#36. Politics – a new template, part 2

THE PUBLIC PRICE OF PRIVATE CORPORATISM

In my previous article, I explained why we should stop thinking about politics in terms of “Left” versus “Right”, and focus instead on the gradient between “Libertarianism” (or individuality) and “Corporatism” (the institutional and the collective). I argued that Britain had become increasingly Corporatist in recent decades, and that this has done immense harm.

My original intention had been to explore the harm caused by Corporatism in this second and concluding article, but the interest expressed in this series has helped me decide to stretch it from two parts to four. Here I will focus on private corporations. In part 3, I’ll turn to Corporatism in the public sector and government. In the final instalment, I’ll look at what might be done about it.

I must reiterate that, by “Corporate”, I do not just mean large private organisations. Corporatism in the public sector and in the political process has been just as damaging as the activities of large private enterprises, indeed arguably much worse.

The general point being made in this series is that Britain has fallen ever further into the grip of Corporatism, which serves itself, not the broader community. It has weakened the economy, impaired living standards, undermined public services and debauched the political process. Unless it is challenged, the harm inflicted by Corporatism will become existential.

In brief, the indictment against Corporatism is as follows:

– Corporatism has damaged British society, undermining the political process and corroding public trust in institutions.

– It has weakened our public services, impairing service quality and responsiveness whilst adding hugely and unnecessarily to taxpayer costs.

– It has prompted poor economic and political decision-making, weakened and distorted the economy, shackled the country with unsustainable debts, undermined real wages and contributed to an unhealthy widening in inequalities both of income and of wealth.

– It is hugely costly and, less tangibly but just as importantly, it has undermined individual liberties.

With private corporations, there is one factor that must be borne in mind from the start. This is called “the divorce of ownership from control”. Historically, businesses tended to be managed by their owners, but increases in complexity and scale long ago led to the employment of directors to manage businesses on behalf of huge numbers of often small shareholders.

Theoretically, the interests of directors (and senior officers) are the same as the interests of shareholders, but in practice, of course, they are not. The banks are a classic instance of this, where huge rewards for senior employees have contrasted with dreadful returns for investors.

The ability of shareholders to remove senior officers, or to control board level pay, is absolute in theory but almost non-existent in practice. In effect, the directors and senior employees of corporations exercise almost unfettered control over assets which – and we should never forget this – actually belong to others. They are supported by many of the institutions which manage vast amounts of shares on behalf of small investors. All too often, these institutions are managed by people whose interests are markedly similar to those of corporate directors.

The State and the law connive at all this. When a corporation does something wrong, punishment is inflicted on the company (meaning the innocent shareholders) rather than on the executives with whom real responsibility so often lies.

If an individual obtains money by deception, this is known as fraud, and is punished accordingly. When committed by a large company, however, it is known not as “fraud” but as “miss-selling” and, if punishments are meted out at all, they are inflicted on the hapless shareholders, not the decision-makers responsible for sharp practice.

When banks fail, the government bails out not just the banks (which arguably is necessary) but the bankers as well, which clearly is not. At the very least, the bailing out of senior bankers flouts public opinion.

All of this amounts to near-immunity from the consequences of wrong-doing. As well as being harmful in itself – because it encourages irresponsibility – this contributes to a feeling of “us and them” which has been undermining British society.

Remarkably, too, government hands out huge subsidies under a process which has been described as “corporate welfare”. A forthcoming report will quantify annual cash hand-outs to Corporates from the British state at £14bn, rising to a colossal £85bn when wider “corporate welfare” is included in the calculation.

Even this huge figure excludes broader costs attributable to the low wages paid by many Corporates, which forces the State to make up the difference. Last year, £28bn was spent by the government on in-work benefits such as tax credits, housing benefits and council tax benefits, all of it made necessary by low wages.

The view taken here is that something is clearly very wrong indeed when wages are so low that working people cannot subsist without taxpayer help. In short, society is paying too much to subsidise Corporate profits.

There is not necessarily anything wrong with providing incentives. But giving the vast majority of the £14bn to giant (and usually multinational) corporations does raise the question of why such subsidies could not be diverted to smaller, British-owned businesses instead.

Not surprisingly, both government and the Corporates themselves are coy about the scale of support received from the State, and there are no readily-accessible figures for these activities. If we were to add to the above sums the social costs created by problem lending (estimated at £8bn annually), problem gambling and problem drinking, the total cost to government and society would become even more enormous than the £85bn cited earlier.

And all this, of course, is before we even consider banking support, or the notoriously low tax-take from Corporates.

The Corporates themselves, of course, insist that they are politically neutral, and that their only objective is to grow value for shareholders. The political neutrality of Corporates, seemingly contradicted anyway by their substantial expenditures on lobbying, was not much in evidence during the Scottish referendum debate.

Corporates’ interventions over Scotland are likely to be dwarfed by the efforts that big business will no doubt make to persuade the British public to vote in favour of continued membership of the EU. Membership of the EU suits Corporates – so who cares what the voters think?

So, whilst the claim of political neutrality may be true of party politics – no Corporate would want to antagonise one of the major parties by supporting the other – there are Corporate fingerprints all over the wider political debate and process.

The claim that the sole focus of Corporates is on shareholder value is true in many instances, where directors have a genuine commitment to shareholder interests, even if performance-related perks (such as stock options) can make motives somewhat opaque.

But we need to be aware that the interests of businesses are by no means the same as the broader objectives of society.

Nowhere is this more evident than where wages are concerned. For an individual business, it seems obvious that keeping wages low improves profits. If every company drives wages down, however, the result is a low-income society in which demand is weak – and companies themselves, of course, are big losers if customers cannot afford to buy what they produce. Henry Ford knew this, but the many less enlightened Corporates of today seem not to understand it.

A notably irony here concerns senior executive pay. According to the Corporates, typical wages need to be low if workers in Britain are to compete effectively with cheaper labour elsewhere in the world, most notably in the emerging economies of Asia.

The logical corollary of this, however, surely should be that board level wages should be lowered too, because the emerging economies certainly produce cadres of excellent, highly qualified people who could do a better (as well as a cheaper) job than many of the West’s often mediocre business leaders. Somehow, however, the globalised pressure on shop floor wages is never allowed to drive down board room pay as well, and FTSE100 director pay has increased by 278% since 2000, compared with a 48% nominal increase for shop-floor workers.

Strange, that.

Whilst Corporates want a low-wage economy (everywhere outside the board room), they also need high levels of consumption, and few, if any, seem troubled by (or even aware of) this contradiction. The contemporary model for all too many Corporates is to produce goods and services as cheaply as possible and then persuade poorly-paid workers to buy them.

Various policy strands follow from this. First, Corporates favour free movement of labour (including support for British membership of the EU), and often oppose legislation to guarantee minimum wages (let alone the Living Wage). Second, they also have a pretty mixed  track record on legislation to protect working conditions, and are opposed to worker co-operation and representation along German lines, despite the marked success of the German economic model.

The Corporates’ stance on regulation is more ambivalent. Despite favouring de-regulation in principle, they often seem to support regulations which, by imposing proportionately greater burdens on small and medium-sized enterprises (SMEs), entrench the competitive position of the Corporates.

Alongside their preference for cheap labour, big Corporates are the most vocal supporters of consumerism, and dominate the near-US$470bn global advertising industry. The problem with this is that the promotion of consumption alongside efforts to depress wages is inherently contradictory, and has been a major contributory factor in the escalation of household debt.

An equally serious shortcoming of a Corporate-dominated economy is that it tends to impair competition. Adam Smith is well known as an advocate of free markets, but much of his Wealth of Nations (1776) is a warning and a diatribe against monopoly and oligopoly. Corporates’ advocacy of unfettered commerce stops well short of encouraging greater competition, and many of Britain’s industries are over-concentrated. A recent illustration of the importance of competition has been provided by the discounters, who, by breaking up the previous domination of the food retail sector by a handful of giant supermarkets, have delivered great benefits to consumers.

The reality, of course, is that a thriving economy requires intense competition, not just to deliver best value for customers but also to offer the widest opportunity for the talents of workers. Historically, innovation has come overwhelmingly from small businesses, even if successful innovation then transforms these small companies into big ones. Likewise, abundant statistics show that small and medium enterprises are the main drivers of job growth, whilst giant businesses often engage in downsizing and “rationalisation” instead of organic expansion.

I would not want to convey the impression that big Corporates are necessarily a bad thing because, clearly, they have an important role to play. But the excessive influence of large Corporates can be bad news for the economy, not least because they stifle, crowd out, or use their clout to weaken new, smaller and more innovative businesses. Corporates all too often promote the dangerously contradictory logic of high consumption in a low wage economy, and their influence can push economic policy in the ultimately futile direction of “flexible” (meaning poorly-paid and poorly-protected) labour policies.

Corporates’ political influence is something to which I will turn later in this series. In part 3, we’ll look at the impact of Corporatism in the public services – a development which has been even worse than Corporatism in the private sector.

22 thoughts on “#36. Politics – a new template, part 2

    • Not exactly. But you may know that I wrote a report for the Centre for Policy Studies (CPS) last year calling for “real” capitalism rather than corporatism.

      As I’ll explain in part 3, the main parties themselves have become Corporates – which would obviously condition their attitudes to this kind of analysis!

  1. A thoughtful and insightful piece, Dr Tim. I think people sense that there is something wrong with the country and with politics, but they can’t really pinpoint it (and neither can I), so analysis like yours is definitely needed and should be debated among a wider public. Sadly, the current opposition is led by Ed Miliband, who doesn’t understand the meaning of “coherent” (only “opportunist”), so we will never get any sense or action from him.

    We have had whitewashes, sorry, enquiries by parliamentary committees, but these only ever seem to get the little guys. For instance, the top politicians got chummy with Murdoch seemingly out of fear at the influence he could wield over them. We do need somebody to spell out the ills of the system, with regard to corporatism, the press, or whatever, so that the public gains a clear view of what is wrong and can pressure politicians to listen and act.

    Even though we are speaking of national problems here, they are to an extent international, and ultimately if the USA doesn’t act, then little will work, but the Republicans, with their vested interests and infatuation with the ultra-wealthy, are loath to support even the most timid reforms. Just look at how they put the rights of the manufacturers of assault weapons above the safety of school children.

    I admire your courage in putting this forth publicly, Dr Tim, as there are certain interests who will feel rather disgruntled by what you have to say.

    • Thank you. It’s taken me quite a while to put these ideas into a logical form – for a long time I was just stuck at “us and them”, but Corporatism vs Libertarianism seems to put it in a useful context.

      Any credibility that Miliband may have had seems to be waning fast given his attitude to England-only votes! Which plays into UKIP’s hands, of course……

      What I’m thinking of doing, after part 4, is putting the thing together as a report which can be downloaded from this site. I’m gratified at the number of people who visit this site – a far larger number than I would have expected.

      Yes, this won’t go down well in certain quarters – and I think they’ll be more disgruntled still by part 3, by the way, which will look at Corporatism in the public sector and politics. But if they’re clever they’ll take it on board – public acceptance of the status quo is deteriorating rapidly (look at UKIP in Manchester) and they might find useful ideas for reform in what are (I hope) moderate analyses like this…..

  2. Thanks for refreshing look at how things are, one thing that worries me is the moving of debt from the state to the individual, people now leave college owing the equivalent of a few years take home pay, just how questioning of authority will they be?, they will be so scared of losing their jobs they will be compliant yes droids. I do not wish to suggest large scale debt loaded on households for a given lifestyle, an education, a house, a car etc is being set up as a tool for social control. Our leaders in politics and industry are not that organised, rather its a function of the interplay short term financial targets, lobbying to meet them, the venality and in some cases downright stupidity of the political class. If people cannot say “no” they are not really free, they are just a slave, a debt slave, I am sure an unthinking, obedient populace is not healthy for an economy. It certainly will not be innovative which is what we need in today’s world.

    • Russ – thanks for mentioning this. I wrote a report (“The Dick Turpin Generation”) explaining how young people are losing out, not just through student loans but through the loss of skilled jobs combined with the unaffordable cost of housing.

      The British have always seemed to me rather placid (compared, say, to the French). But there are clear signs of a widening gap between governing and governed.

      As for debt slavery, Kevin Phillips has written about this in the US – using the old term “indenture”. There was even, long ago, a song about this! (“Another day older and deeper in debt – I owe my soul to the company store”). Some of the older terms of political discussion – “indenture”, “rentier” and “ancien regime” – seem to be taking on revived importance, I think?

      This descent into Corporatism is damaging to the economy, which is why the vast majority have now been getting poorer, year after year, for almost a decade. I think an economic crisis is likelier than a political one, but a loss of poltical legitimacy is never a good sign.

  3. Not sure how it is over there, but here in The U.S., “Corporate America” has paid well for our own government to not only NOT read or write Legislation they file, but to pass whatever Legislation corporate tell them to. This has been going on for decades, but only now, as there’s too many people chasing too few jobs, or jobs that pay even less, are The People starting to get angry.

    Simple fact of the matter is, the overwhelming amount of us (Americans) are being economically exterminated. This can be quantitatively proven by our governments own data/statistics, but the overwhelming majority simply don’t have the time, care, or understand what is right in front of them.

    Sure, we have some gas left in the tank, years even, but unless conditions improve (I don’t think they will), not sure about over there, but here, The American People are going to be facing some tough decisions in the future. Voting simply does not work here anymore – whoever has the most propaganda/brainwashing wins. Both Party’s are an abysmal failure, or outright corrupt, but it will be The People going forward that will have to decide whether they want to be steamrolled by their own “elected” government and be made poorer by the day, or start over.

  4. Though there are major differences, there are strong similarities, too, between Britain and the US – mainly because Britain often follows where America leads.

    Corporates have dominated the US for longer than they have here – after all, Eisenhower warned about it. A big feature of the American scene, though, has been the rise of the financials and the relative decline of the industrials within the Corporate picture.

    One of the big problems for the US is globalisation. This exports skilled jobs and replaces them with lower-paid service jobs. The system then “helpfully” lends people the money to keep up the lifestyles they would have had (without debt) had they kept skilled employment. My book deals with this at length – the US has reduced “production” (that is, globally marketable output) but has simultaneously increased “consumption”, and these can only be reconciled using debt.

    My feeling is the US, like here, has the problem of a widening gap between governing and governed. At least, though, America has a written Constitution. Also, Americans are more self-reliant because they’ve never expected as much from governmewnt as the British have.

    Ultimately, the problem is the same – governing elite and supporters estranged from the rest.

  5. Again thanks for some really helpful ideas. I can’t help feeling that we are going backwards to the sort of society we had in the 19th century with victorian levels of inequality. It’s a point Piketty makes elegantly – was the apparent equality in the post war years just a historical anomaly? And politicians as you point out are necessarily in hock to the oligarchy just as they were in earlier years – Oborne in his book on the Triumph of the Political Class (a great read by the way) makes the point that people used to go into politics to enrich themselves until the notion of public service became established. We now seem to be seeing the decline of this ethic which is a sad loss.

    • Indeed, levels of inequality are returning towards Victorian levels, and this, as Ferdinand Mount has pointed out, reverses the trends of the post-war decades. The decline of the public service ethic, it seems to me, is part of a broader loss of integrity – the assumption that “miss-selling” is fine unless one gets caught, and that firms can shelter behind the letter of their “terms and conditions”, seem to be further examples of the ebbing of integrity.

  6. Tim. You are of the age and experience where you need to stand up and start a political movement – start a party, take one over whatever. We all need to start taking responsibility ourselves and striving for the change that is needed. That is not going to come without the settled and experienced members of society providing leadership and structure. This is too important to leave to the chancers of UKIP.

    • I would like to point to Carne Ross’s leaderless revolution, an essay on how modern corporatism is infantalising people.

    • Adam – this is a tricky one!

      For a start, I think we can agree that the system is a shambles, my view being that corporatism and vested interests account for a lot of this. I’m not quite so dismissive of UKIP, though I do think their main appeal to voters is that they are “none of the above” – and we cannot know how far they’d “go native” if they got into power.

      I also believe that quite a few able people may be looking at the current UK situation as a “legitimacy vacuum”, i.e. an opportunity.

      On the other hand, I think I know just enough about politics to be repelled by it. Neither do I have the resources, the connections or the public profile required.

      I also see myself politically as a thinker rather than an actor – to make an absurd overstatement, a Joseph, not a Thatcher.

    • Hi Tim,

      I finished your book fairly recently and I’ve been following your blog very closely since – extremely interesting stuff! This latest blog series on corporatism and politics etc. has been really thought provoking especially considering I also recently finished reading this essay by Dominic Cummings (former adviser to Gove): http://dominiccummings.wordpress.com/the-odyssean-project-2/

      I’d highly recommend it to everyone, a bit heavy on the physics and computing in some parts but worth the effort for sure! It contains some great ideas for overcoming the systemic problems we have in terms of our politics and governance. I’ve asked Cummings via e-mail what his thoughts are on the decline of average EROEIs, life after growth and so on, because he has a short section on energy in his essay…but no reply as of yet.

      With regards to UKIP I would’ve sided more with you than with Adam in the comments above but in the past couple of weeks I’ve tried to engage several people in that party in discussions on the ideas you raise in your book; the response has been mixed to say the least. Roger Helmer was kind enough to have a brief e-mail exchange with me but when I tried to hammer home the key points on energy and ‘real’ economics his was response was that there’s been thinkers on the subject of limits to growth ever since Malthus and that they’re always wrong because they fail to take account of new technology. This brought to mind your comment about scientists locked in a vault and being asked to produce a ham sandwich! I put this point to another person who’d said that they at UKIP are fully tune with your work but was not at all convinced by the reply I received. If I have time over the next week I may try to clarify their position, I appreciate that Roger Helmer is very busy and maybe if he had time for a longer response I’d find that his views are more in line with yours, although I’m sceptical.

      As an aside, they had pretty much no comment on the Dominic Cummings essay or his blogs, which I’ve found to be on a much higher level than most “political commentary” whether it be in the mainstream media or on the blogosphere; yours is a rare exception of course!

      The times ahead seem both fascinating and frightening! I look forward to part 3.

      Regards,

      Dan

      P.S. I’d say to Adam that starting a new party is near enough impossible whilst the current big two survive; this is something that Peter Hitchens has explained in detail (he also talks about the media influence, especially that of the BBC) and I agree with him to the extent that I think we (urgently) need to either reform them beyond all recognition or destroy them and start again with new ones. I think the latter option is the more likely of the two and like Hitchens I currently see UKIP more as a means to destroy Lab and Con than as an end and a serious party…which is a shame I suppose.

    • Dan

      Thanks. The issue of EROEI was raised in Parliament, with one of my reports cited in the question, but the Minister was unaware of this point. Oh well…..

      As for UKIP, my views are somewhat tentative. I don’t believe that leaving the EU would be a panacea, and UKIP sometimes seem to have a starry-eyed assumption that leaving would waft us back to the 1950s. On the other hand, UKIP’s rise is a symptom of the breakdown of trust between governing and governed, and UKIP looks like the best wedge for opening up the serious issues caused by that breakdown.

  7. Hi Tim

    I have commented on your sites before but not for a while. Reading your last two submissions to the ’cause’ of late, I rather feel that it would be prudent to share some of my own thoughts on these very same matters.

    Firstly it seems very difficult to come up with a single term that expresses the problematic phenomenon we are dealing with. Some call it crony capitalism, others such as yourself, a critique of the ‘corporate’ or corporatocracy.

    I believe they all hold some kind of merit as a starting point for understanding why we find ourselves in our current situation, but that we still need additional signifiers in order to more fully define them and track their systemic influences.

    I was unusually schooled at BA and MSc levels, not in politics or economics, but in deconstructive philosophy, post-structuralism and postmodernism. A heady mix. One of the doctrines of the discipline of deconstruction is to question the ability of any speaker and text within a discipline such as economics, to defend itself against critical interrogation by another discipline such as psychology, philosophy or literary criticism for example. At one time in history, there were no subjects as such, there was merely philosophy. In the postmodern era we have seen the development of multi-disciplinary subjects such as deconstruction, in order to try and more fully understand the phenomenon under scrutiny with whatever critical perspectives may prove useful and relevant. With regard to my own thinking, then I use whatever critical perspectives which are relevant if they make any kind of rational sense. In making such sideways movements in analysis, I am struck by a similar problem in defining the phenomenon we are seeking to describe and analyse. I have taken a broadly psychological approach to understanding crony capitalism, corporatism and institutionalism as we might term them. From a psychological perspective these phenomenal cultural changes in how institutions operate and ‘do business’ can be understood in relative terms as forms of psychopathologies, sociopathologies and econopathologies.

    I would therefore offer you an essay as to this critical perspective in the hope that we might begin to synthesise a new political and economic response to our current hopeless situation.

    The History of Econopathics – tracking irresponsibility via outsourcing decision making and risk

    There is a socio-pathological or econo-pathological difference between the ideologies of free market capitalism and that of crony capitalism/corporatocracy.

    The essential difference is that crony capitalism has only one governing principle and that is the ruthless maximization of profit. This single minded pursuit of profit, inevitably leads to its own general corruptability as a central feature of its socio and econo-pathic character.

    This single mindedness is commonly justified by crony capitalism stating that first and foremost, it is the duty of the company to maximize its profits for its own good and for that of its shareholders and that society in general will benefit from its wealth production. Although it sounds mostly innocent in principle, this basic premise is acceptable until the econo-path reaches the conclusion that nothing else but the pursuance of profit matters.

    At this stage, crony corporotocracy purges itself of all morality. This has led to a kind of post-ethical event horizon, an ideological black hole, which sucks any morality and ethics, responsibility and accountability – out of the system and with it, any possible objections to the corrupted manners of its twisted socio and econopathic functioning.

    Crony capitalism has no concerns other than its own self interests. It cares not for the welfare of its own staff, it cares not for the community, it cares not for the companies it squeezes and puts out of business. It is against equality, it is against free and open competition, it is against civil liberties and freedom of speech. It is against open government, transparency, responsibility and accountability. Ultimately, it is ambivalent about the financial solvency of the masses because there is more profit to be extracted from nations of debtors than stable nations composed of solvent middle and working classes.

    In its most despicable forms, it places no sanctity whatsoever on the value of human life. In extremis, it works with government and intelligence communities, to destabilize regions and generate conflicts around the globe in order to sell its arms and maximize its profits to the extent that it has now reached a stage of perpetual conflict to keep its business models alive and growing. The invasion of Iraq, which was then rhetorically recast as a ‘liberation’ by a coalition of the willing to profit, was seen by the US corporatocracy as the business opportunity of that decade.
    In all these respects, crony capitalism is inherently unprincipled as it has no other rules and ethics, other than the logically over-determining circularity of the return of returns. It is the ideologically bankrupt bottom line that trumps all morality and ethical behaviour. Crony capitalism would lay claims to be associated or affiliated to free market capitalism, but nothing could be further from the truth.

    Commonly, if one objects to the unprincipled mal-functioning of crony capitalism – one is ironically called a socialist. But it is crony capitalism itself that is inherently socialist and is all about the redistribution of taxpayer’s wealth in one form or another. It’s just that it inverts the flow of distribution. Crony capitalism is the reversed mirror image of socialism and government interventionism. That is essentially why it found such easy bed fellows in the labour party. The same players are enlisted – governments, central banks etc. in order to redistribute printed money, tax payer money, public debt and risk as future claims on the tax paying masses, all for the profit of a tiny elite. Crony capitalism, like socialism or communism, is the antithesis of free market capitalism.

    Free market capitalism can exist without government and taxes, whereas crony capitalism absolutely relies on them for it to ineffectively malfunction.

    It is perfectly rational to be a free market capitalist and also care about civil liberties and freedom of speech. It is perfectly rational to be a free market capitalist and care about the health and wealth of one’s workers and indeed the community in general. One can believe in equality of opportunity and free and open competition. One can be a free market capitalist and still think that effort should be fairly rewarded and that the health of societies from a holistic viewpoint, is dependent on the reasonable and advancing prosperity of all of its collective communities and members. If we desire such improvements in our own lives and communities, then we would also like to see them extended to the global community and want all the world to be a safer, healthier, wealthier and happier place.

    It is perfectly rational to be a free market capitalist and hold that at the very heart of all business and the functioning of society are relationships of trust and faith. This underpins all of our transactions and exchanges be they economic or exchanges in the private sphere backed by promises such as I love you. Trust can only be secured by everyone’s proceeding with the very highest ethics, integrity and morality. We desperately need honesty and transparency in order to trust one and other. We need to think and act responsibly and be held accountable for our inevitable mistakes and failures and must always try our best to live up to very high standards and expectations that we set for ourselves. I believe that in reading many free market capitalists on the Web, Mike Shedlock, Charles Hugh Smith, Chris Martenson to name but a few, these virtues and values underpin all their thinking. Such values underpin any and all goodness in any society. Indeed, one could say that it matters not which politics one pursued, whether it be capitalism, socialism or communism, if all these values were absolutely central to how institutions went about their business and how we all collectively interacted, then they would all have had a much better chance of succeeding in their aims.

    The stark realization on this point is that all political systems fail, not necessarily via flaws in their economic assumptions but by virtue of the fact that they do not fully embrace and centralize virtues which are essential for human relationships and exchanges to take place to the best of their potentials. All of which are paramount, in order to sustain the maximum levels of systemic faith and trust in order to provide stability in the interests of community and global peace. Such virtues and values are the hallmarks of any societal gold standard that we should all aspire to. The glib counter argument of the sociopathic mind is that we all need to ‘get real’ and eat as many profitable dogs as possible.

    The state of the world as we depressingly find it now, has come about because key institutions have abandoned such values. Crony capitalism, corporotocracy or institutionalism – have ideologically liberated themselves of any such moral and ethical requirements. In as much as they claim to be morally and ethically ‘grounded’, then this is done within a lip service economy. The cost of doing political and economic business without ethics is stark. The financial crisis above all else, was the end game of the absolute break down of counter party trust within the financial system. This breakdown in trust, all happened for very good reasons which I will discuss shortly.
    It is a rule in my thinking now, that any system that fails to take these essential core values seriously enough, will eventually fail and it makes very little difference what complexion it takes its politics to be. Be they red or blue faced participants, they are all suffering an ethical sickness.
    If any phenomenon seems to represent the mood of our times it is a breaking down of trust. People do not trust government or its institutions, they do not trust markets, banks and corporations. One cannot even trust the accounts of Tesco. The masses are slowly coming to the realization that ‘democracy’ is not working in their favour.

    Trust is now also breaking down on an international scale. The cold war has been restarted (for profit?) and relationships between the West and East are rapidly deteriorating. The West does not trust Russia and Russia does not trust the West. There are good reasons for this break down in trust, not least a dark, irrational, incoherent and hypocritical US foreign policy. This leads to the somewhat absurd portrayal of secret and covert services as operating at the level of not for profit global charities with everyone’s globally collected best interests at heart.

    From economic outcomes, it is clear that the ‘resolution’ to the financial crisis was cynically hijacked by sociopathic financial industries and the corporotocracy for their own gains. The economic ‘recovery’ was based upon the unlikely argument that it was the duty of the masses to make economic sacrifices, whilst it was the task of state sponsored financial entities and corporations to make as much money as possible, under the alibi that all the ‘wealth’ produced from a vast gamut of tax payer and central bank funded ‘projects’, would trickle down to the masses and the whole of society would benefit.

    History has now shown this ‘policy’ to have been a complete and utter failure. It has and will continue to effectively erode the general prosperity of societies on a global basis and the inequalities between wealth and income can only become further and further stretched until they reach breaking point. As suggested above, this has taken place based upon an economic argument that posits that a recovery will take place for the economic benefit of all, by the erosion of the wages, savings and purchasing power of the masses on a global basis. This is an assumption that economies can function effectively without the solvent demand of the masses. And therein lies the rub. In such a situation, demand can only be secured by increasing debt levels for increasingly insolvent governments and their masses. It seems completely irresponsible to carry out the biggest monetary experiment in history when it held such high risk for generating the conditions for extreme political, economic and social instability on a global scale.

    Such a process happens in the slowest of slow motions and as such it remains largely invisible. We can all collectively witness consumption and people buying things, but what is not obvious or transparent are the credible terms on which they are buying things and whether they can really afford them or not. The same is true of government spending. Debt is the invisible circus driving a cancerous ‘growth’ and mirage of economic betterment.

    In a recent speech at the Boston Federal Reserve, Janet Yellen illustrated this outcome in the US. Sadly, the same outcome applies on a global level.

    “The lower half of households by wealth held just 3 percent of wealth in 1989 and only 1 percent in 2013. To put that in perspective….average net worth of the lower half of the distribution, representing 62 million households, was $11,000 in 2013. About one-fourth of these families reported zero wealth or negative net worth, and a significant fraction of those said they were “underwater” on their home mortgages, owing more than the value of the home. This $11,000 average is 50 percent lower than the average wealth of the lower half of families in 1989, adjusted for inflation. Average real wealth rose gradually for these families for most of those years, then dropped sharply after 2007.”

    Janet L. Yellen

    At the Conference on Economic Opportunity and Inequality, Federal Reserve Bank of Boston, Boston, Massachusetts

    To put that in sharper focus, 50% of the population or 62 million households, could lay claim to a mere 3% of national wealth in 1989 and by 2013 this had declined by 66% to a miniscule 1%. This is not as if their share declined because a massive amount of additional wealth was created. It is not merely a question of increasing wealth and income inequality, because alarmingly, the lower half of the population have seen what wealth they did have, being wiped out in the 6 years between 2007 and 2013. The $11,000 average in wealth in 2013 was a massive 50% decline from 1989 when the average must have been $22,000. Wealth and income inequality are always relative terms, but for 50% of a population to see their wealth halved is rather more significant to them, than the statistical fact that someone else has more.

    I reiterate: there is no logical discrepancy between being a free market capitalist and having a genuine social conscience and believing that societies will become more civilized by improving the wealth, health, educations, community and environments of all, as the holistic improvement of the quality of life of all of its participants. All of this can only be achieved if all participants act with honesty, transparency, decency, sympathy, compassion and integrity. Everyone needs to be brought up and educated with the very highest moral and ethical standards in order to try and make trust a universal given. That when someone says I love you, it is a meaningful promise or speech act and not a cynical ruse to get someone into bed or groom them for pointless abuse.
    Traditionally, we would have identified that all democratic politics strived for such a state of affairs and that politically differences occurred, not in the implicitly agreed goal or teleological aims of the political project, but by the means in which parties proposed to deliver us collectively into that generally wished for state of being.

    In a very alarming way, I would point out that no-one in their right minds, no matter which party they supported, would have voted for the wealth decimation indicated by Janet Yellen above. It is an entirely undemocratic state of affairs. When the wealth of 50% of US citizens is halved, then that is a political outcome which is tantamount to an economic war on the middle and working classes. Unelected central bankers cannot claim to be objective or independent in their actions to bring about such a situation as the effects are entirely political. This is an economic and political disaster.

    If no-one voted for this undemocratic state of affairs then it seems to be a matter of democratic urgency to understand how and why this has all come about? If we have an undemocratic outcome, then we must concede that democracy is no longer functioning in the interest not just of the majority that voted for a set of policies, but for the masses in general regardless of their expressed political choices as no party was offering this outcome to voters in their manifestos. If this was not what they promised then it is a matter of urgency to address how and why the unwanted outcome was delivered.

    To return to Janet Yellen’s speech, then helpfully, she clearly gives us a timeframe as to where we should start looking. “Average real wealth rose gradually for these families for most of those (25) years, then dropped sharply after 2007”.

    This means that an examination of the financial crisis and the history of how it has been ‘dealt’ with are central to understanding this sharp decline in wealth and amplification of wealth and income inequality. Firstly I would like to demonstrate some of the processes by which the financial industry allowed itself to jettison its ethics.

    Free markets and de-regulation are always fine in principle, so long as all of its participants have good morals and ethics to properly keep the enterprise grounded for the benefit of all participants and also society as a whole.

    The financial crisis, which became manifest in 2007, was brought about because elite market participants had lost their moral and ethical centres and had culturally adopted the sociopathic psychology of the socio econo-path, whose only concern is to make maximum profits by any means. This is the only ‘rule’ that governs their activities under get real logics. In the financial crisis, this trait was manifested by the fact that profits were pursued, in total disregard of the risk and the global damages that were to be transmitted to everyone else and for which the global masses are still even now being made to pay.

    In order to understand the financial crisis it is important to see how the socio econo-pathic market participant, evades responsibility (and hence also accountability) by outsourcing or distributing risk and responsibility to third parties.

    Traditionally, a bank manager who lent money to a customer retained responsibility for that loan. He would make decisions based upon good local knowledge and experience of each customer on an individual basis as to the risk involved. The bank would subsequently own that loan for its duration and the bank and manager who took on the risk would always be responsible and accountable for it. Any manager who made a series of bad decisions would rightly lose his job and any bank with a large number of managers making bad decisions would obviously go bust.
    In the above model the decision maker is firmly rooted in the community and had very good knowledge of their customers and the local business environment. If one goes back to the 1960s and 1970s, banks tended to have lifelong loyal customers and managers were intimately informed of their customers, their business, their character and their risk potential.

    Systematic changes in decision making structures within banks and financial industries in general have marginalized the role of local knowledge within decision making processes.

    In parallel with this, following financial deregulation and internal instrumental revisionism within the financial industries, it developed increasingly complicated, obscure and opaque financial products which could not properly be subjected to adequate risk assessment.

    The most significant of these in terms of the financial crisis was the Collateralized Debt Obligation or CDO. Since the financial crisis this term has obviously fallen into disrepute and has been discarded by markets. However, the actual ‘products’ have remained in everything but name as Mortgage Backed Securities (MBS) in the US and currently Asset Backed Securities (ABS) in Europe.

    In principle CDOs, MBSs and ABSs make a lot of sense in that they distribute risk in credit and lending. That is fine, but only providing that all lending and risk assessment is being done in good faith and that it is underpinned by all the participants having good judgement, strong ethics and morality.

    The financial crisis came about, not because of any inherent problem with the products themselves, but out of the unethical use of them by markets which had become morally and ethically degenerated at a cultural and institutional level. Fraud was intellectually acceptable to it, in so much that everyone else was doing it and it was extremely profitable. It was merely a case of all participants getting real as to the terms on which it was institutionally permissible to make money and maximize profit.

    Perversely, the ability to distribute risk had systemic side effects. The decision maker, in deciding whether to give someone a car loan or mortgage, now has the ability to distribute the risk of his decision making to other people who have no local knowledge of the quality and risk of the loans.

    This occurred on an industrial scale or as a culturally accepted manufacturing process.

    In so much as they could do this, they had also absolved themselves of any real responsibility and accountability for that debt as it would be then bundled in complicated and opaque packages and sold on to investors looking for yield in a risk transfer market.

    The ironic question here, is wasn’t the fact that the money lender retained ownership and responsibility for the debt, rather central and fundamental to their having to make good decisions as to how risky the lone making was in the first place?

    This outsourcing of responsibility, means that on a systemic level and in principle, via the risk distribution system itself, the lender need no longer make any good decisions at all. Indeed, the system designs, advances and opens itself to potential abuse, to the extent that socio and econo-pathic lenders, whose ethics and morality are only bounded by the concept of maximum profit within the shortest time frame, could create toxic loans purely for short term profit, commission and bonuses – in the knowledge that they could evade any responsibility and accountability for their decisions as they could immediately offload and distribute their toxic debts, hidden within complex and opaque CDOs.

    This is precisely what happened and this led to the financial crisis. Whilst one can distribute risk, one cannot eliminate it. The global financial crisis proved that CDOs were 100% effective in distributing risk as they globally transmitted it to the point that it infected everyone.

    The crucial point here is that as a corrupted socio and econo-pathic corporation, Enron was by no means unique and the financial crisis was not caused by a small number of rogue lenders.

    It could only come about with the instruments and mechanisms created for the distribution of risk and the resulting industry wide culture of irresponsible lending governed by the imperative of making immediate and short term profit at any costs. This was also backed by the collusion of ratings agencies to inappropriately grade risk packages.

    All of this took place without the participants caring in the slightest what effects the creation of this toxic debt mountain would have or the costs that would eventually have to be borne by those who were duped into investing in it and ultimately the costs which have been transferred and amplified to the masses who have been paying ever since. Not least the 62 million US families who have seen their wealth ripped in half in such a complacent fashion.

    The financial industry still bears no guilt, no remorse, no sympathy and no compassion for the huge amount of suffering and wealth destruction it has caused and that it continues to cause. To date no-one has been held responsible or accountable. All of these are classic symptoms of a sociopathic personality or culture operating at institutional levels.

    Not only has this system not been prosecuted for its actions, then via bail-outs and QE virtually ever since, it has been fabulously rewarded for them with trillions and trillions of dollars.

    In terms of behavioural psychology and training, then this is a case of trying to supposedly rectify a sociopathic institutional culture, by massively rewarding and compensating it for its own bad behaviour.

    In view of this ‘therapy’, does anyone suppose that since the crisis, this sociopathically deformed culture has somehow come back to its senses and proper moral and ethical values? Not only have government and central bankers rewarded such irresponsible behaviours, they have fully endorsed them. Accepting that such institutions were too big to fail, is commensurate with letting them know that they could now do anything they want. The reason that no-one has been prosecuted and held to account is because the crimes were committed at an institutional level and as such the whole financial industry would needed to have been criminalized.

    The cause of the financial crisis was attributable to a sociopathological defect in the personality/culture of financial institutions, once they had produced the necessary instruments and arguments to effectively absolve themselves from responsibility and accountability for their decision making and actions.

    The history of the crisis from this point on is consistently marked by the processes by which institutions have outsourced their responsibilities and general political accountability in dealing with it.

    Once we have a crisis then we have to ‘deal’ with it. One of the striking features of this particular crisis is that it has not been dealt with on any level at all. Other than throwing endless and mind bogglingly large amounts of money at it, all we have seen is a general abdication of power and responsibility as part of a general failure to take any real action. Inaction, is not without responsibility and still a political decision. As such, politicians should still be held accountable for their doing nothing at all other than add further complexity to financial regulations which clearly didn’t work in the first place.

    The response of government to the crisis, after initially bailing out the banks with tax payer’s money and future claims on it, has been for supposedly democratic elected entities with power, to evade responsibility by outsourcing or distributing all decision making, along with the risks and responsibility of dealing with it – to central banks as an unelected and unaccountable third party. The crisis and the principles of democracy with it, were naively exported to supposedly independent and objective, trustworthy economic technocrats.

    One could counter this notion by entertaining the logical possibility that if the institutions and culture of the financial industry had become corrupted, then was there not a good chance that seeing that central banks were intimately associated with such institutions in its everyday ‘dealings’, that such corruption had inevitably transmitted itself into their august bodies?

    Given that responsibility for dealing with this crisis was outsourced to central banks then one would have assumed that they should have acted responsibly in how they proposed to fix the problem. Interestingly, in approaching this task, then just as the political class had outsourced their decision making and responsibility to central bankers, then central bankers in turn, immediately transferred and outsourced all decision making and responsibility to their preferred market participants who would unconditionally be the recipients of trillions of dollars with no question asked of them as to how they were going to invest this newly created money.

    Central bankers talk of their tool boxes as if they possessed surgical instruments for operating on the economic patient in its most scientific sense. I believe that it is possible that QE could have been practised in a very targeted fashion, if it set its sights on community improvements as a basis for economic regeneration as part of a nationally equitable distribution of QE to improve the opportunities and quality of life for all. A big society needs to be based upon the most effective and cohesive of communities with excellent facilities to boost the health, wealth and provide all opportunities for all its members to be involved and make their participatory contributions in improving them. This would have created local jobs and more prosperity everywhere and gone a long way to building community identity and cohesion.

    Printing money may be an act of economic desperation, but if done to the benefit of everyone, then everyone can observe that it has directly benefited their communities and lives and that at least the money was used in a positive investment to the equitable benefit of all. We could have all greatly profited from such an approach on so many levels.

    In contrast to such an approach we should adjudicate how wise an investment the central banks made with trillions and trillions of dollars at their disposal. Disposal is the key here, instead of targeting their investments they simply disposed of them along with their ‘responsibility’ for any of the outcomes of their ‘policy’. They specifically chose a policy of wealth ‘distribution’ that gave them no control whatsoever as to where and how that money would be invested and spent. They outsourced this ‘responsibility’ to markets and with it the possibility that it could be in any way targeted or controlled. This is an act of gross irresponsibility and political and economic negligence.

    The funds, decision making and investment choices were directly transferred to preferred market participants on a completely unconditional basis. This is the logical equivalent of a parent giving their child their credit card and naively expecting them to go out and spend all their money wisely.
    The policy therefore completely ignored the econopathological culture that had developed in markets. In order to be effective in the terms in which QE was carried out would have required that markets had a strong social conscience and ethics and that they were not simply in the business of trying to maximise their returns in the shortest possible time regardless of the social and economic outcomes of their speculations. This proposition is completely insane, in that it takes the morally and ethically degenerated participants that caused the crisis in the first place, disposes itself of its own ability to strategically target and address the problem, and instead, transfers all the funds and investment decision making responsibilities to the very same people who caused the problem, in order for them to supposedly resolve the problem, under the naïve assumption that in the interim they must have come back to their appropriate social and economic senses and that markets will ‘efficiently’ allocate these new resources.

    Of course, very predictably, no such thing had taken place. Instead of regenerating real world investment and real world economics in real world communities, the vast majority of the newly created wealth has been used in purely speculative activities in order to maximize profits in as short a time as possible. Sociopathic leopards do not voluntarily change their spots or elected affinities.

    QE has not been remotely used as ‘tool’. It has been applied according to a completely irresponsible and unaccountable model that leaves decision making to the entirely self interested governing whims of markets under the ludicrous assumption that this will benefit all. Central banks put the execution of QE into precisely the format that it needed to be, in order to irresponsibly syphon trillions and trillions of dollars into the pockets of its preferred market participants without any kind of contractual moral, ethical or social obligation for them to invest or distribute the funds wisely or for any general good. Unsurprisingly, those who hijacked the financial crisis have remained the sole beneficiaries of all attempts to supposedly mediate or address it – at the direct cost of everyone else as exemplified by the 65 million US families who have seen their wealth ripped in half without any kind of vote on the matter. This is fraud and an economic scandal on an unimaginable scale and those who have brought it about cannot appeal to the fact that they outsourced their responsibilities in dealing with the crisis to the same parties that caused it as any kind of rational defence of their sociopathological actions.

    Amongst the side effects of this process, are the fact that in insinuating QE as the only valid, perpetual political motion in economic problem solving, it has totally disconnected markets from economic fundamentals and led to the miss-pricing and consequently proliferation of risks – around the entire world. Far from addressing or solving the problem, it has intensified it by orders of magnitude as we still do not know what risks our financial institutions are exposed to, nor do we know the impacts that all of this has had in derivative markets and the shadow banking industry. Given the sociopathology that now governs the ethics of markets, one does not assume this to in any way hold good or socially and economically optimistic prospects as we are pretty much assured that no-one will have done the right thing.

    Regards

    Simon Hodges

    • Simon

      Thank you – a lot for me to consider!

      First of all, I agree about the difficulty of definition – indeed, part of the reasoning behind this mini-series was to offer up a candidate thesis and look forward to the responses of contributors. In short, I don’t think I’ve necessarily hit the bulls-eye with my template, but I’m somewhere on the dart-board, and comments such as yours help to refine the picture.

      Your point about the thic of profit maximisation is a good one – it’s the flip-side of the point I’ve made elsewhere about the undermining of integrity. We seem to have accepted, with little demur, a “profit is good” philosophy put forward by, if I might put it this way, the profiteers. Who was the PM who described post-1918 MPs as “men who looked like they’d done well out of the War”? Another example that occurs to me is the Long Parliament, determined to sit indefinitely until Cromwell kicked them out.

      The point about profit maximisation, it seems to me, is that it is microeconomics posing as macro. It ignores the fact that poor workers are also poor customers, and it also, of course, excludes externalities.

      Crony capitalism does indeed accuse its critics of being socialists – and you’ve hit on my key thesis, which is that corporatism, and the undermining of the individual, can come from the “free enterprise” Right or from the “socialist” Left.

  8. Tim, you have presented the gradient between individualist and Corporatist very compellingly. I particularly like how it helps to describe how UKIP differs from the Conservatives and why their appeal seems broader than expected. The piece that I would like to see considered further in future is “corporate welfare” (and perhaps compare to the US situation to test the theory). I would have thought more of a corporate subsidy is the tax deductability of interest on borrowing, especially if one looks at private equity and subsidiaries in Luxembourg. However, I am not convinced that, “in-work benefits such as tax credits, housing benefits and council tax benefits, (are) made necessary by low wages.”. Wages are only low after all if they don’t buy what is needed, and the unusually high cost in the UK is housing. If there was more housing supply, and less money supplied for mortgage multiples, then the low wages would be sufficient. Many MPs of course own two properties and see rising house prices as a magic national ‘wealth’ machine that encourages us to splurge on new cars etc. Granting planning permission is unpopular with voters, as would be a correction in paper asset wealth currently derived from liberal mortgage availability, low interest rates, and a refusal to build.

    When the Corn Laws were repealed, Britain was set up for a boom as the previously ‘low wages’ stretched a lot further because food became so much cheaper. People had spare income and bought new manufactured goods with their discretionary income. Today the disproportionate cost is not corn and bread, but rather housing. Your “corporate welfare” subsidy actually goes to land and property owners – indeed two that you mention, housing benefit and council tax benefit, are explicitly property subsidies. If we otherwise made the cost of housing lower by the same amount, by increasing supply by the free stroke of a planning permission pen, then these property subsidies would not be needed.

    • Thanks. The issue of corporate welfare is the subject of a forthcoming report by academics at, I think, York University. Meanwhile, another group are soon to publish something on the “revolving doors” of mutual advantage between the business world and government.

      Undoubtedly you are right about the impact of housing costs. Like any other population, we have mental weaknesses or, perhaps, forms of blindness or obsession, and house prices and preventing development are a peculiarly British fixation. I was part of a panel debating this issue and argued strongly in favour of a programme of building council houses (not least because such a programme would help kick-start the economy).

      Looking ahead, the equation that I seldom if ever see mentioned is this – the ratio between property prices and “discretionary income”, i.e. income after the deduction of essentials such as food and travel. On this basis, house prices look very exposed to downside. Also, ZIRP (zero interest rate policy) cannot continue indefinitely, because an economy with negative real interest rates cannot accumulate capital, therefore fails to invest and instead cannibalises its asset base. All of this points to the need for a sharp downwards correction.

      Morally, the rather older “have” generation are screwing the younger “have nots”, perhaps because the younger generation do not participate politically. I accept that it’s difficult to interest young people in politics, particularly politics as stale as those of the UK – but we should not under-estimate the pent-up anger of the “jilted generation”…..

    • The Office of the Deputy PM released statistics in 2005 showing that 1.1% of land in England is covered by domestic buildings, with a further 4.3% being their gardens. 88% of England (even more if Wales and Scotland were counted) is Green Space. The stats are still available http://data.gov.uk/dataset/land_use_statistics_generalised_land_use_database
      or for a handy chart http://www.visionofbritain.org.uk/unit/10001043/cube/LAND2001
      It may feel crowded if you live in a town, but if you land at Gatwick or take a train between cities, the 88% is plain to see. Why we can’t use 0.25% over 10 years to build housing I cannot understand.

  9. That’s interesting about the 5.4% (including gardens). A lot of the open space does seem blighted, but your point is thoroughly valid – we ought to be building houses, with the emphasis on affordable homes for rent.

    Something else that is seldom (if ever) considered is that overvalued properties are a capital sink – about £1.2 trillion in mortgages represents “dead money” that could have been put to productive use instead – in strictly financial terms, this is a very adverse capital allocation.

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