alliance
with the powers that be, the massive use of resources and patronage control of
the vote - there is always, as a last resort, the traditional and effective
recourse to electoral fraud. That is,unless a democratic overflow prevents it.

In fact, recent history shows that, in the heat of the sexennial struggle,
unpredictable extra-institutional phenomena often do happen. Blatant frauds in
the face of the emergence of massive democratic movements, the fear vote
against the Zapatista uprising, the murder of a PRI candidate: these are some
of the repertoires chosen in the past. So, there is only one predictable thing:
given what is at stake, the dispute is unlikely to stay within the narrow and
flimsy frame of the rules of the electoral game.

Mexico's federal elections will be held on July
1, 2018, and the following federally elected offices will be renewed: the
President of the Republic, 128 members of the Senate and 500 members of the
Chamber of Deputies.

Country or region: 

Mexico

Topics: 

Civil society

Democracy and government

Economics

Ideas

Rights: 

CC by NC 4.0

Update re the MMT questions

Published by Anonymous (not verified) on Tue, 16/01/2018 - 8:16pm in

Tags 

Economics

The response to my call for questions on modern monetary theory (MMT) has been pretty big. There are 149 right now, and I suspect there will be more.

Warren Mosler, who has agreed to answer the questions, and I exchanged mails on the next steps yesterday.

The plan is threefold. First, I will assemble the questions into what looks like a logical order so that the whole issue of MMT can be worked through.

Then Warren will respond over time to those questions, and the responses will be published in either batches, or singly, as appropriate.

Third, this is bound to be an iterative process and so questions will be updated as we go along, especially on matters surrounding practical interpretation of MMT as it might be applied in the real economy.

Finally, if the whole thing pans out into something useful an overall summary of the exchanges might be produced. But that is a long way off, as yet.

In the meantime feel free to keep asking questions, but be aware that because of the sheer volume of them it might take a while to reach the one you asked. I offer apologies in advance, but if this is worth doing then let's do it as well as we can.

The systemic questions Carillion gives rise to

Published by Anonymous (not verified) on Tue, 16/01/2018 - 8:05pm in

Tags 

Economics, Ethics

I have not commented to date on Carillion’s failure. Partly that has been because of a lack of time. And partly it’s because I needed to read enough.

I do not offer specific comment here: there is, very obviously, more to know. But there is now enough known to make some pretty specific observations.

The first is to suggest that there was misreporting by Carillion. The likelihood that markets were misled as to its profitability and balance sheet worth until about a year ago seems very high. It also now seems that some in the City were aware of this risk from 2013 onwards. In that case the questions are obvious. They are:

1) If this was known why didn’t the Financial Reporting Council act sooner, quicker, and more directly?

2) Why was there no whistle blowing? Someone in this company knew how bad things were. Is there appropriate protection in place for them? If not, why not?

3) How come the auditors managed to satisfy themselves for several years that sensitive issues, such as turnover and the value of goodwill, were fairly stated in this company when it now looks very unlikely that this was true? KPMG are on the line, again.

But let's get more systemic about this and extend the questions:

4) The losses that will arise as a result of this failure will be to  many classes of stakeholder including customers, suppliers, employees, tax authorities, local communities and others.  Despite this company law still maintains the pretence that accounts are only prepared on behalf of the shareholders of the company, and that the auditors have no duty to anyone else but those shareholders.  Why do we do that when it is so obvious that the consequences of limited liability extend so far beyond  the shareholders, who in so many cases (as in this one) represent a tiny proportion of the claims on the company?

5)   Why do we remain so relaxed about the concept of limited liability? I do not dispute that it has had its use in mobilising capital for social gain, but it does also give rise to very clear risk of moral hazard. This is particularly true now that the separation of ownership and control is so stark, and when the rewards to control are so often so high, as in the case of Carillion.  Management in this case was exceptionally well rewarded,  with the chief executive earning more than £1 million a year, and the chairman earning more than £200,000 for a part-time employment. Non-executives  were paid £61,000 the year each, again for a decidedly part-time employment,  and the simple fact is that they did not  do their jobs appropriately:  if they  had then this failure would not be so severe.

So is it time to ask whether  limited liability should be denied to the directors of limited companies?  Shareholders need it: they are given remarkably little information to decide upon with regards to the affairs of the corporation in which they have invested, and so it is appropriate that their risk is limited.  This is, however, not true of the directors:  they are meant to know what is going on, and in that situation to limit their liability simply encourages recklessness. And it cannot be argued that  it would be unfair that they carry such risk.  As evidence look at what is happening in Carillion:  most of the directors will walk away without a penny of personal loss.  Many of their employees, most of their pensioners, many of their small suppliers, and many of those small suppliers own employees, will walk away with considerable personal loss arising as a consequence of the recklessness of the action of this Board of Directors.

The directors of Carillion  will no doubt think that they did not have liability to these people: caveat emptor  when dealing with a limited liability company, they will say. But I do not agree. The  primary duty of the directors of a limited liability company is not, whatever most people think, to the shareholders.  That primary duty is, instead, to the creditors:  it is the duty of the directors to make sure that everyone who deals with the company can be paid. This has failed in the case of Carillion. From the pensioners onwards the  creditors of this company have been treated with contempt:  in my opinion the directors should be personally responsible for that, to the limit of their own financial assets.

6) The liability of companies to their pension funds has to be reappraised:  the indifference of this company to the deficit that it maintained on its pension fund is indicative of the contempt that they had for their employees, both present and past. If the  company was unable to make good this deficit then it, along with all other companies in a similar position, should not have been allowed to do three things. First it should not have been allowed to remunerate its directors at a rate more than ten times median company pay. Second, it should not have been allowed to pay a dividend. Third, it should not have been allowed to continue in business without supervision by a board appointed by the pension trustees, to remain in office until such time until the deficit was cleared. It is no longer  acceptable that the ultimate risk in a company should be borne by its pensioners.

7)  The form and content of company accounts has to be brought into question because, quite clearly, the accounts of Carillion  failed to draw attention to the risks that were inherent within it.  This issue requires further elaboration in due course, but one of the primary problems in current accounting is, I think, the failure to report cash flow adequately. A  long time ago company accounts included a cash flow statement: this is long been replaced by statement of funds flow,  but these things are not the same  and the funds flow statement does not, in my opinion, draw adequate attention to the ability of the company to service its debts as they fall due,  which is vital if solvency is to be proved.  I am well aware that there is a purpose to a funds flow statement,  and that there is an argument that for a heavily solvent company this is a much better and more useful document, but there is an important caveat in that statement,  and it is that the company is heavily solvent. In precisely the  circumstance when a statement on insolvency is required the funds flow statement  fails to deliver,  and a cash flow statement is necessary.  Precisely because a cash flow statement would focus the minds of the directors on their duty to ensure that creditors can be paid it should be included in all financial statements.

That are, of course, other additional statements that are required. There was no country-by-country reporting in these accounts, and that means another important aspect of risk could not be appraised.

But then there is perhaps the most important questions of all:

8) Why is it that the Financial  Reporting Council's  membership is still dominated by  those associated with the Big Four firms of accountants?  Shouldn't this be brought to an end?

9) Why is it that the UK does not have a company law regulator who ensures that the requirements of the Companies Acts are enforced, because that is not the job of Companies House?  Hasn't Parliament been negligent in ignoring this issue?

10)  Why is it that financial ethics training does not highlight these issues, and ask these questions. Indeed, why does it seemingly fall to just Atul Shah to do so in academia?

11) When will the  audit market be reformed so that we have genuine separation of auditors from other aspects of financial services, not least  so that the Big Four  merry-go-round does not profit whatever happens in these situations, as PWC  are now doing here?

And, perhaps, most important of all:

12) When will  government realise that dumping its obligations into limited companies, who have no capacity to fulfil them, at long-term costs to the employees who provide public services, is no way to run a state?

Until such questions are answered Carillion will leave a very big stain on our economy, and the ethics of finance and  accountancy.

I am not hopeful.

Renationalisation – when self-promoted genius becomes plain lame

Published by Anonymous (not verified) on Tue, 16/01/2018 - 7:56am in

Tags 

britain, Economics

There are times when so-called progressives outdo themselves with their (usually self-styled) ‘genius solutions’ to the ravages of neoliberalism. They come up with elaborate ‘solutions’ that people on the Left get feverishly excited about yet fail to see how obviously ridiculous these strategies are when all the options are allowed. They, in fact, step further into the mirky neoliberal world by trying to be progressive because they fail to see what the basic issue is. One recent example of this was the proposal by Britain’s Big Innovation Centre to divert the private sector into doing good for society in general. Apparently, the British government could resume control of the failing (privatised) essential services without laying out a single penny. This would apparently allow them to avoid running foul of Treasury borrowing limits yet satisfy the overwhelming desire by the British public for a restoration of quality services. It is clear that the British public are sick to death of the privatised services and are ready for a large revival of public sector activity. In that environment, why would the government, with such a powerful mandate and plenty of political cover, maintain the economic myths that were advanced to justify the (unjustifiable) sell-offs of public enterprises? Once we cut through these economic myths, it becomes apparent how lame these ‘solutions’, which perpetuate profit-seeking, corporate ownership of the essential services in Britain, really are.

British citizens want an end to neoliberalism

Motivating the ideas that follow was a recent report from the British Legatum Institute (released October 2017) – Public opinion in the post-Brexit era: Economic attitudes in modern Britain.

The Report provides a very recent snapshot of public sentiment in Britain and the summary results are striking:

1. “on almost every issue, the public tends to favour non-free market ideals rather than those of the free market”.

2. “Instead of an unregulated economy, the public favours regulation.”

3. “Instead of companies striving for profit above all else, they want businesses to make less profit and be more socially responsible.”

4. “Instead of privatised water, electricity, gas and railway sectors, they want public ownership.”

5. “They favour CEO wage caps, workers at senior executive and board level and for government to reign in big business.”

6. “They want zero hours contracts to be abolished.”

That litany looks like a categorical rejections of the major policy manifestations of neoliberalism.

Capitalism (the neoliberal version) is seen as “greedy, selfish and corrupt” and that sentiment spans the age-divide.

When asked to opine about the “public sector vs the private sector”, which goes to the heart of any proposals to reverse privatisation, the Report concluded that:

More than three quarters of the public say that water, electricity, gas and railways should be in the hands of the public sector …

Jeremy Corbyn’s pledge to nationalise railways has broad appeal across age groups and even among Conservative voters … This pattern is replicated for water, gas and electricity.

A categorical rejection of the privatisation agenda.

The following graphic summarised the results (Figure 3.2a in the Report).

The juxtaposition between “the free market vs the state” produced the following insights:

Regulation is deemed necessary, support for increased NHS funding is strong, zero hours contracts should be abolished and people’s obligation to pay taxes is deemed more important than rewarding them for working hard by allowing them to keep more of what they earn. Moreover, the public tends to favour increased taxation, bigger government and more spending as opposed to lower taxes, smaller government and less spending …

… even those who voted for the Conservative Party in 2017 tend to favour certain non-free market ideas.

The results are strongly anti-neoliberal across age groups, gender and political leaning. I will leave it to you to explore them in more detail – there is a lot of interesting data in the Report that I have not commented on for space reasons.

Whichever major utility you choose, the research evidence is that the privatisation in the UK has been disastrous.

For example, research from the University of Essex provides a damning picture of railway performance.

This summary article (July 8, 2016) – Chaos on Southern trains a symptom of Britain’s rotten privatised railway industry – documents the “interminable delays, last-minute cancellations and gross over-crowding of services” on the privatised Southern Railways service.

The operator responded to criticism with a new ‘solution’ – to “cancel 341 daily train journeys, representing 15% of its services”, apparently, to “provide their passengers … [with] … more certainty”.

We learn that the promises that were used to justify the privatisation of British railways in the 1990s at “bargain basement prices” (“better value for money”) have not been achieved.

Instead, “state subsidies have soared”:

… total government support to the industry soared from £2.68 billion in 1994/5 to £4.79 billion in 2014/15. Passengers are now enduring fare levels rising far faster than inflation.

Further, there is evidence that the Government’s “franchise model” is failing and the Government has been forced “as the operator of last resort” to “take over services” once the private operator has abandoned their role.

The basic conclusion is that the privatised system is “highly fragmented and inefficient” with losses rife and inflated fares for consumers.

On December 8, 2014, Corporate Watch published a report on the impact of privatisation in energy, rail and water – Energy, rail and water privatisation costs UK households £250 a year.

The title says it all:

– Households across the UK could save £250 each on their electricity, gas and water bills and train fares if the services were publicly financed.

– Private electricity, gas, water and rail companies pay out £12bn a year to investors and shareholders in interest and dividends.

– In total, cheaper government borrowing rates could save the UK public £6.5bn: £4.2bn on energy, £2bn on water and £352m on rail.

The Report concluded that:

To satisfy investor expectations, the bills and fares charged by the privatised companies continually outstrip inflation. Between 2007 and 2013, household gas and electricity bills rose in real terms by 41% and 20% respectively. In real terms, water bills have increased by 50% since privatisation, while rail fares are 23% higher than they were in 1995.

While advocating nationalisation, groups like Corporate Watch fall into the neoliberal trap by talking about the need for:

… government … to raise an equivalent amount of money to that currently invested in the companies …. raising taxes, cutting public spending in other areas, selling of other public assets … but most comparable to how the companies are currently financed would be borrowing from international markets.

They quote Financial Times economics journalist Martin Wolf as saying that government has “the ability to borrow cheaply”.

They then analyse the “impact on the public sector debt” but while rising, the utilities would pay for themselves and so the “extra debt taken on to bring the utilities into public ownership should not add to the deficit”.

Alarm bells ringing all over Britain! So-called progressives leading the neoliberal charge in perpetuating the standard economic myths about the capacities of the currency-issuing government.

Then genius becomes lame

Enter the ‘Big Innovation Centre’ which “convened the Purposeful Company Task Force in 2015” (overloaded with corporate heads, financial market players, business school academics and business consultants).

The UK Guardian journalist Will Hutton co-chaired the group and on May , 2016 it released its Interim Report – The Purposeful Company: Policy Report.

Their concept of the ‘Purposeful Company’ is a profit-seeking firm that where “Purpose informs its existence, determines its goals, values, and strategy, and is embedded in its culture and practice.”

Apparently:

… purposeful companies contribute meaningfully to human betterment and create long-term value for all their stakeholders.

Think hype and you won’t stray to far from understanding what this “Big Innovation” stuff is all about.

The problem with all this ‘innovation’ and so-called progressive way forward hype is that they are embedded in a mainstream economics mindset which erroneously claims there are intrinsic financial constraints that the currency-issuing British government must obey.

Once this thought regression enters the picture the degree of ‘progression’ in the ideas quickly vanishes.

As an example, the recent UK Guardian article (January 9, 2018) by Will Hutton – We can undo privatisation. And it won’t cost us a penny – unsurprisingly embraces the ‘Big Innovation’ idea with some fervour.

In his enthusiastic embrace of the ‘Big Innovation’ plan, Hutton also failed to see the obvious. They were playing into the neoliberal myths about currency-issuing governments and thus failing to offer a truly progressive solution.

Hutton recognises the message from the survey data that I summarised above. He thinks the results are “astonishing” and that “Jeremy Corbyn’s commitment to renationalisation surprised everyone with its popularity”.

One suspects if he think these results are “astonishing” and surprising then he has probably been spending too much time mixing with his corporate ‘task force’ which was clearly dominated by many of those who have benefitted the most from the privatisation.

So it is clear that the British public overwhelmingly want the utilities (rail, water, energy, etc) serving the public interest rather than generating “profit targets”.

But Hutton says that the problem with “renationalisation” is that it is:

… expensive: at least £170bn on most estimates. Of course the proposed increase in public debt by around 10% of GDP will be matched by the state owning assets of 10% of GDP, but British public accounting is not so rational. The emphasis will be on the debt, not the assets, and in any case there are better causes – infrastructure spending – for which to raise public debt levels.

And once owned publicly, the newly nationalised industries will once again be subject to the Treasury’s borrowing limits. If there are spending cuts, their capital investment programmes will be cut. What voters want is the best of both worlds. Public services run as public services, but with all the dynamism and autonomy of being in the private sector, not least being able to borrow for vital investment.

And there is the rub.

Hutton reframes the overwhelming sentiment against neoliberalism expressed in the Legatum Institute survey within a neoliberal frame, which, of course, then takes the argument down a non-progressive path.

Further, he not only invokes erroneous macroeconomic propositions but also perpetuates the basic myths of privatisation that private ownership is full of “dynamism and autonomy” whereas public ownership is not.

The extensive research evidence over the last 30 years of so demonstrates categorically that the privatised enterprises are anything but ‘dynamic’ or ‘autonomous’.

How can he suggest that the privatised British rail is autonomous when the extent of public subsidy has risen dramatically just to keep the franchises afloat?

Further, consumers are rorted with price rises well in excess of inflation, services have deteriorated, and the inefficiency is the norm rather than the opposite.

Of course, Hutton has a motivation for combining these two myths. After all, he chaired the ‘Big Innovation’ task force that is pro-corporate.

Which is behind his apparently ingenious plan to improve the public services “without spending any money”.

This is straight ‘Big Innovation’ stuff.

Apparently, the genius is to “create a new category of company”:

… the public benefit company (PBC) – which would write into its constitution that its purpose is the delivery of public benefit to which profit-making is subordinate. For instance, a water company’s purpose would be to deliver the best water as cheaply as possible and not siphon off excessive dividends through a tax haven. The next step would be to take a foundation share in each privatised utility as a condition of its licence to operate, requiring the utility to reincorporate as a public-benefit company.

The claim is that “Because the companies would remain owned by private shareholders, their borrowing would not be classed as public debt.”

Smart eh?

No payouts would be required because the “existing shareholders in the utility would remain shareholders, and their rights to votes and dividends would remain unimpaired”.

Brainwave!

Government would have no say in the “operational running of the industries”.

Autonomous!

Although the government could resume ownership if performance faltered.

In other words, no risk of enterprise is transferred from public to private sector.

The problem is that most of the research is pointing to the fact that these privatised franchises are struggling to make money independent of heavy government subsidies and massive fare and charge escalation.

And, into the bargain, the service performance of these privatised entities has been abysmal. Improving services to anything near to acceptable would add costs and/or eat into profits. Shareholders would revolt if dividends were cut.

How does that square with the creation of corporate entities that subjugate profits in favour of better service? Answer: it doesn’t.

There are many similar issues that arise from this ‘plan’.

But the essential problem with these ‘solutions’, which is also present in the Corporate Watch report (noted above), is even more basic.

The self-promoted ingenious solution by the likes of ‘Big Innovation’ – better service to the public without any increase in public spending – is predicated on false notions of the capacities of the currency-issuing British government.

Once we abandon those false notions, the ‘ingenious’ solution doesn’t look so smart at all. It looks plain stupid.

Consider the situation. The public is now overwhelmingly swinging away from the basic precepts that underpinned the dominance of neoliberalism.

The average citizen has learned the hard way how deeply flawed neoliberalism is. They have endured elevated levels of labour underutilisation, flat wages growth, declining real wages, increased precariousness of their employment, deteriorating public services in areas that really matter – water, power, transport, health, education – inflating charges for the same, bank collapses, and more.

They have come to ‘know’ through experience what a dud neoliberalism is.

They now favour a return of a larger public sector taking renewed control of the essential utilities. They also want labour markets reregulated to eliminate obscenities like ‘zero hour contracts’.

A government elected within that milieu will have a very strong mandate to reverse many of these neoliberal ravages.

It doesn’t take too much imagination to then realise that the public will be receptive to new economic ideas, which expose the fiscal myths that were used to justify a lot of these flunky privatisations in the first place.

Why should the public reject the basic precepts of neoliberalism yet hang on doggedly to the dodgy financial myths?

There is tremendous scope for a newly elected government in this environment where anti-neoliberal reforms are elevated to priorities to reframe the whole ‘public finance’ debate.

In the same way that such a government would have the political cover and legislative power to renationalise the privatised essential services, it could use that capacity to ditch stupid (and meaningless) constraints such as the Treasury borrowing limits, which have starved public enterprises in the UK

For example, such a government could immediately repeal the – Budget Responsibility and National Audit Act 2011 – which imposes unnecessary fiscal rules on the government.

In its place it should introduce a new fiscal charter – which might be called “The Full Employment, Social Equity, and Environmental Sustainability Act” – and would require it to use fiscal policy to advance those essential aspects of well-being.

In doing so it would eschew any notion of ‘fiscal deficit targets’ or ‘debt targets’ but reeducate the public into understanding that the fiscal outcome was not a sensible policy target and the fiscal outcome would be whatever was required to satisfy the objectives of the new ‘Act’.

Ideally, such a government would introduce new rules for the Bank of England, which would require it to take instructions from the Government on its spending priorities and facilitate the same with appropriate credits to relevant bank accounts.

Such a government would close the – UK Debt Management Office – as it would become redundant in this new era of progressive government and policy making.

Owners of previously privatised companies would be compensated in return for the resumption of public ownership, but the value of the companies would be discounted by the net present value of the public subsidies that the companies had received over the course of its operations.

In other words, this era would reverse the neoliberal rule where returns are privatised and losses socialised.

Once you realise all that is possible, then these elaborate manoeuvres to keep these essential services in the hands of private, profit-seeking corporations – specially constituted or otherwise – look pretty lame and just apologist.

Conclusion

Privatisation has failed.

The people know it.

The environment is changing. People are moving back to a more sensible view that public activity will serve their interests better than these sham companies that are parasites on the public purse while pocketing large profits for their owners.

In that situation, it is just a small step to further expose the economic myths that were expounded to justify these failed privatisations.

That is what my new book with Thomas Fazi (published September 20, 2017) – Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World – is partly about.

That is enough for today!

(c) Copyright 2018 William Mitchell. All Rights Reserved.

Neoclassical economics is great — if it wasn’t for all the caveats!

Published by Anonymous (not verified) on Tue, 16/01/2018 - 1:26am in

Tags 

Economics

I think that modern neoclassical economics is in fine shape as long as it is understood as the ideological and substantive legitimating doctrine of the political theory of possessive individualism. As long as we have relatively-self-interested liberal individuals who have relatively-strong beliefs that things are theirs, the competitive market in equilibrium is an absolutely wonderful […]

The Feminist Arguments against the Metoo Activism at the Golden Globes

Last Sunday, 7th January 2018, was the Golden Globes. This got on the news around the world, not just because of the coverage of which actors and films were given awards, but because the female actors wore black in solidarity with all the women, who had suffered sexual abuse, harassment and exploitation. This culminated in one of the leading actors at the ceremony announcing that Hollywood’s ladies would stand in solidarity with every woman, who had suffered such sexual abuse and assault, and that they would be dedicating a special fund to help poor women sue their abusers.

Coming after the scandals about Harvey Weinstein, Roger Ailes and others at Fox News, including its long running host, Bill O’Reilly, such an announcement is clearly well meant, and for many women facing the cost of having to drag their abuser, who is probably their boss, through the courts, the prospect of being able to get some money from a charity dedicated to helping them would surely be welcome. But not all women, and not all feminists, saw it quite like that.

Roza Halibi in Counterpunch and the Sane Progressive on YouTube both put up pieces about it, criticising the move. Many women, including the French actress Catherine Deneuve, are critical of the #Metoo movement as they feel it demonises men. All men are now being viewed as sexual predators, real or potential. They also object to the way distasteful and unpleasant forms of sexual contact – like the boss with wandering hands – has been lumped in and conflated with far more serious forms of sexual abuse, like rape and women being told that if they don’t sleep with their boss, they’ll lose their jobs. Groping is unpleasant and humiliating, and it’s quite right that there should be a campaign to stop it. But it’s not at the same level as the other two.

They also found the stance of the individual actresses involved in the speech and this display of solidarity hypocritical. Weinstein’s behaviour was known for years by people within Hollywood, including Meryl Streep. And at the time they kept their mouths firmly shut. Some of this might have been because Weinstein was a powerful man, and no matter how respected and successful they were as ‘A’ list actors, he could have the power to destroy their careers, as he threatened numerous aspiring actresses if they wouldn’t sleep with him. But some of it no doubt was also the attitude of the time, to put up with it regardless.

But there’s also an attitude that the speeches against sexual harassment and exploitation were also a form of faux feminism, by rich, entitled women, who were trying to appropriate the protests by ordinary, middle and lower class women. Critics like the Sane Progressive and Halibi have argued that the successful protests always come from below. They are won by ordinary working people standing up for themselves and demanding further rights and change. They are not achieved by members of the upper classes deciding that they will charitably act as the saviours of the lower orders. The #Metoo activism at the Golden Globes represents very rich, entitled women trying to take control of a protest by their sisters lower down the social scale, and wrest it away from any meaningful challenge to a corrupt system as a whole.

The same critics have also made the point that the #Metoo activism has also acted as a diversion. Sexual abuse is only part of a whole series of problems corporate capitalism is inflicting on American society. This includes mass poverty and starvation, the further denial of rights to low paid workers, Trump’s attempts to repeal Obamacare and destroy Medicare, the destruction of the environment, and the political paralysis caused by a corrupt party system taking money and its orders from wealthy donors in big business, rather than acting in the interests of ordinary citizens. All of these issues need tackling, but the leadership of the Democrat party has become, under the Clintons and Obama, as thoroughly corporatist as the Republicans, and has no interest in tackling these issues. That would harm the interests of their donors in big business. So they make symbolic liberal gestures. Like Hillary Clinton’s bid for the presidency last year. Her policies were more neoliberalism, corporate greed, and aggressive militarism. For ordinary Americans she offered nothing but more poverty and exploitation. But she claimed that, because she was female, she was somehow an outsider, and that a victory for her would thus be a victory for women. Even though, as the lowest paid group, women would have suffered the most from a Clinton presidency. If you didn’t vote for Clinton, you were automatically a misogynist. And if you were a woman, and didn’t vote for her, she and her followers denied it was because you had opinions of your own. Rather, you were just doing what your husband or boyfriend told you. So much for Clinton believing in women’s independence and their agency as human beings.

But this experience of a very rich, entitled woman trying to make herself appear liberal when she was anything but, has clearly coloured some left-wing and feminist attitudes in America towards other attempts by the rich to embrace or promote left-wing causes. Clinton’s liberalism was a fraud, and so some people are suspicious that the actresses stressing their commitment to rooting out sexual abuse are less than wholehearted in their determination to ending the general poverty, exploitation and other issues plaguing American society. And just as the corporate Democrats are desperate to take power away from the real radical left, like Bernie Sanders, so these ladies are trying to take power away from ordinary women, determined to solve the problem their own way. Because this challenges their position in society and their political influence as arbiters and spokespeople of the nation’s conscience.

Now I think the #metoo speeches were well meant, regardless of the possible hypocrisy of some of the actresses involved, and hopefully some women will benefit from the money available to sue their abusers. But the Guardian’s Marina Hyde a few years ago wrote a book, Celebrity: How Entertainers Took Over the World And Why We Need an Exit Strategy, pointing out numerous instances where Hollywood celebs decided to take over a cause, only to make the situation worse. There’s a very good case to be made against such Hollywood activism. And this problem may well become more acute, as more celebs decide to promote symbolic issues, while leaving the other problems affecting ordinary people untouched.

On Spooner and Basic Capital.

Published by Anonymous (not verified) on Mon, 15/01/2018 - 11:47pm in

The inevitable result of these principles would be that the class of employers, who now stand between the capitalist and laborer, and, by means of usury laws, sponge money from the former, and labor from the latter, and put the plunder into their own pockets, would be forced aside; and the capitalist and laborer would come together, face to face, and make such bargains with each other, as that the whole proceeds of their joint capital and labor would be divided between themselves, instead of being bestowed, in part, as now, as a gratuity, upon an intermediate intruder. The capitalist would not only get all he now gets as interest, and the laborer all he now gets as wages, but they would also divide between themselves that sum which now goes into the pockets of the employer. What portion of this latter sum would go to the laborer, and what to the capitalist, would depend upon the circumstances and bargains in each particular case. The probability is that for the first few [36] years after these principles went into operation, capitalists would ask and obtain a pretty high rate of interest. The competition among laborers, in their bids for capital, would produce this effect. But as the general safety of the system should be tested, and as laborers should gradually make accumulations, which would serve as some security for loans, and as the business of banking should be increased, the rate of interest would gradually decline, until—probably within ten or twenty years—capital would go begging for borrowers, and the current rate of interest would probably not exceed three or four per cent. And all the proceeds of labor and capital, over and above this interest, would go into the pockets of the laborer.--Lysander Spooner (1846) Poverty: Its Illegal Causes and Legal Cure, 

In Poverty, Spooner attacks usury laws, promotes free banking, and (as I discussed earlier) insists on complete debt forgiveness after a debt is due and been repaid to one's capacity. Thereby, Spooner hopes to promote a more equal economic regime -- he explicitly has in mind the conditions prevalent in early nineteenth century New England -- in which banks and capitalist employers are reduced in significance and a lot of us are independent economic agents with our own capital. He is a fierce critic of conditions that generate poverty and extreme wealth inequality. He argues that his scheme will generate not just higher average income, but also more equality. He thinks the rich will be less productive than  autonomous, middle class economic agents. He expects independent workers to more productive than wage-earning workers. He seems to think most firms will be limited in size.* Let's call this a Spooner economy.** This is relatively lightly regulated and with firm property rights and few sources of rent-seeking behavior.

Somewhat surprisingly he does not advocate for an estate tax, and this undermines part of the grounds of his egalitarian optimism. That is, Spooner thinks high returns to capital are primarily due to the structure of the banking sector, the bad regulation of credit, and capitalist modes of production. But he seems to miss the possibility that the wealth of the wealthy may grow at a faster rate than the growth in wages of the rest of us due to the growth of the economy (Piketty's famous formula, r > g). It is an open empirical question, if in a Spooner economy, Piketty's formula holds.

Before I return to Piketty, let me note that Spooner is a critic of financial intermediaries which both (a) profit from other people's labor and (b) because of lack of access to capital among the poor, make (i) wage-labor necessary, and thereby (ii) produce an economic hierarchy that sustains a small class of capitalists and a large working class. (As should be clear he is also a critic of forms of credit that create permanent indebtedness among the working poor.) In addition, and this is clear from the quoted passage above, his moral criticism of financial intermediaries is that the relationship between creditor and debtor becomes an impersonal one; it's not 'face to face.'  To adopt Steve Darwall's framework, in a Spooner economy, economic agents relate to each other in the second person. For Spooner production is a joint enterprise among independent and mutually interdependent economic agents with each getting its fair share.+ It is a remarkable vision, especially because it is articulated just as the industrial revolution and the large corporation are taking off full steam.

A natural extension of Spooner's position, while taking unequal initial conditions, or unfair historical legacies, and higher returns to capital seriously, absent significant estate taxes, is a basic capital scheme (as distinct from a basic income scheme). There are many variants on this. Ordinarily basic capital is understood as a  'one-off lump sum of financial capital paid to the individual on maturity' by the state (White 2011). If one  recognizes (i) that the largest investors are better positioned to profit from the cost of discovery (Brown et. al.: 2008) and (ii) that better endowed institutions tend to have higher risk-adjusted returns on their investments (Piketty 2014: 570-1), then ordinary basic capital scheme is not sufficient. One should find a way for the non-rich to grow along with the wealthy.*** In reflecting on a Piketty (without fully endorsing all of Piketty's claims), the influential mathematical economist, Debraj Ray, suggested (recall here) that "all [the world's] inhabitants must ultimately own shares of physical capital." (2014) By 'physical capital' Ray means land and financial assets. That is to say, if we want to make the growth of capital a joint enterprise each of us should (have a) share in its growth.

 

 

*It's unclear if recognizes that there may be barriers to entry in capital intensive industries; he also seems rather diffident about potential economies of scale.

**It's very similar to a Smithian economy, but Adam Smith is more friendly toward worker regulation and progressive taxes, including estate taxes.

+Some other time I will return to the benefits of impersonal mutual cooperation.

***Again, it's not clear if these empirical relations hold in a Spooner economy.

Virgin Trains Bans the Daily Mail – Right-Wing Heads Explode!

Published by Anonymous (not verified) on Mon, 15/01/2018 - 10:18pm in

Last week Virgin Trains announced that at least on one of the lines they operated, they would no longer carry the Daily Mail due to customer complaints. Immediately the Mail and its legions of followers started frothing at the mouth and complaining of censorship. But they don’t really have any basis for complaint, as the ban by Virgin is part of the very capitalism and privatisation that their heroine, Maggie Thatcher, promoted.

As a private firm, Virgin is under no obligation to anyone except to turn a profit for its shareholders and bloated paychecks for its board members. Thatcher deluded herself into believing that privatisation would lead to better services, due to the action of market forces and competition. But this didn’t happen. We’re paying more now in subsidies, for a worse service, than we did under British rail. But this hasn’t bother the Tories, whose ideological commitment is for private industry to run everything, even when this would produce a manifestly worse service, as it would if and when they decide to go all out and privatise the Health Service completely.

But as a private firm, ‘Beardie’ Branson can do whatever he likes with it. It’s his property. And so, by the nature of property rights, the Tories can’t argue against what he’s done. It is censorship, yes, but it hasn’t been done by the state. It’s been done by a private individual, whose right to do what he likes with his property has always been regarded by the Tories and the Republicans in America as absolutely inviolable. Branson is free to decide whatever magazines his trains will, or will not carry, in the same way that newsagents can decide which papers to stock. Way back in the 1980s I tried to order the English version of Pravda, which was then coming out, from my local newsagents in my part of Bristol. No such luck. I was told that Bristol had been divided up between the two national distributors. One operated to supply the newsagents in one half, while the other operated in my area. And the distributor that supplied the newsagents in my area wouldn’t carry it. So I had absolutely no choice whatsoever. Private enterprise had decided that where I was, I couldn’t obtain Pravda. Just as Branson has now decided that the Heil will be unavailable on his trains.

Yes, the decision makes a mockery of Thatcher’s constant mantra that privatisation and private industry would bring more ‘choice’. It hasn’t. But this has been the result of privatisation generally. People have been left with a plethora of companies, all actually providing a worse service than when the utilities were nationalised, and for many people choice is actually an illusion. It doesn’t matter who you go to, you’re still paying very large amounts for services that arguably aren’t worth it. If you want an example, think of the privatised dentists. Thanks to Thatcher’s decimation of the dental service back in the 1980s, there are now few dentists taking NHS patients. The dentists that have gone private charge fees that, for many, make going to them unaffordable. Yes, you can change dentists, looking around for a cheaper service, but unless you find an NHS dentist, you’re still going to be charge very high fees. So from that perspective, you don’t have a choice. And the same applies to the railways and other public services taken over by private contractors.

Secondly, Branson was responding to ‘market forces’. This was the other buzzword of the Thatcherites. The operation of the market was held to be good, just and a guarantee of commercial efficiency and success. Capitalism won over socialism, because socialism took no account of market forces. There’s some truth in that when it’s applied to completely socialised economies such as those of the Communist bloc. But as we’ve seen, various capitalist firms have since failed, and then had to be bailed out by the taxpayer. If you just have market forces as your guide, then these firms, which now include Carillion, should be allowed to go under because of their failure to respond to what the market wants. But instead the right demands that we bail them out, because it’s private enterprise and so can’t be allowed to fail. It’s why the corporatist capitalism ushered in by Reagan and Thatcher has been called ‘socialism for the rich’, as the state is always required to support them, while denying welfare services and healthcare to those genuinely in need.

As for Branson’s ban on the Heil, he was responding to market forces. People had complained about the Heil, and as the service provider, he responded to what his customers wanted. The Mail, which has vociferously and consistently fallen over itself praising Thatcher to the rafters, cannot complain. Thatcher stood for market forces, and market forces have dictated that Virgin’s customers don’t want the Daily Mail. So it’s just too bad for them that Virgin trains will no longer be carrying it. There’s also an element of hypocrisy here. If Virgin had said that they wouldn’t carry what remains of the left-wing press in Britain – the Mirror, the Groaniad or the I, the right-wing press, including the Heil, would be delighted. This shows that the great British public despise the left and its journalism, they would announce proudly. But now that the great British public, or at least that section of it that travels by train, have decided that they don’t want the Mail and its hate and bigotry travelling with them, the Tory press has been screaming ‘censorship’.

Yes, Virgin’s ban on the Daily Mail is censorship, but it’s been done because of the nature of capitalism, Thatcherite ‘choice’ and ‘market forces’. Except that in this case, they haven’t acted to empower the right, but attack it.

Big business needs to stop moaning about HMRC and become tax compliant instead

Published by Anonymous (not verified) on Mon, 15/01/2018 - 10:03pm in

The FT has reported this morning that:

The length of time it takes HM Revenue & Customs to investigate Britain’s largest businesses has stretched to three years on average, leaving directors unhappy at protracted costs and legal uncertainty.

The UK tax authority’s investigations into large companies took 34 months on average in the year to the end of March 2017, up from 31 months in the previous financial year.

Pinsent Masons, the law firm that obtained the data, said the figures reflected HMRC’s increasingly aggressive approach to tackling corporate tax avoidance and a growing unwillingness to cut deals with large companies.

Ian Hyde, a partner at the law firm, said: “HMRC is digging its heels in and not backing down, even when there is a sensible settlement to be reached. Giving businesses certainty over the legal and tax environment is an important part of a smooth-running economy. Leaving these investigations open for three years at a time does not help that.”

Let me offer three responses.

First they should demand more resources and maybe better pay at HMRC. Then things will be done quicker and maybe better.

Second, they should be willing to pay for that with more tax. The obvious has to be said.

Third, there's an easy way for most big businesses to avoid complex investigations: it just requires them to stop playing silly tax games.

I make clear that I know HMRC are not innocent of pursuing fatuous investigations: I have seen them. But by and large they want out of investigations as fast as the taxpayer, unless of course they think the taxpayer has been playing such games with them. Then they play tough, and rightly so.

Business can have all the certainty it wants. But to do so it has to seek to be tax compliant. Tax compliance is seeking to pay the right amount of tax (but no more) in the right place at the right time where right means that the economic substance of the transactions undertaken coincides with the place and form in which they are reported for taxation purposes. It's not that hard. I recommend it to business: being compliant will solve a lot of their problems

Pages