What does the Continental European model of social democracy and a Rolls Royce have in common? We will return to this metaphor after some brief analysis.
Last week David Miliband wrote in the New Statesman that Labour should not be the party of the “big state” - this comes against a recent trend of criticism of large governments, which many politicians believe, are bad for the economy and unpopular with voters. Western governments are not without their legitimate criticism as anyone who has had to claim benefits or submit a planning application will be aware of. The marsh of bureaucracy which the public has to deal with when they want something from their government creates a feeling of disillusionment with the virtues of the public sector which turns voters away from any politician who claims that we need more government to solve societies’ problems. The slick efficiency of the tills at Tesco stand in sharp contrast to the long periods of standing around waiting at the Job Centre. It is no wonder politicians who favour the selling of public services to private companies find voters agreeing with them at all levels of society.
The scepticism directed towards big government is partly a result of real fear caused by the European Sovereign Debt Crisis but it is also a definite effort to shift the agenda towards a free-market small government approach by those with vested interest in this opinion. This being large companies and right leaning governments keen to drum up support for their ideologically motivated austerity programs. Miliband argues that it was faith in big government which caused the Labour party to lose the public’s trust over the economy. He is pandering to the view that Labour is the party of the “nanny state” and that the Conservatives are the party of individual freedom.
I personally, have never had a problem with the label nanny state. When you think about it, who is a nanny? A warm and comforting figure that looks after children when they are cannot look after themselves. I cannot think of a better role model for government. However western voters are opposed to oppressive, overbearing regimes which meddle in the daily lives of their citizens. The fear behind this is also legitimate, only a fool in the West would want to live under a Cold War Communist regime. However, in the left learning parties of Europe’s desperate attempts to escape the spectre of being labelled a Marxist-Leninist, some of what was truly important about socialism has been washed away in the bland acceptance of the free market.
What is important about socialism is not a commitment to the big state but to a set of underlying principles that society should be directed towards income equality, the removal of class divides causes by wealth inequality, an equality of opportunity for all citizens as a birth right and safety net for those who are unable (temporally or permanently) to provide for themselves and their families. Self-reliance should not be the governing rule of society and the collective should look out for the individual. In exchange for this the individual must be willing to make a sacrifice for the good of the collective in terms of personal wealth and some degree of personal freedom. The social democratic parties of European - some of which are differentiated from the socialist parties of Europe and some of which are not – maintain the commitment to these values on a social level but not an economic one. In place of the economic proportion of socialism there is a general acceptance of the virtues of free market capitalism as the best method to allocate societies’ scarce resources.
David Miliband and the Brown Government embodied this notion of a commitment to social justice along with a commitment to small state free market capitalism. The coalition government has continued the shift towards right wing economic principles by further reducing the state at the expense of any commitment to the values of stated above. Miliband’s insistance that Labour move beyond the big state verses small state argument may win him support with voters but will do little to reassure those who believe that Labour has lost touch with the key values at the root of socialism from which the party draws its ideology.
I submit that a rebranding of the virtues of big government is needed by social democrats if they are to distinguish themselves from the economically right leaning parties and reconnect with the values at the root of their past popularity. This rebranding should be focused on the core values stated above. There are many who are concerned about the growing divide between the rich and the poor and how unevenly wealth is distributed across society. This is also where Rolls Royce comes in.
The typical criticism of big government by the right is three fold: 1, that state involvement in the market causes a problems for industry, 2, that that it requires higher taxation and 3, the old nanny state argument. I will take each point in turn:
Firstly, I have already written on the need for Capital Conscious Socialism. I have said that government should always be mindful of the needs of private business to provide employment when intervening in the economy. It is also worth considering that state invention is often necessary to make sure that industry allocates societies’ scare resources so that they create the most social good not economic good. An example of this is medicine, which should be allocated where it benefits society by curing diseases rather than where it is most profitable.
Secondly, the cost is key to the value of large Government. We should think of Government like a car. If we opt for the cheap option (economically right wing with low taxation and spending) then we will receive a cheap government, one which is ineffectual at meeting our needs and protecting our values. If we opt for the Rolls Royce government, which is expensive but capable then we will have a government that is empowered to tackle social problems and is something to be proud off. Spending more on our government should be viewed the same as buying a luxury car. That the price tag is part of the appeal because only with an expensive product can we achieve satisfaction from our spending.
Thirdly, social democrats should remind the public that it is their government’s duty to look after them and not simply get out of the way of private businesses. It is the role of government to embody the values of altruistic medieval kings. To clothe the naked, feed the poor, provide shelter for the homeless. Those who have the least are the most vulnerable to the problems created by wealth inequality and the basic safety net provided by the state ensure that the needs of the very worst off are not forgotten. The state may intervene in our lives to protect us from letting the selfishness - which the free market uses to drive economic growth - from entering our social conscience and thus kicking aside the poor, the vulnerable and the politically weak.
The values at the heart of socialism and big government will resonate with voters once framed within the right context. The argument of big state verses small state is not the right context. The argument of Rolls Royce against a budget banger is the right context. It is important that social democrats across Europe defend these values less society become deeply divided between rich and poor. The core values behind socialism are important in building a fairer society and there is still merit to the argument that big government can help to achieve this.
Ed Miliband would do wise to bare this in mind during his review of Labour’s policies - rather than listening to the supposed wisdom of his older brother. Many on the left hope the results of the policy review will bring the Labour party out of inertia and back into the business of providing a genuine alternative to the methods of the coalition government. Until that time we should remember that we get back from our government what we put in. If we give it scepticism and starve it of funds it will be ineffective at protecting our core values. If we view government spending as an important step to having a fairer society then we can empower government to tackle the root causes of social ills.
Ramblings to the left
Monday, 13 February 2012
Wednesday, 8 February 2012
Facebook’s IPO: Are those adds worth $100bn
In the eight years since Facebook first appeared online, the site has gone from a way to waste time to a social necessity. Today (especially for younger users) not having a Facebook account is akin to not having a mobile phone, in that you are likely to be left out of the loop by friends and work colleagues. Now the internet giant’s recent IPO suggests that this social necessity could be worth up $100bn as a company.
Facebook was founded in 2004 by Harvard University undergraduate Mark Zuckerberg, and since then has taken the internet by storm. First it became the world’s largest social network with over 800 million users. Then the site replaced Google in its position as the internet’s most visited site. Now Zuckerberg and his team have earned a new record after raising over $5bn from an initial public offering, the largest ever for an internet firm. More than just a commercial success, Facebook has added new terms to the popular lexicon such “to friend” and has redefined the use of the verb “to like” online. Brands large and small have rushed to establish fan pages on the website and entire real world conversations focus on events which took place in the entirely virtual social network.
What is interesting about Facebook’s petition to be partially floated on the Stock Exchange is that the information they have released has given us a rare glimpse at the numbers behind Facebook’s success. Facebook and other internet companies that offer a free service lack a traditional revenue stream upon which to draw. Most fall back on the tried and tested method of advertising. The value of an advertisement on a website is determined by the “click through rate” in other words the percentage of users who click on an advertisement to be taken away from the page which they were browsing to one which they had not intended to visit, prior to seeing the advert. Research has suggested that click through rates for most websites are very low as most users are resistant to the idea of following links online. This is partially due to a legitimate concern about internet security but also a response to the degree to which users are saturated with banners and links tempting (often unsubtly) users to leave behind what they were interested in the first place. This has prompted concerns that that this revenue model has become out dated and that many internet firms might be overvalued.
Facebook has relieved that a substantial amount of their $1bn annual net revenue comes from advertising, leading to speculation that intelligent internet advertising is having a degree of success in tempting users. Firms like Facebook use the personal information supplied to them to customise their advertising space to a user’s tastes, and thus boost the click through rate. This in turn makes advertising space on Facebook more valuable, not simply because of the larger audience but because of a greater degree of success. Try, for an experiment, changing your relationship status to “engaged” and witness the barrage of wedding goods and services that will come out of Facebook’s proverbial woodwork to tempt you to their pages. Often the advertising is more subtle than this, and usually it is from a trusted website. It is this clever use of Facebook’s greatest asset (its members’ data) which makes it a viable company.
However, all is not rosy in Zuckerberg’s world. Internet users are becoming increasingly aware about how their data is being used. The wealth of information which Facebook has built up is also a liability as the public demand restrictions on how this data is used. Facebook’s privacy settings are becoming increasingly complex, which is creating an incentive for uses to switch to a network that is more mindful of privacy.
For now Facebook retains its dominant market position, and the necessity of having an account means this situation is unlikely to change soon. The site has seen off competition from a variety of other social networks seeking to challenge its dominance, and even Google entering the fray with their Buzz and later Google+ services have had little effect on the state of the market.
Facebook should be applauded for changing the way we relate to one another. Upon meeting a new friend at a party it is easier (and seems less forward) to connect with said person via Facebook than to ask for a phone number – mainly because it is also easier to remember a name rather than an 11 digit number.
However, Facebook would do well to consider an alternative revenue model as users become more concerned about privacy. It is also worth considering that the click through rates of intelligent advertisements will eventually fall as users become tried of their saturation, just as we all became tired of banners atop websites in the early days of the popular internet.
This week Facebook’s founders and executives will be congratulating themselves after their IPO sets another record for the company – but if the site’s meteoric rise proves one thing, it is how quickly the internet can change and how complacency is severely punished. For further proof of this, simply ask anyone who still has a MySpace account.
Facebook was founded in 2004 by Harvard University undergraduate Mark Zuckerberg, and since then has taken the internet by storm. First it became the world’s largest social network with over 800 million users. Then the site replaced Google in its position as the internet’s most visited site. Now Zuckerberg and his team have earned a new record after raising over $5bn from an initial public offering, the largest ever for an internet firm. More than just a commercial success, Facebook has added new terms to the popular lexicon such “to friend” and has redefined the use of the verb “to like” online. Brands large and small have rushed to establish fan pages on the website and entire real world conversations focus on events which took place in the entirely virtual social network.
What is interesting about Facebook’s petition to be partially floated on the Stock Exchange is that the information they have released has given us a rare glimpse at the numbers behind Facebook’s success. Facebook and other internet companies that offer a free service lack a traditional revenue stream upon which to draw. Most fall back on the tried and tested method of advertising. The value of an advertisement on a website is determined by the “click through rate” in other words the percentage of users who click on an advertisement to be taken away from the page which they were browsing to one which they had not intended to visit, prior to seeing the advert. Research has suggested that click through rates for most websites are very low as most users are resistant to the idea of following links online. This is partially due to a legitimate concern about internet security but also a response to the degree to which users are saturated with banners and links tempting (often unsubtly) users to leave behind what they were interested in the first place. This has prompted concerns that that this revenue model has become out dated and that many internet firms might be overvalued.
Facebook has relieved that a substantial amount of their $1bn annual net revenue comes from advertising, leading to speculation that intelligent internet advertising is having a degree of success in tempting users. Firms like Facebook use the personal information supplied to them to customise their advertising space to a user’s tastes, and thus boost the click through rate. This in turn makes advertising space on Facebook more valuable, not simply because of the larger audience but because of a greater degree of success. Try, for an experiment, changing your relationship status to “engaged” and witness the barrage of wedding goods and services that will come out of Facebook’s proverbial woodwork to tempt you to their pages. Often the advertising is more subtle than this, and usually it is from a trusted website. It is this clever use of Facebook’s greatest asset (its members’ data) which makes it a viable company.
However, all is not rosy in Zuckerberg’s world. Internet users are becoming increasingly aware about how their data is being used. The wealth of information which Facebook has built up is also a liability as the public demand restrictions on how this data is used. Facebook’s privacy settings are becoming increasingly complex, which is creating an incentive for uses to switch to a network that is more mindful of privacy.
For now Facebook retains its dominant market position, and the necessity of having an account means this situation is unlikely to change soon. The site has seen off competition from a variety of other social networks seeking to challenge its dominance, and even Google entering the fray with their Buzz and later Google+ services have had little effect on the state of the market.
Facebook should be applauded for changing the way we relate to one another. Upon meeting a new friend at a party it is easier (and seems less forward) to connect with said person via Facebook than to ask for a phone number – mainly because it is also easier to remember a name rather than an 11 digit number.
However, Facebook would do well to consider an alternative revenue model as users become more concerned about privacy. It is also worth considering that the click through rates of intelligent advertisements will eventually fall as users become tried of their saturation, just as we all became tired of banners atop websites in the early days of the popular internet.
This week Facebook’s founders and executives will be congratulating themselves after their IPO sets another record for the company – but if the site’s meteoric rise proves one thing, it is how quickly the internet can change and how complacency is severely punished. For further proof of this, simply ask anyone who still has a MySpace account.
Sunday, 29 January 2012
Capital Conscious Socialism
The state intervention versus free market argument has been raging for a while. It is an old debate about whether a large public sector chokes economic growth or whether there are issues of such importance that they should be decided by government and not left to private businesses. In the UK the three main political parties have adopted a lassie fair free market approach to capitalism but recently they have all been discussing the idea of ‘socially conscious capitalism’.
This is partly in response to the gross excesses of the financial services sector which lead to the several of the world’s largest banks having to be bailed out by their respective governments. Many feel that the banks owe us a debt for this beyond the amount of money spent propping them up. A lot of voters believe that there needs to be a change in corporate culture so that large companies become more aware of their debts to society and to their shareholders. Socially conscious capitalism appears to be the method of achieving this
Socially conscious capitalism takes many forms but in general it entails giving shareholders more power to set board room pay and bonuses, the curtailing of bonuses for underperforming firms and greater transparency in terms of pay and bonuses for top earners. There are also general murmurs about working conditions and pay for those at the bottom of the pay scale but these are less and frequently ignored. Generally the later issues effects supermarkets more than banks as they have more employees earning minimum wage but a macro level it scales but to rising concern about business practices and noises from politicians that firms should be respectful of their stake in society.
David Cameron and the coalition government maybe in favour of socially conscious capitalism but I feel there is still a case for ‘capital conscious socialism’. This in essence is the case for government intervening in the market to prevent excesses, rather than encouraging companies to voluntarily behave in a socially responsible manner. Whilst the government is doing this it must remember that the private sector employees the majority of the people in the UK and is responsible for the lion’s share of our GDP. Therefore any inventions or legislation must also be in the interest of protecting jobs and growth.
In essence moral standards should be left to the government to enforce (who is accountable to their citizens) and private business should be responsible for providing employment and wealth to the citizens. This is similar to the means by which the government enforces safety standards. Would car companies have voluntarily agreed to seat belts and air bags were these measures not legally binding? The thought of simply encouraging car companies to include safety features or suggesting that the makers of house hold cleaning products put warnings on the packaging seems painfully week. Surely laws are the only way to protect the public and to ensure that we have the necessary information to look after ourselves. Implying that firms should be aware of their social obligations will have little success as firms are not compelled to alter their behaviour and there is no incentive for them to do so.
State invention is a harsh phrase that echoes back to the days of lumbering nationalised industries. I prefer to the use term ‘government planning’ to describe what is needed. The government should use its ability to legislate industry to plan our national finances to prevent economic collapse. This works on a micro scale, business and families plan their finances and set necessary controls to make sure they do not suffer financial ruin. However, the government’s planning of the economy must always be mindful that private business must thrive if we are to achieve a low level of unemployment.
A good example of government planning the economy is the proposed Tobin or Robin Hood tax; a small tax on finical transactions (that firms will not impose on themselves) the proceeds of which can be used to bail out companies that get into trouble and not leaving the bill to the tax player. The tax must be expectedly levied with the consultation of firms so not to cause harm to firms - which would restrict the amount of revenue generated by the tax.
Planning the roles of supermarkets in our economy would also offer a better social outcome. Supermarkets employee many poor and unskilled workers and offer a minimum wages which is far below what is needed to raise a family on. Reminding a supermarket that it has an obligation to consider wider society and the poor will do little or nothing to raise the wages and improve the working conditions of those at the bottom of the social pyramid. Government planning is needed to legislation a living wage that will ensure that families have enough money to afford essential. I do not see any provision or this in the coalition’s plan for socially conscious capitalism.
Placing the maintenance of society in the hands of private companies will not lead to optimisation of social goods. Socially conscious capitalism will not compel firms to be respectful of their stake in society. Capital conscious socialism will give government the mandate to intervene to the benefit of all whilst protecting private enterprise and our jobs.
This is partly in response to the gross excesses of the financial services sector which lead to the several of the world’s largest banks having to be bailed out by their respective governments. Many feel that the banks owe us a debt for this beyond the amount of money spent propping them up. A lot of voters believe that there needs to be a change in corporate culture so that large companies become more aware of their debts to society and to their shareholders. Socially conscious capitalism appears to be the method of achieving this
Socially conscious capitalism takes many forms but in general it entails giving shareholders more power to set board room pay and bonuses, the curtailing of bonuses for underperforming firms and greater transparency in terms of pay and bonuses for top earners. There are also general murmurs about working conditions and pay for those at the bottom of the pay scale but these are less and frequently ignored. Generally the later issues effects supermarkets more than banks as they have more employees earning minimum wage but a macro level it scales but to rising concern about business practices and noises from politicians that firms should be respectful of their stake in society.
David Cameron and the coalition government maybe in favour of socially conscious capitalism but I feel there is still a case for ‘capital conscious socialism’. This in essence is the case for government intervening in the market to prevent excesses, rather than encouraging companies to voluntarily behave in a socially responsible manner. Whilst the government is doing this it must remember that the private sector employees the majority of the people in the UK and is responsible for the lion’s share of our GDP. Therefore any inventions or legislation must also be in the interest of protecting jobs and growth.
In essence moral standards should be left to the government to enforce (who is accountable to their citizens) and private business should be responsible for providing employment and wealth to the citizens. This is similar to the means by which the government enforces safety standards. Would car companies have voluntarily agreed to seat belts and air bags were these measures not legally binding? The thought of simply encouraging car companies to include safety features or suggesting that the makers of house hold cleaning products put warnings on the packaging seems painfully week. Surely laws are the only way to protect the public and to ensure that we have the necessary information to look after ourselves. Implying that firms should be aware of their social obligations will have little success as firms are not compelled to alter their behaviour and there is no incentive for them to do so.
State invention is a harsh phrase that echoes back to the days of lumbering nationalised industries. I prefer to the use term ‘government planning’ to describe what is needed. The government should use its ability to legislate industry to plan our national finances to prevent economic collapse. This works on a micro scale, business and families plan their finances and set necessary controls to make sure they do not suffer financial ruin. However, the government’s planning of the economy must always be mindful that private business must thrive if we are to achieve a low level of unemployment.
A good example of government planning the economy is the proposed Tobin or Robin Hood tax; a small tax on finical transactions (that firms will not impose on themselves) the proceeds of which can be used to bail out companies that get into trouble and not leaving the bill to the tax player. The tax must be expectedly levied with the consultation of firms so not to cause harm to firms - which would restrict the amount of revenue generated by the tax.
Planning the roles of supermarkets in our economy would also offer a better social outcome. Supermarkets employee many poor and unskilled workers and offer a minimum wages which is far below what is needed to raise a family on. Reminding a supermarket that it has an obligation to consider wider society and the poor will do little or nothing to raise the wages and improve the working conditions of those at the bottom of the social pyramid. Government planning is needed to legislation a living wage that will ensure that families have enough money to afford essential. I do not see any provision or this in the coalition’s plan for socially conscious capitalism.
Placing the maintenance of society in the hands of private companies will not lead to optimisation of social goods. Socially conscious capitalism will not compel firms to be respectful of their stake in society. Capital conscious socialism will give government the mandate to intervene to the benefit of all whilst protecting private enterprise and our jobs.
Thursday, 19 January 2012
Internships and Wealth Inequality
Internships have long been blamed as a means by which wealth remains concentrated amongst the upper classes. Most of the positions available at some of the UK’s largest and most prestigious firms to young people starting out on their careers are unpaid or come with a bare minimum of transport fees reimbursed. For young people looking to gain the vital experience necessary to secure a job, an additional source of income is needed to pay their cost of living during an internship which could last for several months. Firms expect an intern to be present during normal office hours which rules out most forms of employment and the long hours and demanding timetables frequently placed on interns also makes evening employment difficult. Generally interns rely on what has become known as ‘the bank of mum and dad’ meaning that only the children who have parents wealthy enough to pay their way can afford to take up an internship.
To a firm, having an internship is not only a desirable characteristic in a prospective new recruit but is increasingly become essential. In a government survey, one third of British firms said they would only hire a new recruit who already worked for them. The most obvious illustration of class perpetuation through internships is an annual Conservative Party fund raiser to which Mayfair based capital and equity firms donate internships which are then bid for by part donors, the proceeds going to the party. At this event, those who can afford to spend several thousand pounds to secure their child an internship at a top finical firm (as well as paying their children’s living cost during the internship itself) spend their money to guarantee one of their children will have a well-paid career.
The incentive for parents who can afford this for their children is clear. Not only is it a good way to give your child an advantage over the competition in beginning their corporate career but by ensuring your child has a well-paid position, parents are preparing for the retirement by providing their children with financial success. The net effect of the recruiters relying on internships to vet candidates at the beginning of their careers is the concentration of wealth amongst the privileged class. Only the wealthy can afford to furnish their children with the internships that are necessary to secure well-paid jobs.
Recently Nick Clegg and the coalition government have announced plans for major companies to offer more starting positions to people from less well-off backgrounds and to offer payment or living expenses to interns while they are working. Although this is noble in intent it fails tackle the root of the social inequity caused by the internship system. It is impressive that Nick Clegg has managed to convince so many large companies to agree to a scheme which offers firms little more than a PR boost, but by making the proposals opt-in rather than legally binding there is no incentive for most firms to alter their behavior at all. An outright ban on internships would force firms to at least offer minimum wage to those gaining work experience which would go some way towards leveling the cost barriers to most young people taking up internships.
The plans are welcome news to those with an eye on becoming a senior corporate executive but hint at a fundamental flaw in the collation government’s approach the issue of wealth inequality; in that they expect private business to tackle the issue with government only very gently prodding the companies in the directing of socially conscious capitalism. Making internships more accessible to those who dream of vast corporate wealth is one thing but the issue at the heart of capitalism is the fact that regardless of how level you make the playing field, the majority of people will end up owning a small percentage of the wealth mean while a few people will own the majority. The question is what can be done about this and the answer the government suggests is ‘nothing’.
Reforming the internship mechanism may make it easier for those from poor backgrounds to get internships but will do almost nothing to tackle wealth inequity. It will also have a negligible effect on social mobility as there will remain a finite number of internships and even smaller number of people who reach the higher echelons of the corporate hierarchy. The people at the top of pyramid may vary slightly but this does nothing to comfort those at the base or those who question the virtues of a pyramid structure.
Hinting to large companies that they should be more socially aware will not solve the problems of a widening gap between the rich and the poor. Most of the coalition government’s austerity program is cutting the services that the poorest members of society depend upon. The government needs to do more to tackle wealth inequality rather than smoothing off the edges or implying that large firms should be readdressing the wealth balance themselves.
To a firm, having an internship is not only a desirable characteristic in a prospective new recruit but is increasingly become essential. In a government survey, one third of British firms said they would only hire a new recruit who already worked for them. The most obvious illustration of class perpetuation through internships is an annual Conservative Party fund raiser to which Mayfair based capital and equity firms donate internships which are then bid for by part donors, the proceeds going to the party. At this event, those who can afford to spend several thousand pounds to secure their child an internship at a top finical firm (as well as paying their children’s living cost during the internship itself) spend their money to guarantee one of their children will have a well-paid career.
The incentive for parents who can afford this for their children is clear. Not only is it a good way to give your child an advantage over the competition in beginning their corporate career but by ensuring your child has a well-paid position, parents are preparing for the retirement by providing their children with financial success. The net effect of the recruiters relying on internships to vet candidates at the beginning of their careers is the concentration of wealth amongst the privileged class. Only the wealthy can afford to furnish their children with the internships that are necessary to secure well-paid jobs.
Recently Nick Clegg and the coalition government have announced plans for major companies to offer more starting positions to people from less well-off backgrounds and to offer payment or living expenses to interns while they are working. Although this is noble in intent it fails tackle the root of the social inequity caused by the internship system. It is impressive that Nick Clegg has managed to convince so many large companies to agree to a scheme which offers firms little more than a PR boost, but by making the proposals opt-in rather than legally binding there is no incentive for most firms to alter their behavior at all. An outright ban on internships would force firms to at least offer minimum wage to those gaining work experience which would go some way towards leveling the cost barriers to most young people taking up internships.
The plans are welcome news to those with an eye on becoming a senior corporate executive but hint at a fundamental flaw in the collation government’s approach the issue of wealth inequality; in that they expect private business to tackle the issue with government only very gently prodding the companies in the directing of socially conscious capitalism. Making internships more accessible to those who dream of vast corporate wealth is one thing but the issue at the heart of capitalism is the fact that regardless of how level you make the playing field, the majority of people will end up owning a small percentage of the wealth mean while a few people will own the majority. The question is what can be done about this and the answer the government suggests is ‘nothing’.
Reforming the internship mechanism may make it easier for those from poor backgrounds to get internships but will do almost nothing to tackle wealth inequity. It will also have a negligible effect on social mobility as there will remain a finite number of internships and even smaller number of people who reach the higher echelons of the corporate hierarchy. The people at the top of pyramid may vary slightly but this does nothing to comfort those at the base or those who question the virtues of a pyramid structure.
Hinting to large companies that they should be more socially aware will not solve the problems of a widening gap between the rich and the poor. Most of the coalition government’s austerity program is cutting the services that the poorest members of society depend upon. The government needs to do more to tackle wealth inequality rather than smoothing off the edges or implying that large firms should be readdressing the wealth balance themselves.
Wednesday, 21 December 2011
Should we spend away stagnation?
The Christmas period is traditionally a time for indulgence. Between company Christmas parties and drinks with friends one usually exceeds the usual level of food and drink intake. Most people also spend more during the holiday season. As well as gifts for friends and family, decorations for home and work there is the general spirit of excesses and the desire to treat oneself after a year of hard work. You would think that so many people letting loose with credit cards and Christmas bonuses would kick the economy into gear and begin the climb out of the stagnation that has dogged business since the end of the recession.
It’s logical but not always true. During last year’s Christmas period the British economy actually shrank for the first time since the recession official ended. Economists posted negative growth for the fourth quarter of 2010, two such consecutive quarters of negative growth constitute a formal return of the recession. So why did the economy shrink with all this over spending?
There are a number of reasons for this. One was an increase in costs of production. Rising international oil and gas prices pushed up the cost of UK manufacturing and squeezed home’s budgets throughout the winter. Excesses around Christmas were matched by a cutting back elsewhere. The rise in production and transport costs restricted exports ultimate because our goods cost more and less money ended in the hands of the firms that produced the goods. When production costs are higher firms are unlikely to invest in new employees.
Not all of our present woes are the result of high energy prices. Partly it is the result of our patterns of consumption. Mince pies and turkeys are very pleasant but it is not the consumption of perishable goods that drives the economy. It is the purchase of consumer durables that drives growth and development. Although some people purchase fridges and television as Christmas presents this behaviour is hardly normal. If we are all perfectly rational in regard to the macro-economy in our Christmas shopping , we would all buy each other consumer durables. However in such a world we would all own too many fridges and have no food to put in them.
Politicians and executives of high street retain chains are keen to expose the values of spending away economic stagnation. As if the only thing prevent global economic recovery is austere Christmas parties. The solution to the problems of economic growth is not over spend now then have to cut back later. If you are especially concerned about growth rate of the British economy then consider buying a new car, television or computer system. Although in the current climate such purchases are out of the reach of most households.
The problems of our macro-economy require macro solutions such as investment in infrastructure to promote growth, guaranteed loans to business to encourage investment and programs to allow the unemployment access to jobs that go beyond simply slashing benefits. Encouraging the general public to over spend (especially financed by credit) is reckless and boost the revenue of Tescos but will not raise the long term trend rate of growth.
My advice to anyone during the holiday season is to reward yourself for a year’s hard work during difficult times but to remember that over spending is not the solution to your personal finical problems or the national ones. National problems require national solutions are not an increase in personal debt.
It’s logical but not always true. During last year’s Christmas period the British economy actually shrank for the first time since the recession official ended. Economists posted negative growth for the fourth quarter of 2010, two such consecutive quarters of negative growth constitute a formal return of the recession. So why did the economy shrink with all this over spending?
There are a number of reasons for this. One was an increase in costs of production. Rising international oil and gas prices pushed up the cost of UK manufacturing and squeezed home’s budgets throughout the winter. Excesses around Christmas were matched by a cutting back elsewhere. The rise in production and transport costs restricted exports ultimate because our goods cost more and less money ended in the hands of the firms that produced the goods. When production costs are higher firms are unlikely to invest in new employees.
Not all of our present woes are the result of high energy prices. Partly it is the result of our patterns of consumption. Mince pies and turkeys are very pleasant but it is not the consumption of perishable goods that drives the economy. It is the purchase of consumer durables that drives growth and development. Although some people purchase fridges and television as Christmas presents this behaviour is hardly normal. If we are all perfectly rational in regard to the macro-economy in our Christmas shopping , we would all buy each other consumer durables. However in such a world we would all own too many fridges and have no food to put in them.
Politicians and executives of high street retain chains are keen to expose the values of spending away economic stagnation. As if the only thing prevent global economic recovery is austere Christmas parties. The solution to the problems of economic growth is not over spend now then have to cut back later. If you are especially concerned about growth rate of the British economy then consider buying a new car, television or computer system. Although in the current climate such purchases are out of the reach of most households.
The problems of our macro-economy require macro solutions such as investment in infrastructure to promote growth, guaranteed loans to business to encourage investment and programs to allow the unemployment access to jobs that go beyond simply slashing benefits. Encouraging the general public to over spend (especially financed by credit) is reckless and boost the revenue of Tescos but will not raise the long term trend rate of growth.
My advice to anyone during the holiday season is to reward yourself for a year’s hard work during difficult times but to remember that over spending is not the solution to your personal finical problems or the national ones. National problems require national solutions are not an increase in personal debt.
Tuesday, 20 December 2011
Kim Jong-il obituary
No right-thinking person would want to live in North Korea, or The Democratic People’s Republic of Korea to call it by its official name. Aside from the general advice to avoid any country with the word “Democratic” in its name, North Korea is a poor nation, gripped by famine and an overbearing authoritarian government. They are politically isolated and potentially unstable. Most of this is largely due to the personal influence of their recently deceased supreme leader, Kim Jong-il.
Kim Jong-il led one of world’s few remaining Stalinist states and the world’s only hereditary Communist authority. He became leader following the death of his father Kim Il-sung in 1994, who lead the nation since he was installed as the head of state following the Soviet invasion in 1945. The Kim’s created a vast personality cult surrounding themselves and their accomplishments. It is worthy of note that Kim Il-sung is still technically the Korean head of state as he was made Eternal President of the Republic after his death. Kim Jong-il was the de facto leader as he was the General Secretary of the Workers' Party of Korea, Chairman of the National Defence Commission and the Supreme Commander of the Korean People's Army.
During the 17 years of Kim Jong-il’s leadership, North Korea faced political isolation and came close to wars with South Korea, Russia and Japan on several occasions. When Communism collapsed in Russia, North Korea lost its main trade partner and economic hardship sent in. Their isolation from their neighbours and poor management by their central government has led to economic ruin and a famine reported to have claimed the lives of over 2 million North Korean citizens.
Kim Jong-il’s rule also been characterised by Stalinist totalitarianism. Rumours abound about state repression in ordinary North Koreans’ lives. Allegedly citizens are required to sing songs of praise for their leaders and homes come fitted with radios which broadcast state propaganda. Radios which not only cannot be turned off, but which it is illegal to tamper with.
Pursuit of nuclear weapons and missiles capable of reaching Japan and the United States has led to a breakdown in relations between North Korea and the rest of the international community. Despite this, Kim Jong-il made some efforts to repair damaged relationships, meeting the South Korean President in 2000 and taking meetings with Russian and American representatives. He also requested aid from the international community in dealing with the famine.
Those close to Kim Jong-il have described him as having a passion for Marxist-Leninism and a strict belief that North Korean society should follow this economic philosophy. Despite this, his personal life epitomises the worst excesses of capitalism. While he dined on fresh lobster and other exotic foods his citizens starved. While he owned private cars, planes and jets, the people of North Korea lacked essential services. While he enjoyed his collection of Hollywood films his government restricted all access to foreign media.
Kim Jong-il’s death can also be situated in the wider context of the end of Maoism and Marxist-Leninism, with private businesses bombing in China and their government moving ever closer to floating their currency on the international market. It also fits into the narrative of the end of authoritarian, centralised government, with 2011 seeing people all over the world rising up against their overbearing rulers. The age of big government might not be over, but the age of the all-encompassing government is.
The legacy of ruin and hardship left behind following the fall of the Titans of Communism is a reminder to those on the left that although our ideology should be informed by Marxism, we need to grow beyond the confines of this restrictive and incomplete philosophy. The left requires a new mode of thinking, focused on decentralised self-organising networks rather than the all-powerful state.
Kim Jong-il’s death leaves North Korea’s future in an uncertain state - even his son, Kim Jong-un’s succession is not certain. The world watches with bated breath to see how the famously unpredictable regime will respond. It is the hope of this blogger than the North Korean people will see an improvement in their political freedoms and material circumstances. Kim Jong-il has failed to deliver the abundance promised in theory by Marxist-Leninism and as a result is responsible for creating a society whose citizens are impoverished, hungry and repressed. Changing is sweeping across the world and we hope that in some way it can benefit the people of North Korea, who have suffered for so long at the hands of their supreme rulers.
Kim Jong-il led one of world’s few remaining Stalinist states and the world’s only hereditary Communist authority. He became leader following the death of his father Kim Il-sung in 1994, who lead the nation since he was installed as the head of state following the Soviet invasion in 1945. The Kim’s created a vast personality cult surrounding themselves and their accomplishments. It is worthy of note that Kim Il-sung is still technically the Korean head of state as he was made Eternal President of the Republic after his death. Kim Jong-il was the de facto leader as he was the General Secretary of the Workers' Party of Korea, Chairman of the National Defence Commission and the Supreme Commander of the Korean People's Army.
During the 17 years of Kim Jong-il’s leadership, North Korea faced political isolation and came close to wars with South Korea, Russia and Japan on several occasions. When Communism collapsed in Russia, North Korea lost its main trade partner and economic hardship sent in. Their isolation from their neighbours and poor management by their central government has led to economic ruin and a famine reported to have claimed the lives of over 2 million North Korean citizens.
Kim Jong-il’s rule also been characterised by Stalinist totalitarianism. Rumours abound about state repression in ordinary North Koreans’ lives. Allegedly citizens are required to sing songs of praise for their leaders and homes come fitted with radios which broadcast state propaganda. Radios which not only cannot be turned off, but which it is illegal to tamper with.
Pursuit of nuclear weapons and missiles capable of reaching Japan and the United States has led to a breakdown in relations between North Korea and the rest of the international community. Despite this, Kim Jong-il made some efforts to repair damaged relationships, meeting the South Korean President in 2000 and taking meetings with Russian and American representatives. He also requested aid from the international community in dealing with the famine.
Those close to Kim Jong-il have described him as having a passion for Marxist-Leninism and a strict belief that North Korean society should follow this economic philosophy. Despite this, his personal life epitomises the worst excesses of capitalism. While he dined on fresh lobster and other exotic foods his citizens starved. While he owned private cars, planes and jets, the people of North Korea lacked essential services. While he enjoyed his collection of Hollywood films his government restricted all access to foreign media.
Kim Jong-il’s death can also be situated in the wider context of the end of Maoism and Marxist-Leninism, with private businesses bombing in China and their government moving ever closer to floating their currency on the international market. It also fits into the narrative of the end of authoritarian, centralised government, with 2011 seeing people all over the world rising up against their overbearing rulers. The age of big government might not be over, but the age of the all-encompassing government is.
The legacy of ruin and hardship left behind following the fall of the Titans of Communism is a reminder to those on the left that although our ideology should be informed by Marxism, we need to grow beyond the confines of this restrictive and incomplete philosophy. The left requires a new mode of thinking, focused on decentralised self-organising networks rather than the all-powerful state.
Kim Jong-il’s death leaves North Korea’s future in an uncertain state - even his son, Kim Jong-un’s succession is not certain. The world watches with bated breath to see how the famously unpredictable regime will respond. It is the hope of this blogger than the North Korean people will see an improvement in their political freedoms and material circumstances. Kim Jong-il has failed to deliver the abundance promised in theory by Marxist-Leninism and as a result is responsible for creating a society whose citizens are impoverished, hungry and repressed. Changing is sweeping across the world and we hope that in some way it can benefit the people of North Korea, who have suffered for so long at the hands of their supreme rulers.
Sunday, 4 December 2011
Immigration and the flexibility of labour
There are few issues in politics that are as deeply dividing as immigration. Everyone holds an opinion on the topic, how much is appropriate, of what sort, from which country, etc. Immigration is blamed for many problems in society from crime to traffic congestion but has also advanced British art and engineering. A case in point, the Mini, that British icon of style, was created by Alec Issigonis, who was born in Smyrna (now Izmir in Turkey). Perceived failures of immigration policy can have dire consequences for a government; case in point is the hammering Gordon Brown received in the 2010 after a perceived rises in immigration. Anti-immigration outbursts can be equally as ruinous to a career, for example Maurice Glasman suffered a fall from grace after endorsing a halt on immigration.
As well as the economic implications, it is generally viewed that the problem with immigration is the divisions in society it causes can culminate in either acts of terrorism or violence directed at immigrants themselves. Many also argue that the economic impact of immigration is at the root of the social divisions it causes. In this article I hope to show that the social disorder caused by immigration is a response to market inefficiencies and not a problem with immigration itself. In essence it is weaknesses in our economy which make both immigrants and the indigenous population poor and angry.
The market based economy does not allocate resources to where they create the most social good. Some areas of society have an excess of economic resources and some have a great lack. This is partly because not all resources are perfectly mobile to where they are needed or to where they can create the greatest good. A clear example of this is housing which cannot be moved to take advantage of where there is a shortage. Without state intervention there is no way to correct the uneven distribution of quality housing. These market inefficiencies and misallocation of resources will always mean that some lack essential goods and desirable luxuries. Those who lack resent other social groups who have been allocated extra. This has driven many of the poor all over the world towards Socialism and other left wing movements. However this resentment is not always directed at the cause of poverty (flaws in the market based system) but at those who it is perceived possess more and have not worked hard to earn it.
Amongst the poor white population this resentment can be directed towards immigrants when individuals feel that they have been allocated a larger slice of society’s scarce resources simply because they belong to a different social group. The same can be said amongst immigrants who can become resentful of an indigenous population who they feel find it easier to acquire essential goods and luxury items simply due to being born in a country. On both sides of the divide people with a specific agenda can harness the anger at society’s uneven distribution of resources to push the disaffected towards either terrorism or hate crimes.
This fact applies to both sides. The EDL and Muslims Against the Crusade are images of each other. Young, poor and angry. Politicians and community leaders are unwilling to tackle this issue partly due to the difficulties with effecting real change but also because they risk losing the support those who the current distribution of resources benefits. Following being let down by community leaders and politicians, the disenfranchised taking matters into their own hands. These tensions which occasionally spill over to acts of violence are caused by an uneven distribution of resources and a lack of political engagement with this issue which create poverty and fosters feelings of alienation.
If the government were to intervene in the free market to correct the uneven distribution of society’s scare resources, then there would be less poverty and less anger to exploit.
Those who speak out against immigration often cite the effect it has on the wages of indigenous people, especially those in the lowest paid manual and unskilled jobs. However this effect can also be explained by inefficiencies in the labour market. The immigration can lead to an oversupply of labour especially in these low paid industries. A rise in supply of labour reduces the unit cost of labour (in this case wages) as the jobless are forced to look for a wage lower than their desired wage to remain competitive in the more crowded labour market. When firms see that the labour supply is increasing they desire to reduce unit costs of production and thus lower the wage they are offering to new employees. They can expect to find applicants for the role as an increase in labour supply has caused a job shortage.
Wages fall as a result of immigration not because of the actions of immigrants but because in an unregulated labour market increased supply will reduce wages mainly because firms seek to reduce costs of production. Like housing labour is not perfectly mobile. People are tied to a certain area by family commitments or the cost of moving which prevents labour from being reallocated from areas of surplus to areas of shortage. Similar labour markets where there is a short of supply often have barriers prevent entry to these markets by immigrants and the poor - barriers such as expensive qualifications or many years of experience.
This effect on wages can also be corrected by government intervention in the labour market. Access to education can break down the entry barriers to certain labour markets, especially training for the long term unemployed. Also the introduction of a living wage would ensure that even when there is excess supply firms are not able to drive down the wage price to point where it puts people into poverty.
Society’s scares resources are allocated in large quantities to a small section of the population. This does not just apply to wealth and material goods but also access to important services like education and health care. This divide is growing wider and those who which society has allocated less resources are growing poorer and angrier. This anger is often directed at the wrong parties where it is the system by which resources are allocated at this at fault.
The government needs to do more to address labour market inefficiencies to tackle the social problems caused by immigration. One possibility is to consider a return to the objective of full employment and guarantee a living wage. Both of which will involve government legislating the labour market but will result in higher wages for immigrants and the indigenous alike.
Until these inefficiencies are tackled, immigration will still be an issue dividing both society and political debates. This divide will always be to the loss of the poorest members of society both immigrants and indigenous alike.
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