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 connection with my regular writing duties here (at one of the blogs that Alex Singleton was recently so kind about) I have been unable to avoid learning about the huge takeover battle that now surrounds Arcelor. I hazarded the guess over a month ago that Lakshmi Mittal, one of the protagonists, seemed to be doing okay, despite much opposition, and now it does indeed look as if he will win.
Cécille Philippe‘s latest piece for the Molinari Economic Institute may have been particularly inspired by this huge news story, although all that she alludes to is a “large wave of takeovers”. Anyway, she writes lucidly about the benefits of takeovers, and of the constant disciplinary effect they have upon the managers of large enterprises, concluding thus:
Takeovers make it possible to put an end to sources of loss, to increase the wealth of shareholders and thus to preserve employment which would otherwise have been lost if the company had been brought to bankruptcy for failing to satisfy its consumers. Takeovers are thus an alternative to bankruptcy which leads in a brutal way to a total reallocation of assets to better performing companies.
An industry’s prosperity cannot be decided by law, it has to be created. If one allows the owner’s deeds to be exchanged freely on the financial markets, they end up in the hands of those who think they are most capable of developing them. The reason why they are better placed than the public authorities to carry out this task is that they will have to undergo the financial consequences of their actions in the event of failure. The bureaucrats while escaping the sanction of loss and profit, cannot do other than carry out industrial projects by hazard and chance.
It is thus necessary to recognise the legitimacy of takeovers and to make sure that foreigners are free to make purchase offers. It is equally important that nationals are free to compete with them. The freer the financial market is and the more the shareholders’ right is respected, the more the industry’s prosperity depends on industrial projects being adequate to consumers’ requirements.
Most of which will be fairly obvious to the average Samizdata reader. But France is, perhaps, a country in which such obvious propositions need to be stated with particular clarity just now. Knowing Cécille Philippe a little, I not only hope but assume that she is also doing this in French.
However, Arcelor is a very special case, and Cécille is probably right not to name that particular case in this piece, because it would complicate her argument dreadfully. With Arcelor, wider considerations, as they say, are at stake. However, having now come across this earlier piece, I am surer than ever that it is the Arcelor case that she, and her, I trust, numerous French readers, have been particularly thinking about.
Writing on the CNE Competition Blog, my co-Samizdatista Brian Micklethwait responded to my post on the present anti-trust investigation of British Airways, by in response to a mention on my part of “landing fees”, bringing up the question of whether there should be a free market in airport landing slots. Brian clearly has in mind something like an airport charging a fee for aircraft to land that is driven by demand, and setting it at a point such that the supply and demand curves meet, and thus allocating airport capacity using market pricing signals.
While I agree completely that this would be the optimal way of allocating airport capacity, things are never going to work like this. In aviation industry terms, I didn’t mention the question of landing slots at all. I mentioned “landing charges”. Slots are seen as something else. Even when people talk about a free market in landing slots, they still aren’t talking about landing charges specifically. Landing rights, landing slots, and landing fees are all separate from one another, and it wouldn’t occur to many or most people in the aviation industry that they are connected. The situation is an awful mess, and if it is ever going to be untangled, it is necessary to understand it.
For this reason, I am going to attempt to explain it. This is going to be rather nerdy. If Transport Blog still existed, it would be a fine post for that blog. However, it does not, so I will do it here. → Continue reading: The situation is even less simple than you think
The American standup comedian and actor Denis Leary has a wonderfully raucous sketch in his Lock n’ Load show when he loses his temper, unable to get someone, anyone, to serve him a regular, ordinary cup of coffee. You feel for the irascible Irish-American as the fella goes on his folorn search (he fails).
Coffee. I drink the stuff every day and there is no doubt that in my brief lifetime, it has gone from being the nasty stuff brewed from ‘instant’ granules in a jar to a massive industry boasting tremendous variety and choice. Companies like Coffee Republic and of course, Starbucks, have played a huge part in this. Sometimes the sheer headspinning variety of choices and the names of some coffees bring out the Denis Leary in me, but on the whole I have to accept that this choice has done a lot for the consumer. There is a fine article here by Edward Hudgins of the The Objectivist Center defending Starbucks and other chains from the chidings of our modern-day health scolds. There is also a fine and detailed article here via Reason magazine about the Fair Trade coffee movement. While fairly friendly to the Fair Trade outfits, the article, written by Kerry Howley, also raises some uncomfortable questions about just who wins or loses from the Fair Trade business model, and whether it is really simply about feel-good consumerism, benefiting poor farmers or just raising the quality of coffee. However, it is a paradox that the Fair Trade model has become a hugely successful business phenomenon. The FT brand is ironically, pitched at precisely the sort of folk who might claim to despise brands generally, writes Howley, in a passage reminiscent of David Brook’s work, Bobos in Paradise:
“The hippie spilling buckets of ake blood may never break bread (or sip coffee with straight-laced businessmen talking quality, but the consumer has little to lose from a synthesis of strong words and strong lattes. Another Starbucks, a better coffee, a calmer conscience: What caffeine fiend can argue?”
Related thoughts here.
European steel giant Arcelor looks as if it is going to be bought by the Indian Mittal family company. If the ink is allowed to dry on this deal, it will create the world’s biggest steelmaker and do so at a time when metal prices have been rising strongly, as have pretty much most other commodities.
That India’s economy has been on the rise is pretty much a part of the received economic wisdom these days. What is clear, though, is that country is a lot more than about lots of call centres. It is becoming a breeding ground for a whole crop of entrepreneurs able and willing to take on the biggest businesses in the established industrial world and where necessary, put a few noses out of joint in the process.
British Airways on Thursday announced that the British Office of Fair Trading (OFT) and the US Department of Justice (DOJ) are investigating the airline regarding passenger ticket pricing, in particular about the degree of ‘fuel surcharges’ that have been added to ticket prices in the current environment of high oil prices. For some reason airlines put up prices in such environments by adding this separate ‘surcharge’, rather than simply increasing prices the way they would in response to an increase in any other cost. It is believed that a number of other airlines have been involved in this investigation, (Virgin Atlantic, American Airlines and United Airlines) but probably in the context of providing information rather than being targets for investigation.
Accusations are that the airlines were behaving as a cartel. If the various airlines were found to have colluded in setting the level of these price increases, then theoretically the airlines could be subject to huge fines and the executives of the airlines to prison sentences. The severity of these potential punishments means that actual collusion is unlikely to have occurred, and that what the airlines are doing is responding to one another’s price increases, and are simply taking advantage of an oligopolistic market lacking in competition. I can hardly blame them for that.
Why do I think this? Well, the four airlines mentioned (BA, Virgin, AA, and UA) are the four ‘designated carriers’ under the Bermuda II agreement between the US and UK.
What does this mean? Well, I have explained this in detail before, but a quick summary. Between the end of World War 2 and about 1980, international aviation was a cartel, in a very explicit and literal sense. Only a very small number of airlines were allowed to operate on international routes (often only two airlines – the national airline of each country – were allowed to operate between country A and country B). Fares, routes, and frequencies were set by bureaucrats and governments, and airlines were often not allowed to compete with each other on price, at least not explicitly. (In reality they did, which led to a large grey market in international tickets where tickets were sold through third party ‘bucket shops’ and the customer paid a lot less than the price written on the ticket). Over the years this has broken down in some places and some parts of the aviation market (eg flights within the EU) are extremely competitive, but in certain areas of the market quite a lot of the old structure still exists. → Continue reading: The lunatics take over the asylum
There is a remarkable article on Media Influencer about Sir Martin Sorrell, the CEO of WPP (a marketing communications company), in which makes a very perplexing assertion. He has described the internet, an overwhelmingly unregulated (i.e. not politically directed) social network, as ‘socialist anarchy’, adding “The internet is the most socialistic force you’ve ever seen”. Of course he is not the first person to make a preposterous conflation of those sort of terms, neither will he be the last spout such oxymorons. Sorrell is clearly someone who has little grasp of the meaning of the political terms he bandies about, which I find surprising considering the man is running a communications company.
Although the internet could be reasonably called ‘anarchic’ in the most loose sence of the word as it is largely unregulated by states (though that varies), the internet is not really ‘anarchy’ as national laws regarding defamation (etc.) are often invoked regarding conduct on-line… but the real absurdity is to describe it as ‘socialist’. Socialist? In what way is the internet being allocated to people via political direction? In what way is the internet being used to impose collectivism and politically constrain markets?
I can only speculate what confused reasoning leads Sorrell call the internet ‘socialist’. Perhaps because the web is extremely threatening to the business model of WPP and most other ‘marketing communications’ companies (threatening as in “you are going to be dis-intermediated and destroyed”), he might therefore see the internet a sort of virtual jacquerie, a horde of angry torch bearing peasants moving towards his corporate castle in a threatening manner, thereby deducing that anyone who destroys a company’s business model must be a ‘socialist’ because socialists want to destroy companies, right?
I am just guessing here of course, but perhaps Sorrell needs to read about capitalist ‘creative destruction’ and reconcile himself to the fact his industry is in the process of being creatively destroyed by capitalism. The reason sections of the economy go the way of the dodo is nearly always caused by people following eminently capitalistic and quite several (as opposed to collective) motivations in responce to changing conditions. The internet is the most individually empowering tool in human history and has nothing to do with socialism but rather a lot to do with creating dis-economies of scale and breaking the mass markets so beloved of large businesses into a mass of niche markets… the key word here being markets.
Let it never be said Samizdata does not listen to its public. I am sure the sainted editors would prefer me to add at this point that we reserve the right, however, to listen carelessly and ignore your views if it suits us. Be that as it may, I was at the Adam Smith Institute’s Tax Freedom Day celebrations this evening, and one of our readers, having said some very complimentary things, made a rather brilliant suggestion that I am now going to steal.
Inflation, we are told, is at a long-term low, because of that nice Mr Brown’s prudence. My friend points out however, that part of Mr Brown’s prudence has been prudently to exclude from many of his more interesting taxation devices, the items forming the Retail Price Index. He proposes a new index, of all those items whose prices the Chancellor controls because their consumer price is largely duty, or because they are practical necessities for most people whose price is directly set by the government. The latter are excluded from RPI by definition and the (plausible) suggestion is that such prices have risen very fast indeed.
The Gordon Adjusted Price (“GAP”) index would explain where your money goes, and why so many people find their pockets emptier despite notionally higher incomes and low inflation. It might make visible some of those hidden taxes. I have a hunch that the cost of living is actually falling in Britain, but the cost of government more than takes up the slack. Is it true? The GAP might provide a measure.
Tickets for the Ashes series of cricket Test matches in the Australian summer went on sale yesterday to unprecedented levels of demand. Interest in cricket contests between England and Australia, which have a long history (the first series of Test matches was in 1877) is at an all time high in the wake of England’s winning the 2005 series. The return contest in the Australian summer of 2006/07 has been eagerly awaited ever since.
The demand for tickets was expected to be strong, but Cricket Australia’s ticketing system was overwhelmed by the public’s response. I was not surprised by that.
As is now traditional, the travelling English support is likely to be tremendous. Even when English sporting teams have been uncompetitive, their travelling supporters have stuck by them; in 2006 England’s football and cricket teams are doing quite well and naturally England’s supporters want to be there for the good times. Thanks to the Internet and air travel, now they can be, and in greater numbers then ever.
This is not exactly welcomed by Australia’s cricket administrators. They fondly imagined that they could sell out their stadia to domestic audiences, rake in the cash, and wave the patriotic flag and all the usual sentimental blather. They forget that, for all its history, cricket is an entertainment, and a business. Cricket administrators sell entertainment in the form of television rights and seats at stadia.
And of course when you mismanage your pricing, one of two things happen. Either you don’t sell your tickets at all, or they become so valuable that profits can be made by reselling them. The latter is happening in this case. And Cricket Australia CEO is not happy about it:
Scalpers have also cashed in by immediately placing their buys on EBay for prices thousands of dollars more than their retail value. “Scalpers using EBay are a disgraceful insult to normal, loyal cricket fans who should have access to these tickets at face value,” James Sutherland, Cricket Australia’s CEO, said. Organisers have told people purchasing black market tickets to beware and say they have asked experts about tracking the passes.
Scalping on this scale indicates that there’s a severe underestimation of the financial value of the tickets. It’s a bit rich, also, to see an implied threat against purchasers of EBay tickets as well. Once Cricket Australia has sold the tickets, they are the property of whoever owns them, and the owner has the natural right to use them, sell them on EBay, or use them as Christmas decorations if they so wish.
It is disappointing, but not entirely surprising, that the CEO of a private commercial organisation such as Cricket Australia does not know, or understand, the basics of property rights.
Anyone with the slightest knowledge of economics is aware what a scam a ‘minimum wage’ is. When an artificial bottom placed on hourly rates is raised ,there are only two rational responses an employer can make: fire anyone whose value is now less than their cost; or raise prices to cover the added cost of doing business.
The raising of prices following a minimum wage hike sends ripples through the economy, like those of a handful a pebbles tossed into a farm pond. At some point everything damps out and the steady state returns. No new value has been created by the higher wages so the end result is roughly enough inflation to wipe out the change.
This analysis misses a detail however. The economy does not respond instantaneously. There is a time lag during which recipients have more purchasing power. They will pay for it later of course: TANSTAAFL. But from the viewpoint of a politician if the gain can be timed to properly coincide with something of value to them, say an election, it is a win. The pain comes later and memories are shorter than the interval betwixt elections.
I realized this morning there is a way in which politicians can hide much of the pain indefinitely: illegal immigration. Think it through. Raise the minimum wage in an environment where there is cheap, willing labour, undocumented and outside the system. What is the rational employer response? Raise wages for legal employees and export the costs to the undocumented workers. Illegal immigrants are not voters so this is a win-win situation to both the ruling class and those who keep them there. The voters get a higher real wage and living standard because the inflationary cost has been shifted. The pain has been exported outside the political game.
Statist politicians cannot do anything about illegal immigration because if they stop it, the deferred inflation will cause prices to rise enough to erase the excess income of their constituents. Employers will have to either drop low end jobs or else raise prices to support them. Voters will not be happy and it is well known the wallet is a bigger determinate of election outcomes than just about anything else. So, QED, illegal immigration is now a structural requirement of the centralized Western bureaucratic state.
A second force drives the need for cheap labour: the demographic transition in modern societies leads to a lowering of birthrates and a consequent labour shortage. Some places, like Japan, are looking to solve this with robots: the real deal kind. Less closed societies are covering the short fall with immigration of both legal and illegal varieties.
There is simply no practical way out of the situation in the short run and politics is all about delaying pain in hopes it will either go away or happen after you are gone.
The question I ask in the headline may not have an affirmative answer but the world’s stock markets have a decidedly shaky look at the moment. The British bluechip index is now at the level where it was at the start of the year, erasing all its gains. Some emerging market bourses have fared even worse. What is going on?
Inflation – which some economists had claimed was ‘dead’ – is possibly back, created as a result of the vast amounts of monetary liquidity sloshing around the global economy at the moment. For a while, red-hot growth in China, India and continued robustness to the U.S. economy may have bred a dangerous amount of complacency. We have a new head of the powerful U.S. Federal Reserve, Ben Bernanke. Bernanke is clearly keen to establish his own policymaking persona after the long stretch of the Alan Greenspan years. There is a sense that interest rates could be headed up further. Gold prices have been above $700 an ounce, rising rapidly to a degree that has got some old-fashioned ‘gold bugs’ like me decidedly nervous.
So should we fear a recession is on the way? Not necessarily. The enormous motor power of the U.S. economy repeatedly counters the doomsayers. But there are clear risks. China’s state-dominated banking sector is stuffed with bad loans and investment is often wildly misallocated. The price of oil is acting like a tax on growth, although in time it may weaken if new energy supplies come on stream to slake demand (assuming governments allow it).
The economic sea may be choppy for a while yet. However, to counter some of the gloom read this sharp piece at the Mises Institute.
As I write this, it is raining in a slight but persistent drizzle outside my Pimlico flat, central London. It has been a mixed bag on the weather front recently: some spells of great warm weather but a fair amount of rain. The cricket match at Lords was briefly interrupted by it. One can bet that the Wimbledon tennis tournament later in the summer will undergo the familiar ritual of thrilling matches being interrupted by rain (although I hear there are plans afoot to put a giant cover over the Centre Court stadium in due course).
Despite all this, we are told that Britain faces an unprecedented drought. All manner of water restrictions are threatened, although thankfully, given the less-than-wonderful personal habits of Londoners (any Tube user will know what I mean) it is still allowed for us to take a morning shower. In short, shortages. This appears insane in a country famed or infamous for its damp summers. It is an island in which few places are more than 100 miles from the sea. In a wider context, most of the Earth’s surface is covered in the stuff. What’s the problem?
The ‘shortages’ we have now have a number of causes, from what I can glean. There has been a substantial population rise in the southeast of England. Greater affluence means more dishwashers, bigger washing machines. Increasingly, many people will often have more than one bathroom in a house. Other, wetter, parts of the UK like the famously wet area to the west of the Pennines have not seen the same sort of population growth. There is plenty of water in Scotland, Wales and Northern Ireland. → Continue reading: Water and some basic economics
One of the oldest refrains of those who bash capitalism is that speculators are bad people, inflating the ‘true’ price of X or Y from its supposed ‘correct’ level. It is no surprise that at the moment, those who speculate in the market for oil and other sought-after commodities like copper and gold are getting a lot of abuse. I guess they can take it. As I mentioned in this post on the same issue of the oil price, the level that crude oil is fetching in the market has been pushed to high levels for a whole host of reasons, with speculation playing a part, but not necessarily the major part.
In any field of endeavour where there are different appetites for taking on risk, you will get speculators. Speculators take the risk of a price going up or down that others are unwilling, for whatever reason, to shoulder. If it were not for speculators trading in those mysterious things like interest rate swaps or futures, I would not be able to have a fixed-rate mortgage on my house, for example. At the moment, hedge funds and other operators are willing to bet that the price of oil will go higher, and presumably could get cleaned out if the price turns, on say, a sudden discovery of a major oil reserve, an outbreak of peace in the Middle East, return to political sanity in Venezuela, or whatever. So just as one should not weep over the losses speculators make, it would be equally foolish to carp about the gains they are making now.
As for the Greens, they ought to be praising those strange-sounding investment vehicles called hedge funds. By pushing up oil to near $75 per barrel, they are doing their bit to show the folly of taking one’s children to school in those small trucks called SUVs, leaving the lights on all day and shunning alternative forms of energy. No wonder the share prices of alternative energy firms and even the nuclear sector are looking promising.
UPDATE: And this guy does not think much of the economic grasp of New York legal blowhard Elliot Spitzer, on a related topic.
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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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