We are developing the social individualist meta-context for the future. From the very serious to the extremely frivolous... lets see what is on the mind of the Samizdata people.
Samizdata, derived from Samizdat /n. - a system of clandestine publication of banned literature in the USSR [Russ.,= self-publishing house]
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In having another bite at the Green issue, one thing struck me as I surfed around the Net looking at some of the comments made by people about the idea of the Tories’ trying to stop people from flying to holiday and business destinations. Some people genuinely seem to feel that a crackdown on global warming, and hence a halt to rising sea levels, is good for the poor. So we capitalist zealots should stop trying to argue that Tory leader David Cameron or Labour’s Tony Blair are acting out of snobbish disdain for Essex Man and the latter’s desire to go to Malaga for a cheap holiday. Oh no.
I guess it is true that if sea levels do rise as much as the gloomier scientists suggest, and the Earth gets progressively hotter, that poor people will suffer disproportionately from that. Air conditioning costs money. Buying a home away from a flood plain also costs money. I recall that about 3 years ago, hundreds, in fact thousands of French elderly people died because all the pharmacies were shut for the August holidays and they could not get treatment. That is what poverty does – it cuts your optiions and means of escape from trouble. So maybe David Cameron is acting out of paternalistic concern for the poor — in the future.
And that is the kicker. Even if global warming is man-made and can be reversed, the benefits of such an expensive exercise will not come through for decades, centuries, or even longer. How can the interests of a guy who cannot afford an expensive flight be set against the interests of someone living in 2300? Why should a politician, answerable to an electorate, sacrifice or ask to sacrifice its interests for the interests of people in such a long time to come, and over a theory or set of theories that are, at best, not proven to the standards of a court of law?
We have been beastly to Cameron and his ilk on this site lately, and with ample justification. If Cameron wants to explain quite why the ordinary citizen should be shafted, yet again, by some grand project to make the world a better place in centuries to come, let him make that case.
Meanwhile, my boss, not the most excitable of men, said, in a quite unsolicited moment of rage this morning, that Cameron was a “communist”. He is not even a rightwing Tory voter. I wonder if this view is starting to spread.
When commenting on the recent Chinese stockmarket meltdown, Glenn Reynolds wondered if a prediction posted on Samizdata some time ago could be coming to pass. Whilst exposure for Samizdata on Instapundit is nice, I think Mr Reynolds is wrong if he perceives this stockmarket wobble to be a potential opening salvo of the economic holocaust presaged on these pages early last year. Far from heralding the collapse, it will delay the inevitable.
In spite of a widespread belief in China’s embrace of free-market capitalism, enormous economic distortions characterise modern China’s economy. For example, why is it that, relative to China’s economic footprint, the Chinese stock market is rather pathetically stunted – especially in light of the vast savings pool the Chinese people have accumulated? As mentioned in the above article, the Chinese are great savers and they tend to deposit these savings into bank accounts because alternative investment opportunities are limited compared to those offered to a Western investor. Consider the following:
Why does the Chinese investor not sink his surplus funds into foreign commodities? Because he is restricted from doing so.
Why does he not invest in Chinese stocks? Because he (probably correctly) views the Chinese stock market as being distinctly ropey.
In light of these state-imposed distortive realities, what does one do with one’s savings? One puts them in the bank, of course. Predictably, the banks are awash with deposits. Under these circumstances, the principles of fractional reserve banking have been taken to the extreme in China, allowing the central government to durably zombify huge segments of the otherwise bankrupt state-owned industrial sector by forcing the “big four” state-owned banks to continuously loan depositors’ money to these failed state enterprises, in the full knowledge that these loans will never be repaid.
This fiscal expedience allows the central government to postpone the nasty (and potentially regime-threatening) hangover that inevitably follows a sustained attempt at central economic planning like that witnessed during the Mao era. Unfortunately, it cannot continue indefinitely. Firstly, it provides no market incentive – the only incentive that works – for the wayward state-owned enterprises to reform. If they do not reform into conventional free-market actors, they will always require such charity. Secondly, this charity can only continue if Chinese bank account holders continue to top up (or at the very least maintain) their balances.
Of course, the central government knows the above only too well. If China Inc. in its current incarnation is to survive, it is critically important that the Chinese do not withdraw too much of their savings from the state-owned banks to invest in other pursuits, as this will cause the banking system – and “socialism with Chinese characteristics” – to collapse. The central government probably engineered the recent stockmarket fluctuation to buttress the perception of insecurity that shrouds potential investment targets like Chinese stocks, and are no doubt well pleased with the message that was subsequently delivered to the average Chinese investor. This does not mean that the current Chinese economic model is now secure – it will unravel at some point in the future. However, that point has been postponed with a ‘hair of the dog’-type solution, which will make the eventual hangover even more severe.
The central government has merely bought some time.
George Soros, a man who can annoy with some of his less-than-brilliant pronouncements on public affairs, nevertheless is an investor of genius. Well, at least he was in the 80s and early 90s when, purely out of glorious avarice, of course, he helped push Britain out of the European Exchange Rate Mechanism in September, 1992. This event irreversibly damaged the reputation for competence of the then-Tory government of John Major and Chancellor Norman Lamont. Soros’s fortunes in the 1990s waxed, although he failed to exploit fully the 1990s dotcom boom and now prefers to travel the world dispensing advice. He is loathed by many on the right for his support for the Democrats. I saw him give testimony to a Treasury Select Commitee in the House of Commons a few years ago and felt that this was a brilliant financier who, like many men who are brilliant in one area, can be often rather silly in other areas (Einstein springs to mind).
But the beauty of open markets is, that even if you disagree with the views of a person, you can still trade with that person and make each other better off. Voltaire, when he travelled around England in the 18th Century, marvelled at the London Stock Exchange and how people of all religions could and did transact with one another. Well, Soros, a lefty financier, has just made the sort of deal that is likely to send those charming folk of the Democratic Undergound off the edge. Tee-hee.
The president of our National Welfare Rights Network is a man named Michael Raper.
Surely an excellent name for someone who constantly thinks about how best to take advantage of taxpayers.
When I read the following column by Will Hutton, lambasting private equity firms for daring to take over big UK companies like supermarket J. Sainsbury or whoever, I laughed out loud. Here is his lead paragraph in Friday’s Guardian:
It is time to come to the defence of the public limited company, one of the great Enlightenment gifts to western civilisation. Increasingly capital, in the quest for higher returns to make vast personal fortunes, is going private to escape the demands of public accountability on stock markets. If uninterrupted, the long-term adverse consequences of this privatisation of capital for our economy, society and democracy will be profound.
Rubbish. Firms that are floated on the London Stock Exchange, Nasdaq or the Martian 250 are privately owned, Will. They are not owned by the state. True, limited liability laws, as the libertarian writer and friend of mine, Sean Gabb, likes to point out, present serious issues in terms of the gap between ownership, responsibility and control (I wrote about this topic a while ago). But to argue that private equity shops like Apax, Carlyle or Texas Pacific – those evil Amerikans – are taking what should be ‘public’ into grubby ‘private’ hands is economic illiterate nonsense. Firms exist to make a profit, Will. As Milton Friedman trenchantly put it without hint of apology to the gods of ‘social responsibility’, a company’s job is to make a profit for their owners, not to further whatever corporatist/fascist/socialist/ist agenda that happens to attract the gaze of Guardian editorialists.
Why the current wave of hysteria about private equity? It is being fuelled by two things: fear and envy. Fear of the power of these sometimes shadowy firms to buy up famous companies with great wodges of debt finance, or leverage, as the finance geeks put it. Envy, because of the large bonuses that the private equity honchos pay themselves and the often high profits they make in turning firms around. And of course no story about private equity can be written without referring to the Masters of the Universe lampooned by Oliver Stone in Wall Street or portrayed in books with such objective titles like Barbarians at the Gate.
In the main, what these firms do is target cash-rich firms that are run by often lazy executives who have presided over crappy business decisions. Take the meltdown of Marconi a few years ago, one of Britain’s most famous companies. That was a listed company. The destruction of value and jobs in that company remains, in my mind, one of the most disgraceful episodes in British corporate history and who knows, it might have been saved from making big errors had a private equity fund been in charge, rather than deluded executives. Private equity firms helped stymie Deutsche Börse’s foolish bid for the London Stock Exchange 2 years ago, and have turned around businesses. They typically buy and hold a firm for 5 years or more, take a hands-on approach to running firms before spinning them off to another buyer or floating them in an IPO. So Will Hutton should spare us sentimental guff about how limited liability firms floated on the stock exchange represent the perfect model of doing business or something that Adam Smith or Voltaire would exalt. They are merely one of the many ways in which economic activity manifests itself. As interest rates rise and the economic cycle turns, some of the excesses of leveraged buyouts will fade and private equity transactions will decline. No doubt Will Hutton will forget everything he has written and go back to bashing listed firms for their “short-termist” fixation with pleasing shareholders, or whatever.
As mentioned several times in these pages, by the way, one additional reason why listed firms go private is because their bosses prefer not to have to put up with onerous reporting requirements under US and other laws, like the onerous Sarbanes-Oxley rules. If Hutton or other big government advocates are worried about the migration of companies off the listed stock market, they might like to remember that point.
Right, my rant of the day is over. Enjoy the rest of the weekend.
Update: have slightly amended the text about Marconi, just to reinforce the point. One commenter, Bryan Appleyard, has argued that firms become “cultural” forces, as if released from the laws of supply and demand. I have heard some odd attacks on private ownership and M&A before, but that is a new one. Companies that have been taken over by private equity include the Automobile Association, Kwik Fit, Debenhams, various property firms, HEA, the US health chain, and many more. I don’t really see how the cultural issue makes a bit of difference to the folk who work in them or buy their products.
I’d also add that I think some of these private equity deals are in danger of coming unstuck, and no doubt much gloating and gnashing of teeth will occur when or if this happens. It is partly a function of low interest rates and the impact this has on asset prices. Monetary growth is strong at the moment and this is one of the ways in which money supply growth comes out. Another lesson from Friedman to remember.
Sometimes you see a set of numbers and they really make you sit up and gasp:
Last year, more than 350 companies went public in Europe, selling $86
billion of stock, according to data compiled by Bloomberg. In the U.S.,
235 companies raised $48 billion in IPOs. In 1999, 507 companies went
public in the U.S., selling a combined $63.93 billion of stock. Not one of the 10
largest stock issues of 2006 was listed in New York.
Nice work, Messrs Sarbanes, Oxley and Spitzer.
You can almost hear the crunch of gritted teeth as the Guardian reports on how kibbutzers have “allow[ed] the market to take the place of the idealism”.
Here on Samizdata, we do not have a single ‘editorial line’ and therefore we sometimes disagree with each other. And this is a case in point. Midwesterner has stated that:
There are very few rationalizations for supporting unilateral global free trade…
Actually there are loads of them.
If a foreign state wants to subsidize (say, mp3 players) that I buy at the expense of their hapless taxpayers,well, more fool them. In the long run it is unsustainable and if at some point their wicked government stopped the export of said products, then the glory of capitalism is that domestic producers will simply re-appear or an intermediary market for importing them via a third party will pop up, but in any case it is hardly a tragedy for the overseas people purchasing said products. Is it ‘fair’ to the mp3 player manufacturers elsewhere else? Wrong question because trade is not about fairness in that sense.
If it is ‘unfair’ that a country (say, Taiwan for example) subsidies a product to make the price lower, why is it not ‘unfair’ that a western state makes me pay more for my mp3 player because they have forced domestic mp3 player manufacturing companies to expend vast sums on welfare payments and other labour cost increasing regulations and hence making them uncompetitive? As the USA is generally less regulated than most other countries, by the logic of ‘fair trade’, no one else should allow the US to import ‘their’ unfairly under-regulated products into their over-regulated markets.
If you follow the logic of ‘fair trade’ rather than ‘free trade’, a nation-state should not allow its subject people to trade with anyone not subject to that nation-state’s laws (i.e. there should be no international trade at all), otherwise it is bound to be ‘unfair’ in some way. Labour costs, raw material costs, ease of market entry, etc. etc. are always going to vary.
Moreover, it is a mistake under most circumstances to accept that buying a product from a foreign company is trade between (say) the UK and US. Unless a state of war exists or I am trading with a state owned company, trade occurs between me and a company, not ‘my’ nation and some other nation. Unless the company I trade with is largely an adjunct of a foreign government, it is just trade between private people. To think otherwise suggest accepting that the state has a controlling interest in every economic action you make, even if the other party is not subject to its sovereignty. From both moral and utilitarian perspectives that is a serious mistake.
Five consecutive years of record trade deficits. There are very few rationalizations for supporting unilateral global free trade, but in the spirit of David Letterman, here’s my top ten.
Starting with:
10 We need to prove how bad our laws are. If it destroys every small business in the land, then we’ll do it.
9 Hey, I’m getting cheap clothing, cookware, luggage … Why should anything change?
8 We’ve got a war to pay for. The economy can wait.
7 It’s about the time the US got their nails clipped.
6 Give it time, things are only getting better.
5 Trade deficits are meaningless. It’s only paper.
4 Well, it’s going to crash sooner or later. Let’s ride the tiger as long as we can.
3 Don’t you see? It’s dollars! We can print them!
2 These (lending) countries won’t let us fail. Who would they sell to?
And, the number one rationalization of unilateral free trade, drum roll please:
Consequences nonsequences! I have good intentions!
Seriously, → Continue reading: Global free traders have some explaining to do
I have been keeping an eye on the French Presidential race, if only because it is high time perhaps that that great, sometimes infuriating country had the sort of leader who might unleash the entrepreneurial energies that do exist. (Entrepreneur being of course a French word). We like the witty French economics writer Bastiat at this blog and it would be lovely to think that some of his classical liberal spirit might return to that country.
Alas, Nicolas Sarkozy, the Gaullist candidate, has already signalled that he is as hostile to capitalism as any Sartre-reading socialist:
Nicolas Sarkozy will push for a European tax on “speculative movements” by financial groups, such as hedge funds, if he wins this year’s French presidential elections.
The centre-right candidate to replace Jacques Chirac said in comments published by Wednesday’s Les Echos, the Financial Times’s sister newspaper, that he aimed to “raise moral standards and improve security in financial capitalism”.
Hedge funds, which are investment pools usually registered in sunny Caribbean islands, have become a bugbear for protectionist-minded politicians, who fear the ability of these folk to quickly move in and out of a company’s stock, a currency or bond to make a profit. Hedge funds typically amplify the size of the market positions they take by what is called leverage – borrowing to you and me – and from time to time their bets go badly wrong, as happened during the Russian debt default crisis 9 years ago. On the whole, though, hedge funds make markets more liquid and efficient by increasing the number of buyers and sellers in a market and their arbitrage skills remove inefficiencies in how assets get priced. They also, on a more venal level, generate enormous revenues for financial centres like London and Wall Street. They often put pressure on underperforming company boards to raise their act, which is hardly a bad thing. Like private equity buyout funds, however, hedge funds sound mysterious and a bit dodgy; they prefer to operate in secret and their PR is often awful. For most people, a hedge fund manager is a guy with a slicked haircut shouting into a telephone.
The French business culture, despite a few improvements, is overwhelmingly dirigiste, and can ill afford to give the finger to some of the sharpest financial talents around. If Sarkozy wants to market himself as a sort of French proto-Thatcherite, this seems hardly the way to go about it. Bashing speculators is the oldest and one of the grubbiest tricks in the political book. It plays on public ignorance about economics, it plays on envy at great wealth, and panders to the out-dated idea that wealth is only real if you can hit it with a hammer or or dig it out of the ground. Sarkozy should do his underperforming republic a favour and read some Bastiat instead.
A law firm I use sends out a regular newsletter to their business clients. This arrived in my mailbox some time back. At first I just read it and thought ‘interesting’. But reading it again, I think it may be of interest to some Samizdatistas.
Sections 1 and 2 seem reasonable enough. Section 3 is iffy. But, starting with section 4, some things definitely look like, if actually enforced, they will have a substantial effect on business in China and its overall economic trends. Things like this are what may provide concern for China’s continued economic growth:
Company Rules
Current Law – With no guidance or requirements in the current law, employers often draft their own employee handbooks, manuals and work rules. Enforcement is very similar to that in the United States, with fairness and degree of conduct weighed.
Draft Law – Essentially, every employer policy, rule and procedure that governs its employees must be discussed and approved by the union or employee representative. Rules unilaterally imposed by the employer will be void. The term “employee representative” is new and remains undefined in the draft law. There are also unique challenges for employers posed by this new provision. This provision fails to recognize the fluid nature of employer policies and rules. As stated, every change must be approved by the trade union or employee representative, which will inevitably lead to delay in timely implementation. And, despite the trade union’s power to effect employee policies and rules, an employer is ultimately on the hook for what is implemented. Finally, it is worth noting that this provision does not contain any incentive for the trade unions and/or employee representative to negotiate with employers.
We have a lot of commenters and contributors who travel to China; presumably some of them have business there. I would be interested in knowing what they think of these proposed labor market reforms. Will China actually try to enforce all of these parts of the law, or is it just for show? And if they do enforce it, what will the repercussions be?
Richard North has a terrific review of the book “Affluenza” by Oliver James. Even reading the cover of this book while browsing through a Waterstone’s shop the other day, I could tell that a book called “Affluenza” was bound to trot out the argument that we comfortably-off westerners were being ruined by too much of a good thing. Flumoxxed by thousands of choices of toothpaste, CDs, breakfast cereals, cars, wallpapers, books, foreign holidays and designer clothes, we just cannot cope. All this stuff, all this wealth, is crippling us.
North will have none of it:
The book’s macro case – the case it makes about society and economics – is that “selfish capitalism” is bad for the middle class (it makes them greedy and nasty). It insists that there is a powerful correlation between a nation’s mental distress and the selfishness of its capitalism. James seeks to substantiate this case by asserting that a “definitive WHO study” and “14 national studies” rank mental ill health in just the way he’d like, and that they prove the more orientated toward affluence people are, the more miserable they are. That is: the Anglosphere is sickest and everywhere else is healthier.
Well, since “selfishness” is often a pejorative way of saying that people wish to be happy and prefer to breathe and have a good time rather than be miserable, I usually automatically tune out criticisms of capitalism on the grounds that it fosters selfishness. Even if one is not a great admirer of the late novelist Ayn Rand, I think it is fair to credit her with re-connecting with the old Aristotelian tradition in pointing out that happiness, enjoyment of the material things of life can and do go hand in hand with virtue and goodness. Well all is said and done, when a collectivist/socialist/fascist/some other bully attacks liberalism for “selfishness”, what they are really demanding is that we live our lives according to their – selfish – desires for a particular utopia. → Continue reading: A great demolition of a very, very silly book
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Who Are We? The Samizdata people are a bunch of sinister and heavily armed globalist illuminati who seek to infect the entire world with the values of personal liberty and several property. Amongst our many crimes is a sense of humour and the intermittent use of British spelling.
We are also a varied group made up of social individualists, classical liberals, whigs, libertarians, extropians, futurists, ‘Porcupines’, Karl Popper fetishists, recovering neo-conservatives, crazed Ayn Rand worshipers, over-caffeinated Virginia Postrel devotees, witty Frédéric Bastiat wannabes, cypherpunks, minarchists, kritarchists and wild-eyed anarcho-capitalists from Britain, North America, Australia and Europe.
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