Tuesday, 20 March 2012

La différence in action. Osborne wants to give money to the rich, Hollande wants to take it.

If ever an illustration of la différence between Britain and France were needed, tomorrow will provide one. In the Budget, the UK Chancellor, George Osborne, will almost certainly reduce taxation on income above £150,000 from 50 to 45 per cent. In France, by contrast, the leading candidate in the Presidential election, the Socialist Party’s Francois Hollande, will sit quite comfortably with a stated pledge to raise taxation on income above €1 million (£833,000), to 75 per cent. He apparently toyed with raising the rate to 100 per cent –  ie creating a maximum income.

Ignore for one moment the spectacle of Osborne’s logic nobly holding firm against actual experience. (We’ve already had a supply-side revolution in the ‘80s and ‘90s, which cut taxes on the rich and corporations, and didn’t succeed in raising economic growth from the rates achieved when taxes were higher. Now that economic growth has vanished, we apparently need another supply-side, trickle down revolution to give money to the “growth-generating rich”. I’m absolutely convinced it will work).

But just consider democracy. 67 per cent of all British voters and 65 per cent of Conservative voters are against the reduction. But a governing coalition, representing two of the three political parties, with a “collective” vote of 59 per cent, will deliver it anyway.

This is a perfect illustration of the writer Dan Hind’s assertion that the public in Britain is audible only when it echoes governing assumptions. When 54 per cent of the public think that unemployment benefits are too high, they entrench and embolden government policy. When the vast majority favour high taxes on the rich, or for example rail re-nationalisation, they are mute. In British “democracy” what they think has no means of translation into actual policy.

Contrast this to France, where the silence of the masses has not been attained. Hollande’s 75 per cent tax plan is supported by, according to polls, 61 per cent of the electorate. He himself has poll ratings in the mid to high ‘50s. But his tax plan is also backed by the Left Front candidate, Jean-Luc Mélenchon, who has achieved poll ratings as high as 11 per cent.

So in France, there is actually more support for higher taxes on millionaires among political parties than among the population. In Britain, the reverse is true. That is an essential difference.

The reasons are several, from contrasting historical traditions, to different electoral systems and grassroots political parties that do not just look to think tanks to generate their policies for them.

But I think, at root, the Left in France has a courage and self-belief that attracts people, whereas the Left in Britain is timid and anaemic. Left Front candidate Mélenchon has called for a “civil insurrection” across Europe that would proclaim solidarity with the people of Greece and other victims of austerity. He has dragged Hollande, considered a centrist technocrat, leftwards. “He’s not afraid to say what he thinks and he’s full of energy,” says one (wavering) supporter of Mélenchon quoted in the Financial Times.

No-one is ever going to say that about Ed Miliband.

Saturday, 10 March 2012

If You Tolerate This Your Grandchildren Will Be Next Confessions of an Investment Manager

Two days before he committed suicide at Cannes in 1905 the Russian millionaire industrialist Sawa Morozov gave a large wad of cash to the Russian Social Democratic Party, the party of Vladimir Ilyich Lenin, which was later to morph into the Russian Communist Party. Morozov had been bankrolling the party to the tune of two thousand roubles a month since early in the previous year.

I tell this tale not only because it is a good story but because it illustrates that class treachery, or even a death wish at the summit of society, is not unheard of.

Now, we are witnessing a spate of, if not exactly class treachery as Morozov practiced it, then class misgivings among the people who have orchestrated the financial bacchanalia of the last 20 years.

In August last year the world’s most famous investor, Warren Buffet, said he had been coddled long enough by a billionaire-friendly Congress and called for higher taxes on the rich (or at least higher than for people who were much poorer than him). In January the Hungarian-born speculator George Soros predicted blood on the streets of American cities, and the coming of an “evil” period of history. In Britain, rather less dramatically, the former chief executive of Greggs the Bakers, excoriated corporate greed and said that if executive pay were halved, senior executives and bankers would still be paid too much.

The latest apostate is fund manager Jeremy Grantham. In a letter to investors, the British-born Grantham, who works in the US for one of the largest investment firms in the world, said that capitalism’s failings may bring it down “and us with it".

Capitalism, he told his readers, “has no sense of ethics or conscience”. Corporations are only interested in the immediate gratification of profit and lack long-term horizons. They cannot account for, let alone deal with, future disasters like climate change or the gradual exhaustion of natural resources. “To leave it to capitalism to get us out of this fix by maximizing short-terms profits is dangerously naïve and misses the point,” he writes “… our grandchildren really do have no value.”

This is Grantham speaking. There is no such thing, he says, as “sustainable growth”. You can either have sustainability or growth. Not both.

In his letter, Grantham gives short shrift to the narcotic of corporate “social responsibility”. “Why would a company give up a penny for the common good,” he asks, “if it is not required to by enforced regulation or unless it looked like that penny might be returned with profit in the future because having a good image might be good for business?”

Grantham says the only hope is a mixture of enlightened regulation and capitalism. “With the stakes so high we have little alternative but to change our ways.”

But, in truth, Grantham is as “dangerously naïve” as the people who believe his grandchildren have nothing to worry about.

He makes four points:

1 Corporations and senior executives have grabbed all the productivity gains of recent years. In the US, he says, the pay of senior corporate executives has risen from 40 times that of the average worker’s in the 1950s, to more than 600 times today. Average pay has stayed “unprecedentedly unchanged” for 40 years.

2 Corporations are only interested in high financial returns in the here and now. Future harm to society or to the natural world is literally not their problem. “The reader can easily see,” he writes, “how a corporation’s outlook on potential future damage might be a painful mismatch with that of ordinary individuals and society at large”.

3 Logically following their own interests, these companies use the resources they have accrued to lobby and advertise in order to prevent government from taking action. They also use this money to sedate public opinion so that there is no demand for radical change on issues, such as global warming, which threaten society’s future existence.

4 In order to “save our bacon” we need a mix of enlightened regulations and capitalism. We need to become more like “a handful of democratic countries in northern Europe” (like Norway and Germany presumably).

But you only have to put 1, 2 and 3 together to see that 4 won’t happen. Government, even in a notional democracy, is not a wise, beneficent being above the turmoil going on beneath. What it does is the product of the interests that impinge on it and those interests are, in terms of scope and wealth, almost universally corporate. Grantham, because he is intelligent and sane, believes that sanity will prevail. But why should it?

The writer Mark Fisher talks about “a refusal to accept the consequences of the sidelining of government in global capitalism – a sign, perhaps, that, at the level of the political unconscious, it is impossible to accept that there are no overall controllers, that the closest thing we have to ruling powers now are nebulous, unaccountable interests exercising corporate irresponsibility”.

The assault on “big money” that Grantham thinks essential just won’t happen from within the existing political system. In the US, both Democrats and Republicans are in hock to Wall Street, and whoever wins elections, the personnel of American administrations are ex-corporate CEOs or former investment bankers. In Britain, the Conservative party literally exists to further corporate interests. The Labour party, which has inched leftwards under Ed Miliband, is now engaged in a “big love bombing of business” (it must be awful to feel unloved) according to one senior party figure quoted in the Financial Times.

Corporations, the selfish institutions which Grantham says are so fixated on short-term profits that they can’t conceive of long-term horizons, have captured the political system.

The wise regulation that Grantham covets can only come about because of political and economic struggle. And organised labour which once waged such a struggle has been forcibly removed from the scene.

But, even if it were possible to attain, why should regulation nullify capitalism’s unconcern with the longer-term horizon? If Goldman Sachs and BP are setting the world on fire, why should regulation douse the flames?

If the basic organ of capitalism – the corporation – is so anti-social and unable to conceive of the future interests of society, then shouldn’t a sane political strategy concentrate on changing the nature of the corporation and economic environment that surrounds it (capitalism)? Rather than expecting government to act as a perpetual and, ultimately ineffectual, fireman.

But a capitalism transformed by such a sane political strategy, wouldn’t be capitalism anymore.

“Capitalism,” says Grantham, “by ignoring the finite nature of resources and by neglecting the long-term well-being of the planet and its potentially crucial biodiversity, threatens our existence.” He is sane enough to clearly see the problem but cannot face the solution.