I read an interesting article in the Financial Times recently,
Powerful interests are trying to control the market, John Kay, which
describes the problem of rent
seeking, and inspired me to write this piece. In the same vane is
another Financial Times article,
Only competition can safeguard free markets, Lord Saatchi.
Another article referenced is
A Critique of the
Austrian School of Economics: Monopolies.
Rent-seeking takes many forms. On Europe’s oldest highway, the Rhine
river, powerful land owners
once extracted tolls from passing traffic.
In Zimbabwe today corrupt government officials
extract efficiency crippling
tolls which contribute to the impoverishment of their country. Many other examples
of rent seeking are more
subtle. The phenomenon was first formally described in
connection with monopolies by Gordon Tullock's 1967 paper "The Welfare
Costs of Tariffs, Monopolies, and Theft". Rent seeking damages economic
growth in a number of ways: for example, by the diversion of effort and
talent from proper valued added economic activity to the collection of
rent; also, as we will see, by damaging the competition between market
participants which is so vital to innovation. In this article we also
show how concentration of economic power tends to become self
reinforcing and allows rent seeking, and how regulation of rent seeking is therefore
required to keep markets competitive.
In 1981 the market for personal computers was highly fragmented with
dozens of manufactures competing in both in the home and business
markets. The IBM PC was released at this time and it proved a huge hit
with business. "You can't get fired for buying an IBM" said many. Unable
to assess the technical superiority of competing computers directly,
customers put their faith in the famous IBM brand. Within the concept of
brand value, an economically undesirable component that comes out of a
lack of transparency and irrational purchasing decisions can develop,
and this component is a form of rent. With a very
powerful brand, for example, you can release a product which has identical
utility to that of your main competitor, but which is more
expensive, and still capture the largest market share. Some
customers will not pay for a premium product, so you
leverage your economies of scale by selling the same product in a
cheaper unbranded format to pick up the bottom end of the market as
well. A huge company such as Nestlé, for example, may have several near
identical products competing under a variety of names and
brands. Your marketing then focuses on creating consumer expectations
which maximizes your top end sales. If you are
selling batteries you never advertise how many ampere hours your product
actually lasts for, you want your customers to put their faith in your
brand, you avoid giving them the capability of making a rational choice.
Economists talk about efficient markets, but information asymmetry and
behavioural psychology subvert the theory, allowing suppliers to
manipulate their customers. If the government tries to intervene in the market, for example by
increasing transparency, you employ lobbyists to argue the libertarian
case. A competitive market is your enemy, you do everything you can to
subvert it, to monopolise it, to seek rent.
Concentration of economic power tends to become self reinforcing: because of economies of scale; because of the power of
irrational brand value; and because of the build-up of resources which can be used to stifle
competition, for example by pricing competitors out of the market and
later raising prices. This problem was widely recognised in America’s gilded age.
The well-founded fear was that the new mega-rich – the Rockefellers,
Carnegies, Vanderbilts – would use their wealth to grow their economic
power, subverting the market. Today it is Russia that exemplifies this
problem. In 1902 Teddy Roosevelt's great "trust-busting" campaign began
to reverse the tide of monopoly formation in the US. In the 1920s,
however, the reforms unravelled, and by 1929 only 200 corporations
controlled over half of all American
industry. The New Deal era ushered in another era of antitrust policy,
again reducing the percentage of monopolies. However, since the Regan
years antitrust enforcement has dramatically declined and there has been a
massive increase in consolidation. Consider US corporate earnings over
the last several years. They have been regularly exceeding the rate of
US GDP growth - a paradox Warren Buffet famously comment on. A
transformation is taking place in modern society, competition is
shrinking and rents rising, therefore corporate profits are
accelerating. We are witnessing a vast transfer of wealth from the
average man to the shareholder, and much of it is borrowed money. We
also have a rise in rent seeking in the banking industry with consequent
outsize earnings. Wal-Mart is a classic example of unstoppable
economies of scale, which should bring widespread economic gains, but
which delivers much less than it could because Wal-Mart retains many of
the economy of scale benefits.
We have Lord Saatchi's point: After 100 years of competition, the
record seems to show that Marx was right – the end result of competition
is the end of competition. Marx foresaw constant internecine warfare
among capitalists, resulting in fewer and fewer controlling vaster and
vaster empires.
Lenin described capitalism degenerating as follows: Free competition is the basic feature of
capitalism, and of commodity production generally; monopoly is the exact
opposite of free competition, but we have seen competition being
transformed into monopoly before our eyes, creating large-scale industry
and forcing out small industry, replacing large-scale by still
larger-scale industry, and carrying concentration of production and
capital to the point where out of it has grown and is growing monopoly.
In the UK today we clearly see this
process at work on the High Street,
where the number of independent retailers is continuously shrinking and
retail chains are increasingly dominating the landscape. Some believed
that the internet might reverse that tide, but the rise of Amazon and
eBay has dramatically proven otherwise.
Although the IBM brand started the ball rolling, in this particular case the
attraction of open standards became a far more important factor.
Failing to realise the importance of the operating system, IBM purchased
one from Microsoft. As a result other manufacturers were then able to
copy the IBM hardware design and ship their 'Clones' with a perfectly
compatible operating system purchased directly from Microsoft (in order to produce their
own non-infringing functional copies they reverse engineered the IBM
BIOS, but reversing engineering the OS would have been too difficult). As a result, even without IBM's
approval or participation, their PC became an open standard with
virtually unstoppable economies of scale. IBM soon lost control of of
the market to clone manufacturers, and later also lost control of the
definition of the open standard. However,
Microsoft's key role as the operating system supplier to the IBM
compatible market gave it a hugely powerful monopoly which it later
extended into word-processing, spreadsheets etc. US regulators
consequently debated intervening in the market to split Microsoft, as
had happened to AT&T in the 1970s. The company, however, eventually
escaped intact after making numerous concessions; for example improved
interoperability with competing software.
Microsoft's dominance clearly
allows it to seek rent. For example, Microsoft can, to some extent, set
prices for its products simply by maximizing its revenue - whereas in a
competitive market prices converge toward the costs of production. The debate in Microsoft's case is to what extend
this rent damages the workings of the free market and the economy as a
whole. Does Microsoft
reinvest the rent raised in the production of economically useful value
added innovation? If not it is sucking valuable capital out of the
economy, impoverishing the dynamic whole to feed the lazy one. Can we
still count on Microsoft continually improving a product which is
subject to little competitive pressure? Can we rely on Microsoft
not stagnating intellectually, for without competition only its ideas
are realised? Will
Microsoft use its monopoly power to increase its revenue by manipulating its customer base into wasteful
or even damaging activity? For example, forcing customers to spend money
upgrading to the frivolous and unproductive Office 2007. Another example of this concept is the food company which
encourages its customer to buy and consume unhealthy, but addictive,
junk food. This is the most terrifying argument: the idea that rent
seeking ends up in intellectual decline, as companies become more
powerful they squeeze all idealism out of the market creating a world of
overpriced mindless junk.
How can government intervene to curtail rent seeking?
Here are some examples:
(1) In the EU Class A Bananas
must conform to a certain size and shape. Similarly in the UK all
personal loans must advertise a standardised measure of cost called the
"APR" - Annualised Percentage Rate. Car manufacturers have to prove
their designs conform to certain safety standards. This type of
intervention is useful because standards are the lifeblood of
competitive markets. Open standards are part of this concept - European
governments were right to target Apple's proprietary iTunes format.
(2) Many consumers bought the IBM
PC because they did not have the skill to
make a technical choice, and instead put their faith in the IBM brand,
earning IBM rent. To reduce this tendency regulators need to concentrate
on educating the consumer. For example, regulators subject consumer products to a battery
of tests but the data rarely sees the light of day - they should take a
much more proactive stance in publishing pertinent data on the
effectiveness of products allowing the consumer to make rational
choices. Pursuing vendors for misleading claims, eg in the cosmetics and heath
food industry, is not enough. I want to know if there really is any difference
between Colgate Total and Wal-Mart's own brand toothpaste. I want the world to know how bad the sound quality
of an iPod really is, because then Apple will be motivated to divert
some of their gigantic profits toward fixing it. Today this review
function falls to private sector third parties, such as consumer
magazines, but these third parties are far to close to the manufactures
and therefore corruptible (in most cases their main form of income is
advertising from the very manufacturers whose products they review).
(3) Consumers are easily duped by
small print, regulators need to maximize price transparency by purging
contractual complexity. Cross subsidising,
for example,
endangers transparency and regulators should strive to eradicate it. The
foreign exchange fees many companies charge, eg Visa and MasterCard, are
at best cross subsidising, at worst profiteering. Contracts with
notice periods not only damage transparency, they criminalise the
unfortunate, costs should ideally be front loaded. Hire purchase is an
obvious example of where this can not happen, yet it is also an example
of a shady area that too often delivers low added value to consumers. If
someone wants to borrow money to buy a car, far better they go to a bank,
a separate specialist competitive market, not take a
loan from the dealer.
(4) Duracell and Energiser between them dominate the
battery market and sell mostly disposables. Suppose we outlawed the sale of disposables
and forced consumers to take rechargeables (which in fact can be made to
last just as long). Consumers would gain, as would the environment. What
we are saying here is that consumers are irrational for various reasons
which include the power of brands and advertising to manipulate their
purchasing decisions. This irrationality creates, in a sense, an
opportunity for battery manufactures to earn rent.
(*) What do these examples have in common? Milton Freedman imagined
laissez-faire as a world of untrammelled creative-destructive, innovation and
efficiency gains, but capitalist vested interests also work to prevent these
forces at the customer level. That's because the powerful incumbents don't
really want to struggle for survival in a world of creative-destruction and
innovative efficiency, they want sit back and rake in profits keeping their
customers using proprietary expensive technology. Milton Freedman wasn't
thinking about the balance of power between incumbents and new entrants, as soon
as that balance swings toward incumbents capitalism becomes anti-innovative and
bloated. Freedman's inability to comprehend the tradeoffs involved in the
duality of becoming that exists at the heart of all economic and political
policy prescriptions is the classic mistake of the Cyclopes like right wing
ideologue.
Using these examples we can
consider how one might go about regulating the Mobile Phone market. For
historical reasons we have, in the UK, four major companies competing in
the market and each one owns its own infrastructure. As a result we sometimes see
four network masts on the same building, yet this setup is deeply
inefficient and environmentally harmful. Instead, the government should
own the infrastructure and maintain it by inviting bids from private
sector companies. Will prices increase if a single company maintains the
network infrastructure? No, because we invite bids thus subjecting the
provider to
competitive pressure, also we maximize economies of scale. Will the
network infrastructure quality suffer if consumers have no
purchasing power over it? No, because consumers
are not network experts, quality is better enforced by a regulator with
scientific and engineering expertise.
The network provider should not sell/bundle
telephone calls, just network connectivity. Consumers would purchase
telephone calls
in a stand alone VOIP market, and because competing within
this VOIP market would be easy, prices would be driven to the lowest
possible level. In addition, the network contract provider must not be allowed to include a phone in the contract, prices will
shrink if consumers are forced to buy their phones in a maximally
competitive stand alone market. Neither should carriers be allowed to
lock consumers into yearly network connection contracts, contractual
complexity must be ruthlessly minimised in order to expose suppliers to maximum
price transparency and therefore maximum
purchasing pressure.
These radical changes would create
a viciously competitive market which would drive prices to the lowest
possible level and render the maximum level of economic efficiency.
Mobile Phone companies would be horrified, it would decimate both their
margins and their brand value. This this destruction of brand value also
destroys the advertising market, because in a highly competitive
transparent market brand name becomes irrelevant. The advertising market, which is
primarily the market for Brand Value, is not only an economic
inefficiency, many argue it also has a deleterious impact on
consumer ethics.
Vigorous control of rent-seeking is the difference
between a competitive market economy and a laisser-faire regime, and it
is a vast difference.
Applying these principles across
the board would totally transform our economic model, our standard of
living, and perhaps even our ethical outlook. This is what Tony Blair's
redistributive laisser-faire lacked, this is the golden key capable of
redistributing efficiently, the key which which avoids easily evaded and inefficient
levels of personal and corporate taxation rates.
The plot thickens: If
concentration of economic power has a hugely beneficial impact on
productivity as a result of economies of scale, we can not sacrifice it
for the sake of a competitive market economy. So monopolies in boring
economy of scale consumer products such as toothbrushes or batteries, or ultra high-tech
high-risk products such as aeroplane or nuclear power plant manufacture,
may be as inevitable and desirable as monopolies in public utilities
such as water companies and phone companies. If this is the case competitive pressures
in these cases can never
elevate consumer interests above producer interests, and we logically we reach beyond the private
sector
toward the idea of 'vastly efficient economy of scale' and 'vastly advanced high
tech' state capitalism - because the state
alone works in the peoples interest, and therefore it alone can be
allowed to take a superior position.
Think about Hitler or Stalin during the 1930s, the incredible strength of these
countries derived from their state led economic models. What really killed the
state interventionist Post-Keynesian Consensus in the 1970s Anglo-Saxon world
was the incompetence of Anglo-Saxon democracy post the 1960s embrace of
politically correct egalitarian populism, a philosophy which has its epicentre
in the UK and USA. By the 1970s that populism was crippling the economy because
the many state owned enterprises which dominated the economy were unable to
implement labour market reforms and close down outdate industries such as coal
mining. In effect left wing politicians and trade unionises had killed the goose
that laid the golden egg with their cowardliness and anarchism, driving a swing
to the right. But instead of banning strikes and cutting wages and making the
government bureaucracy more rational and business like, Thatcher and Regan
solved the problem by getting the government out the business of running the
economy. Likewise the economic power of the Soviet Union was emasculated by
erratic Khrushchev who reacted to Stalin's violence by rejecting cold
hard policymaking and embracing wooden left wing ideology. Lee Kwan Kew wasn't
immune to Thatcherite mistake, as his unwise decision to sell instead of rent
government housing probably shows, but he is a good example of someone who
didn't fall into the privatization trap, and simply outlawed trade unions,
allowing Singapore to thrive under a much more State Owned Enterprise like
model.
So think about the failure of State Owned Enterprise in Western
countries during the 1970s as not the end of the game, but rather just
an example of what happens when politicians can't force through economic
reforms or run business competently. The philosophical problem that
everyone talked about in the 1930s is that whilst State Owned Enterprise
has vast power in the hands of a great dictator, it becomes a dead
weight that drags a country underwater in a weak incompetent
democracy. Today we talk about the idea that American politicians are so
incompetent that the S&P500 rallies when the House and the Senate and
the President are split, because the less the politicians can do the better.
This kind of incompetence turns state owned enterprise into a quagmire, but if
you can find a wise King then state owned enterprise can flourish as it does in
Singapore and China. But today the era of incompetent democratic politics is drawing to
a close anyway, because as time goes by and the problems in the US economy cause
by political drift have mounted, and are gradually becoming totally
unsustainable.
The article SOEs
in China today – Not your Grandfather’s State Owned Enterprises any
more talks about the history of Chinese State Capitalism. It runs
approximately as follows:
Those who have been doing
business in China for awhile are quite familiar with the differences
between the State-Owned Enterprises (SOEs) and the Privately-Owned
Enterprises (POEs). For those of you not familiar with this distinction,
let me break it down for you. The POEs are just that, companies owned
privately with little or no government involvement – traditionally they
are perceived to be run by business-savvy executives with global
business experience. The SOEs, by contrast, are traditionally perceived
as hulking, unprofitable behemoths chocked full of aging assets and run
by 55 year old Party hacks in moth-eaten Mao suits and greasy comb-overs.
After Liberation in 1949, the Chinese Communist Party brought all
businesses under their control and POEs were, for all intents and
purposes, completely eliminated in China (as was nearly all foreign
investment when they were unceremoniously kicked out of China). Through
a series of disastrous events in the 50s through the 70s (the Great Leap
Forward, the Cultural Revolution, etc.), the government proved that, not
unlike their Soviet cousins, they were terrible CEOs – factories were
inefficient, poorly run and churned out bad-quality junk that had no
relationship to any market demands whatsoever.
One of the many reforms that the Deng Xiao-ping administration started
in the early 80s was captured under the Party phrase “POEs will advance;
SOEs will retreat.” What this meant, in effect, was that the Party
wanted to get out of the business of being in business and started the
long, mind-numbing, ulcer-inducing process of unwinding the complicated
SOE culture … which included, for many people, guaranteed housing,
education and healthcare.
Fast forward to the mid-2000s and you begin to see private Chinese
companies really moving the market. Thanks to China’s joining the WTO in
the early part of this century, various sectors in the China market were
opened to foreign investment, particularly retail and
distribution/logistics. This led to further (and more rapid)
modernization of China’s business environment and it looked as if the
SOEs were going to go the way of the dinosaur, only to be studied by
business anthropologists who dug up their jerry-rigged balance sheets
and padded expense accounts.
Fast forward to today and we are
seeing a surge in SOE. Eg in automotive, the so-called “Big
Four” (First Auto Works, Shanghai Automotive, Dongfeng and Changan) are
on a consolidation tear, encouraged by the government to acquire
smaller, regional automotive companies, much like GM, Chrysler and Ford
did in the early days of the U.S. auto industry. The Chinese oil, gas
and mining giants are actively looking outside of China for investment
and expanding their global footprint. Several of the larger SOE
construction equipment companies are aggressively expanding, both inside
and outside of China. In 2009 state owned airlines have taken advantage
of the credit crisis to gobble up essentially all remaining privately
owned airlines...
All of this has led to speculation that the Chinese government is trying
to reverse their dictum of the 80s and say, rather, “SOEs will advance
and POEs will retreat.” The SOEs are no longer run by Party hacks …
their CEOs are often Western-business educated and understand very well
both international commerce and the unique requirements of doing
business in China. They are dressed in Armani suits, have their hair
styled and show up at the right parties...
More and more we see Chinese companies – and particularly SOEs – coming
to the forefront of Western Business worries. For example, we have just
watched Shell being squeezed out of
oil refining in China by the low returns on capital its SOE competitors are prepared to
run. These guys are no longer the lazy competitors we once knew, they
are well run, government backed, in it for the long term, and prepared
to run much smaller profits. So they are a big threat to our economic
model, whether you know it or not.
Now that we've heard the moving story, let's talk about
China's embrace of State Capitalism in a more scientific way. We can point
to the following factors:
(1) Economy of scale. Massive centrally planned localised infrastructure
investments have leveraged the type of economy of scale economics which Paul
Krugman won a Nobel Prize describing. In China there are cities that specialize
in steel manufacture, other in solar panels, others in paper towels, others in
plastic toys, there are even entire towns devoted to the manufacture of hand
painted reproductions of famous artworks. As China continued to push this
economy of scale model forward it naturally embraced state capitalism because the
goal is to consolidate everything into the ultimately powerful seamless whole.
(Incidentally, the once noble Paul Krugman didn't have the courage to follow up
on his economy of scale model, which is a great challenge not not only the
relativism of the modern liberal, but also the liberals lack of sporting
prowess, and so the once great Krugman has now fallen by wayside, devoting his
life to the pacifistic campaign against austerity like Bertrand Russell in WW1.
Lets sing a beautiful prayer in the hope it brings him back from the abyss!
Nobody wise holds grudges against men like Krugman because it's ignorance not
wickedness that is holding him back, and one can only pity the terrible inner
pain it must be causing him.)
(2) Inequality. By capturing corporate profits in State Owned Enterprise society
as a whole is enriched rather than a handful of lucky shareholders and chief
executives, or fat margins are simply eradicated and prices shrink. The first
cuts taxes, the second cuts consumer prices. For example, China has the some of
the world's leading banks, but because they are state owned even their most high
flying of executives are paid a pittance compared to Western banks. For example,
whereas corporate profits as a proportion of GDP continue to rise
inexorably in the USA even in the midst of recession, in China the tide is
beginning to change. This is one of the reasons Chinese stocks are falling, but
it's also one of the reasons Chinese companies are expanding across the world,
namely because they are happy with low single digit returns on capital and
therefore offer much lower prices that Western competitors. For example, think
carefully about this statistic: China produced 560 million watches in 2009,
Switzerland produced 22 million, yet the Swiss industry’s revenue was almost
five times higher. To save you the math, Swiss manufactures such as Swatch sell
their watches for an average of 127 times as much as the many nameless Chinese
producers commissioned by companies around the world to produce their own-brand
watches. And we are saying the extraordinarily slim profit margins such Chinese
producers run are not just a result of creating watch cities and other economies
of scale devices we talked about in the first point above, but also the result
of state owned enterprises who charge a small return but never profiteer with
household name Western style profit margins, and this in turn compacts margins
at all the private sector companies in China too.
(3) Stability. Think again about the Chinese vs Swiss watch example from the
preceding point. High profit margins can become a trap - a bubble - a performance enhancing drug
that bulks up and then implodes. Imagine yourself as an expensive Swiss Watch
maker in a word undergoing a sort of new Industrial Revolution driven by China.
First thing you notice is a kind of a kind of benevolent low inflation
environment in which the price of imported technology and metal falls, so your
profits go up. Then the nouveau riche in China start buying your expensive
watches and you are on a roll. But the Chinese slowly catch up in the same way
that Japanese motorbikes once caught up the British bike maker Triumph, and one
day the world figures out that your upmarket brand is all skin deep over-pimped
marketing and your products are not really worth the premium price. Suddenly
your sales start falling but the global economy is still sizzling and inflation
is picking up and your life becomes a nightmare of stagflation. In the 1970s the
terrible economic decline was created by a combination of world inflation
combined with inefficient manufacturing brought about by ossified labour market
and incompetent central planning, today the West's problem is bloated profit
margins and socially useless pimped up brands.
(4) Technological progress. Aircraft maker Airbus may not be as profitable for
its shareholders as the sporting goods company Nike, but Airbus is a vastly more
valuable national asset. SOE allows government to direct the economy away from
the fluffy easy money in consumer brands, real estate and banking. Today we
realise this kind of economic planning is absolutely critical - contrast how
China has moved rapidly up the value chain into high tech business such as high
speed rail, whilst many other emerging market countries are basically nothing more
than giant
soup kitchens which let Western companies dig up their mineral resources in
return for cash which they in turn dole out to their masses. Even in the high tech
West statesmen are now beginning to realise the importance of nurturing hi tech
and manufacturing exporters. Think how laissez-faired pumped up and then
abandoned British Banking and Spanish Real Estate like the Californian Gold
Rush.
(5) Environmental progress. Enforcing environmental standards on small private
companies with regulation and taxes proved almost impossible, so instead China
has encouraged consolidation of production into a handful of massive SOEs which
share its environmental vision. Over and over again the Chinese have found that
fragmentation lowers standards. For example, the death toll at small Chinese
coal mines was appalling because all the cowboy bossed cared about was making
money and you can't really make men more loving or more professional by sending
in a team of lawyers because the lawyer's don't know anything about the industry
and just end up tying everyone up in red tape. Instead you squeeze out all the
little guys consolidating the industry into a handful of highly professional
companies dedicated to higher values.
(6) Cultural progress. In China investors have badly burnt by misreporting, babies have been
poisoned with toxic milk, and roads have collapsed though shoddy building. The
Chinese private sector is like many emerging market private sectors, it's
essentially a wild west like zone full of dishonesty, disrespect, and
unprofessionalism. Think about the famously professional Germans, how did that
idealistic culture come about? It was created by the professional guilds that
started up back in the Age of Enlightenment, not by
law suits against bad practices. Today the Chinese equivalent of the old
European professional guild is state owned enterprise. Perhaps the new dictum
should run: "SOE
builds integrity, camaraderie, and expertise; POE builds dilettantes, cowboys,
and wheeler dealers". In the 1970s state owned enterprises lost interest in
their customers and only cared about employees, today we have swung the other
way around, private sector companies have lost interest in customers and only
care about shareholders. Socrates said the target is "wisdom", in the 1970s
companies were aiming at employees, today companies are aiming at profits, and
the mistake of the the unenlightened man is to think that these superficial
targets must lead up the mountain, but they do not because the link between
wealth and wisdom is not monotonically increasing (as explained at length in
point three above).
Today Joseph Stiglitz, whose work on information asymmetries won the Noble
Prize, has begun advocating state owned enterprise in the West as a way to
leverage the ultra cheap financing available to the US government, and to
promote investment at a time when private sector counterparties are scaling
back. This idea has become known as the New European Marshall Plan.
In order to understand the idea of a new New European Marshall Plan we must bear
in mind the following points:
(1) These state investments must generate minimal positive returns, they can't
be subject to democratic capture creating loss making vanity projects (eg UK
high speed rail), or loss making hot air projects (eg UK wind farms), they need
to be managed in a hard headed non democratic way.
(2) They can't get caught in existing public sector labour markets and unions
etc, they must sit apart in a special blue sky structure or they will end up in
1970s style Post Office style incompetence. Think of the way Lee Kwan Yew
enabled the assent of Singaporean state owned enterprise by banning strikes.
Western liberal democracy is weaker than Singaporean one party rule, but an easy
policy to enact in a country like for example Greece, would be a EU state owned
enterprise project that invests a lot of money in the country with the promise
of a low return on investment and excess profits reinvested, and which employs a
lot of Greeks, but which secures in return total exemption from all Greek laws
including the right to strike. Even the notoriously self-centred modern Greeks
would be far too ashamed to say no to a project like this which brings both
benevolent investment and jobs.
(3) These projects shouldn't be afraid to compete with the private sector, stepping on
private sector toes is likely to be inevitable if the projects are to have real
world value, besides destroying private sector monopolies is the proper way to
return excess shareholder returns to the public. Let's take Greece as an example
again, you can deliver huge stand of living increases to masses simply by
cutting prices. For example, you can create a state supermarket with much lower
profit margins that private sector counterparties and monopolise the market. You
could move more rapidly by nationalising competitors or simply removing their
right to compete, but it would be important to think about the long terms
implications and individual ethics of such an aggressive move.
(4) Ideally they should avoid a lot of outsourcing which allows the incubation
of in house talent and a new idealistic workplace culture. In other words,
ideally one wants to build a smart government whole so that we don't have smart
supermarkets but incompetent teachers, everyone is together and leans from one
another. However, if speed is more important, so utilizing a more crony
capitalist rather than state capitalism culture, the projects should ideally be
designed in such as way that the capitalist incumbent has no power over product
deign or marketing, but is simply a provider. Perhaps the root of all the
problems in the modern world is the tangling up of sales and production and
accounting, because it's in this darkness that all the evils of rent seeking
emerge, such as mindless products, and worthless products, and excessive
corporate profits. If we trying to design an economic model to make the Kings of
Philosophy such a Plato and the Gods In Heaven such as Hephaestus proud, we
would surely seek to prise these things apart so goods are designed for the best
men not the masses, so quality is judged by scientists not consumers, and so
that in all large corporations profitability is totally transparent and
corporate profit margins and executive pay are regulated.
(*) The political problem with such investment is that it takes on both the
unions and the private sector at once, it is antithetical to the vested
interests on the left and right who control today's political parties by
patronage and tradition. For example, many EU politicians are in the pockets of
trade unionists who tell the workers who to vote for and finance political parties. For example, many EU politicians are in the pockets of big
businesses employing lobbyists and dishing out lavish entertainment.
(*) The bureaucratic problem with such investments is that in the EU today
governments are all but banned to undertake investment that might compete with
the private sector. The problem is not political funding because the EU has both
great willingness and some budget for public investment in areas including
infrastructure, R&D etc. The problem is that bureaucratic EU rules and
regulations forbid projects on anti-competition grounds and constantly stop
short of real results in order to "let the market take over". As Jesus
said moral laws are slavish, you have to go behind the surface and seek the
essence of what makes men good, ie contemplate things such as love not just rely
on rules saying men must shake hands etc. As Plato in the Statesman dialogue,
all these people who think they can write down a lot of rules that describe what
statesman can or can not do are ideologues, the science of government is too
complicated to express in simple written laws, laws are what schoolteachers
create to keep the community stable, but they can never be perfect and they need
judges who understand what justice, beauty and good really is to supervise their
administration.
If the EU Marshall Plan ever takes off what kind of policies might it pursue? In
order to think about this question imagine yourself as an entrepreneur who has
the politicians and the central bankers in your pocket. In other words, you have
infinite political muscle and infinite credit. Where do you think the easy money
is? Here are two examples:
(1) Housing & Political Muscle. Think of Paris compared to Los Angles. What
Napoleon III had which the modern businessman doesn't have is political muscle.
Think about the real estate market, a cheap out of character house in Saint
John's Wood will sell for a vast amount of money. An expensive beautiful house
in Stanford will still sell for peanuts. Do you see that capitalism relies on
individual incentive aligning itself with communal good, but in real estate the
dynamics point in precisely the opposite direction - self interest encourages
ugliness in Saint John's Wood and prevents beauty in Stanford? That is why
Western capitalism has destroyed it's cities, why no really great new cities
have been built in post-modern times. The only way to overcome this inefficiency
is to work at the communal level, not piece meal developments but rather entire
cities such as the statesman of old used to build. The problem is that NIMBYism
gets in the way, but if the world is run by competent politicians who can sell
large projects to their electorate huge projects become possible. For example,
imagine the UK government using compulsory purchase orders to buy agricultural
land at agricultural prices, and using compulsory purchase orders to buy
ex-council estates at ex-council estate prices, then using modern materials
combined with neo-classical architecture and ambitious central planning to
create valuable new cities as beautiful as Chelsea. Such investments will (a)
make an enormous profit, (b) stimulate the economy, (c) solve the housing
crisis, (d) help mend the bankrupt culture because squalor is the number one
cause of social alienation.
(2) Nuclear & Financing Muscle. The first four European Pressurised Reactors currently
being built in France and Finland are well behind schedule and budget. That's
because the EPR is a new reactor design which has more sophisticated safety
features and burns fuel slightly more efficiently, and new designs take time to
bed down and become cost effective. As a result the Nuclear Industry is trapped
in a sort of chicken and egg paradox, nobody wants to get started because the
business isn't profitable unless you are building in serious numbers and the
private sector don't have either the capital or risk appetite for massive scale.
As a result the nuclear industry today is increasingly dominated by China, yet
the West are technologically still well ahead. In other words the Chinese are
leaving the West behind in the Nuclear Industry not because they have better
scientists, but simply because they have politicians with bigger vision and
bigger balls. We said "imagine yourself as an entrepreneur who has the
politicians and the central bankers in your pocket", if you could achieve those
things you leverage the superior technological advancement of the West combined
with the the unlimited world appetite for Western government debt to launch a
massive building program and rule the world Nuclear Industry. Under
laissez-faire capitalism
this will never happen, and the Chinese will inevitably end up ruling the world of
Nuclear and many other things. This is why Agamemnon was prepared to sacrifice
his daughter to get the fleet sailing, if the West do not wake up soon they will
be left so far behind they might end up slaves.
What else is left in the world of post-paradigm economics? Dyson said he build a
machine to vacuum the floor and wash the floor, but no one was interested. When
he stripped out the washing feature it became a hit. In the same way too many
ideas can leave people spinning. But this banquet deserves a dessert...
Do you know what the difference between Tesco's Toothpaste and Colgate's
toothpaste is? Can you tell them apart in a blind tasting? Do you know which is
better for your health? Do you even know what the basic ingredients of
toothpaste are? No? Then how can you possibly call yourself a rational agent
maximizing utility? All those toothpaste brands are a waste of time that enrich
at the people expense, we could set up one factory in Greece that made all the
toothpaste in Europe and save a fortune. We can give people twice the quality of
life at half the price by cutting away the rubbish that serves no function and
just contributes to economic and environmental waste. That's what the new
paradigm is all about, thinking out of the box about how to make people's lives
better. Let's hope that this time around we don't need a war to make us realise
how silly we are, because if you really think about it carefully that was the
purpose of the Second World War, to get rid of the muddle headed politicians and
bring societies together with progress and passion for communal advancement.
Think about those state owned factories making tanks and submarines and men
giving their life for their country and women working round the clock. What do
you think God wants for humanity? To become smart and do glorious things. To
evolve.