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Capitalism is Dying…But Something So Much Better is Taking Its Place

See: http://iacknowledge.net/capitalism-is-dying-but-something-so-much-better-is-taking-its-place/

Bosnia and Herzegovina in Spring (2014)

A message of hope at, http://www.filmsforaction.org/watch/bosnia-and-herzegovina-in-spring-2014/

It’s not just the Banks

POSITIVE ALTERNATIVE TO AUSTERITY

There is too much debt, and not just government debt; that at least is commonly agreed. Money reformers and others such as Richard Werner think this is the fault of banks creating too much money in exchange for loans. This is only partly true.

It is true that banks create the money they lend and do not wait for deposits. This means that they can ration the volume of lending. It is better for the banks to advance loans secured on the asset (such as a house) which the borrower is buying. Unrestrained bank lending can push up house prices and prices of some other assets and that needs to be checked. It does not help first time buyers if mortgage terms are too ‘easy’. House prices rise and so they are saddled with bigger debts.

But many people are now borrowing because they don’t earn enough to pay for day to day expenses, and certainly not for unexpected things like car repairs, house repairs, losing jobs or benefits etc. This is happening because of rising inequality. Prof. Richard D Wolf offers an excellent analysis of the reasons for rising inequality in the US this in ‘Capitalism hits the Fan’, see http://www.rdwolff.com/content/capitalism-hits-fan-0 for a short summary or https://www.youtube.com/watch?v=TZU3wfjtIJY&noredirect=1 for a 1 hour 45 minute video. There is also a book.

Since the 1970s there has been a major shift from wages to profits in the way in which company revenues have been shared. Wolf attributes this to a combination of productivity improvements resulting from technology such as computers, and moving production offshore. I well remember the debate in the 1970s about whether the effect of computers would be to shorten the working week. It hasn’t worked out that way of course. Those who have work, are working harder than ever for less pay in real terms. The combined effect of productivity increases and offshoring has been to reduce the demand for labour and so allowed employers to pay less in real terms and impose harsh conditions. Paradoxically it has forced people to take on second jobs, for more women to work etc. to maintain their standard of living. By 2008 this had got to the point where the demand for ‘stuff’ had started to drop thus feeding into the crisis.

Wolf does not believe that government regulation will reverse this. Corporate lobbying and buying of politicians will always undermine effective regulation. His remedy is that boards of companies be made up of workers rather than shareholder nominees. Such boards would adopt more socially responsible policies. My question is how is this to happen? Wolf seems to think it can happen without any legislation or government intervention. People can set up producer co-operatives, and he points to silicon valley as providing examples.

The issue as I see it is financing. Although at times a company might be able to finance capital expenditure from retained earnings, at other times it will have to issue shares and /or arrange loan finance. A worker controlled company might not look a good investment, especially at start up. Both shareholders and banks are likely to insist on representation on the board. The silicon valley start ups are (I think) rare examples of very high tech. industries where the employees are specialists who have previously been very highly paid and can presumably provide much of start up capital. In Britain there are two well known examples of producer co-operatives, the Scott Bader Commonwealth and the John Lewis partnership. Scott Bader was well established before the family donated 90% of the shares to the Commonwealth. John Lewis was also fairly well established before it became a Partnership, and seems to have kept its leveraging low. [ in July 2013, Retained earnings £1.9 bn, current liabilities £1.4 bn, non current liabilities £1.9 bn. ]

An example of how the concept of worker control might be more widely spread is given by the Mondragon Corporation (revenue 14 bn euros in 2012). This started in the Basque town of Mondragon as a network of producer co-operatives, technical colleges and banks. A key factor must have been a strong sense of community, and relative isolation and self sufficiency. However Noam Chomsky has warned:

Take the most advanced case: Mondragon. It’s worker owned, it’s not worker managed, although the management does come from the workforce often, but it’s in a market system and they still exploit workers in South America, and they do things that are harmful to the society as a whole and they have no choice. If you’re in a system where you must make profit in order to survive, you’re compelled to ignore negative externalities fixed on others.” https://en.wikipedia.org/wiki/Mondragon_Corporation.

I believe however that we should not dismiss the producer co-operative model. In this context it is worth noting that Prof. Richard Werner of Southampton University and others are trying to establish a network of local banks, along the lines of the German Sparkassen, [http://www.bbc.co.uk/news/uk-england-hampshire-24400036 and http://www.wessexentrepreneurs.com/Hampshire_Community_Bank_Status.pdf ] and it would be logical if producer co-operatives became part of that network. If such a network were established it might help to generate the political pressure for government to support it in some way.

Reforming the BBC

People will believe what the media tells them they believe” George Orwell

I was brought up to trust the BBC. As well as commissioning and broadcasting high quality entertainment, cultural and scientific programmes etc, it was to be totally trusted to keep us informed on current affairs. The World Service has had an excellent reputation abroad, but I cannot help thinking that since it has been freely available to a British audience on digital radio during the day, it has been somewhat dumbed down.

As for news coverage designed for a domestic audience, it has always been pro-establishment, and never challenges the dysfunctional version of capitalism we now have, nor neo-classical economics ideology that supports it.

The BBC is supposed to be ‘operationally independent’ of government, but what is the reality? Appointments to the BBC Trust are made by Queen in Council, on the recommendation of UK government ministers. The Director General and non executive members of the Executive Board are appointed by the Trust. The government sets the level of the licence fee. This is not independence as I see it.

An alternative model is the US PBS (Public Broadcasting Service). The local stations are funded by voluntary subscriptions. However the central organisation which makes or commissions much of the programming is partly funded by federal government and Congress has recently significantly cut this. The operating expenditure of the BBC was £4.896 billion in 2012/13, which I suspect is vastly more per head than the average American contributes.

I propose a new model:

  • Members of BBC trust to be selected randomly like a jury. They would have the same powers as existing trust.

  • Every two years the public would vote on the level of the licence fee, subject to the fact that there would be a maximum allowable percentage decrease in one go, so that declining revenues could be managed.

  • Everyone with a TV would be bound to pay the licence fee so decided as now. Certain exemptions such as the over 75s would apply as now. Any change in these would be voted on by the public.

  • The above provisions could only be altered by primary legislation, not by statutory instruments or orders in council.

Time to Democratise Building Societies

In theory building societies should surely be one component of a sustainable banking sector. In practice although they are ‘owned’ by members, the board always succeeds in getting all its nominees elected, and so members have no control. Banks which are plcs at least have to worry about the share price. Building society boards have been completely unaccountable. The Building Societies Members Association (BSMA) – www.building-societies-members.org.uk – exists to challenge this state of affairs. Help their campaign to get one or more member nominated directors elected – see http://www.building-societies-members.org.uk/Building%20Societies%20News.htm.

Someone has asked me exactly how it is that the building society boards manage to ensure that only their nominees get elected. It works like this:

The building society board will decide who they want to fill any vacancies that arise. They will nominate exactly as many candidates as there are vacancies. Members have the right to nominate their own candidates. However this fact is not advertised; to discover this members would have to search through the website for a copy of the rules, or contact the secretary to ask for a copy. Furthermore each such candidate needs to be nominated by 250 people, and the society will not contact members asking for nominators, so it is quite a task to contact the 250. Also if a second member wished to stand he or she has to find a different set of 250 nominators. In spite of that there have been member nominated candidates in the past.

If there are no member nominated candidates, members are invited to votes ‘yes’ or ‘no’ for each of the board nominated candidates. Unsurprisingly the ‘yes’ vote always wins; members are given no useful information on which to judge the individual candidates.

If there are member nominated candidates, then the multiple X vote is used to elect the requisite number of directors. Suppose there are four vacancies to fill and, in addition to the board’s nominees, there is one member nominated candidate. Each member is entitled to cast up to four votes but does not have to use all four of them – though the wording on the voting paper can suggest otherwise. If a member wants the the member nominated candidate to be elected and decides to cast all four votes then he or she has to decide which of the board candidates to leave out. Different members will make different choices and so votes cast for the member nominated candidate will be largely cancelled out.

In this situation if every member votes for the member nominated candidate then he or she will be elected. Suppose 10,000 members between them cast 40,000 votes. Then the member nominated candidate attracts 10,000 votes leaving 30,000 to go to the other four. That is 7,500 each if they are equally distributed. If however only 8,000 members vote for the member nominated candidate, then the others attract 32,000 votes between them, which if equally distributed is 8,000 each.

It follows therefore that if every member uses all their votes it is likely that in order to elect the member nominated candidate, then approaching 80% of voting members will have to vote for him or her. However if members can be persuaded to vote only for the member nominated candidate then the desired result becomes more possible.

Possible remedies for the unsatisfactory situation include:

  • Elect directors by preferential voting (Single Transferable Vote). At the moment the legislation prevents this and it is not in the interest of the main political parties to change this.
  • Provide that at least one place on the board is reserved for a member nominated candidate. Again this would require legislation but the main political parties might not be quite so vehemently opposed.
  • Adopt the Swedish practice of including stakeholders other than board members on the nominations committee.
  • Adopt a similar practice in relation to the remuneration committee.

Note that these suggestions are the author’s and not necessarily those of BSMA.

Money Subverts Democracy – a Perfect Storm

It is a common perception that money subverts democracy. Many partial solutions are advocated but are either not in the interests of the elite, or where adopted singly do not work. It seems we are heading for a world in which huge corporations determine what laws are made and what we may do. To prevent this more radical and holistic solutions are needed.

In former times the elite ruled with the sword. Now they use money to achieve the same result without getting their hands dirty. Money buys arms, influence and instruments of repression.

Money funds political campaigning and so it benefits parties that look after the interests of the wealthy. The right are ready enough to complain about union funding of the Labour party but this pales into insignificance compared to funding by the wealthy – often through corporations.

Money funds massive lobbying exercises, such as climate change denial.

Too much research funding is provided by the private sector. Occasionally research results contrary to the interest of corporations are suppressed. More often research priorities are influenced by the profit motive rather than the common good.

The media are not balanced or objective. Their focus is often determined by the interests of their owners and advertisers. It is no so much that they lie, but that many of the really important issues are not covered properly; hence citizens receive a very distorted picture of reality. How then can they exercise their democratic rights in a sensible fashion? It is very disappointing that the BBC also manages not to cover many of the important issues. If any organisation can afford high quality investigative journalism it should be the BBC.

Inequality is rising. In part this may be because with technological advance, less labour is required. As things are it is capitalists that benefit from the technology and so there is a vicious circle in which far from wealth ‘trickling down’ it flows up. Social mobility is reduced. This is justified by the current dominant neoclassical economic theory, for which there is no empirical evidence, and which contains internal logical contradictions. Neoclassical economics claims to predict the inevitable and so morality does not come into economic decisions. If the theory were correct then morality would be irrelevant, but it is not right and ought to be challenged. wages/salary/’compensation’ levels are more often determined by power relations.

In our system money begets money. ‘ Unto those that hath shall be given; from those who hath not shall be taken even that that they hath’.

Money has captured the leadership of all the main political parties in the UK. Under most voting systems the leadership are able to impose discipline on MPs. STV would make them more beholden to voters.

International ‘free trade’ necessarily subverts national democracies. It places reliance on Intergovernmental Organisations most of which are essentially undemocratic, and dominated by corporations. A common argument for free trade is that it is ‘the engine of growth’. But endless economic growth is unsustainable. We need to adopt the Swedish motto of Lagum (‘just enough’, or ‘just the right amount’). Rather than maximising international trade, we want stability. It would help if Keynes’ plan for controlling the balance of payments had been adopted at Bretton Woods.

The right to a fair trial means nothing if you cannot pay for representation. The legal system is not fair. Corporate Personhood must be abolished.

Has the Queen failed her subjects?

Views of the British monarchy and Royal Family are somewhat mixed. There is a large and fanatical fan club, including many Americans; there is increasing criticism of Royal finances including the tax status of the Duchy of Cornwall; but I sense a silent majority of those with no fixed opinion. Surprisingly there is very little discussion on the constitutional role of the monarch.

Each year a large number of executive decisions are made by Order in Council. As far as I know the Queen has never failed to approve any such Order, and neither did her father before her. The vast majority of Orders in Council concern relatively trivial administrative and ceremonial matters. I have no problem with these. A minority however concern much more significant issues and I would pick out in particular ratification of trade treaties. Currently the UK has 94 Bilateral Investment Treaties in force. Each of these provides that major corporations can sue the British government for any loss of profits arising from (often necessary and proportionate) regulation. It is argued that the UK derives net benefits from these agreements, but it is undeniable that national governments have ceded huge amounts of power not only to the EU, which we all know about, but also to corporations. Very few people know this and parliament has never been properly consulted.

If the Queen refused any Order in Council it would of course create a constitutional crisis, but what if she said that these matter ought to be decided by Parliament and declined to say yea or nay? Of course she would have to announce her intention in advance. How then would the establishment react?

They might try to persuade the Queen to allow prince Charles to deputise – he already does on occasions I believe – but surely he would not be so disloyal as not to follow her example. They might try to get her judged to have lost mental capacity, and seek to appoint a regent – but who? In any case as the Queen is the most respected member of the Royal family, would they get away with it?

The biggest hold the establishment has over the Royal Family is finance, whether it be the size of the civil list or taxation; but it ought not to be a stranglehold. The Royal Family could well afford to economise drastically without hardship. In any case the establishment has an interest in retaining our ostentatious style of monarchy to distract attention from the reality of elective dictatorship. If the Queen really cared about the interests of her subjects, as I believe she did at the time of her coronation, she would not allow herself to be blackmailed by financial considerations.

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