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Wednesday, April 19, 2006

"A fish rots from the head down..."

"OK Blair, we know you're in there!"

"Come and get me copper!"

The quote which headlines this post comes from either Oswald Mosley or Nye Bevan, and seems to sum up perfectly the "something is rotten in the state of Denmark" air which pervades the body politic here at the moment.

Of course, Blair and the "donations for peerages" hoo-haa did not appear out of nowhere. Back in the 1980s I remember reading a great book by John Rentoul (now a Blairite cheerleader in the Independent on Sunday) called The Rich Get Richer which was a great informed tirade against Thatcher's sponsorship of greater inequalities of wealth at the time. In it, Rentoul divided British society into 3: the Haves, Have Nots and Have Mores. It is the Have Mores who continue to prosper at the expense of the rest of us. Not that the main political parties will do anything about it. As party mememberships fall, where are the parties going to get the cash to function? wealthy individuals. How to persuade these wealthy types to dig deep? Amongst other things (ie policies that won't frighten the horses) honours, including the odd peerage or ten.

What makes the Have Mores even worse is they don't bring any real benefit to the economic performance of the country; they are freeloaders on the backs of the rest of us, as Stuart Lansley argues.

The tax-free lifestyle of Britain's new mega-wealthy is impoverishing us all: Once there was a sense of shame about gaping inequality. Now the new breed of tycoons are revelling in their wealth
Stewart Lansley, The Guardian,Saturday April 1, 2006

Twenty years ago Britain was one of the most equal countries in the developed world. Today it is one of the most unequal. It is a transformation that has been driven by a remarkable revolution - a great surge in the numbers and wealth of the mega-rich. Not only have they been accumulating fortunes on a scale and at a pace not seen for close to a century, but the flaunting of wealth is back. The parties and the yachts are ever more lavish; Premiership football clubs are being used as toys of the global super-wealthy; champagne-spraying in London clubs is increasingly common among investment bankers. The rich like nothing more than to outscore their rivals in the wealth stakes. When Philip Green paid himself a dividend of £1.2bn last year, it conveniently beat the previous record set a few months earlier by the steel magnate Lakshmi Mittal.

Not so long ago a soaring wealth gap would have proved politically unacceptable. But today's wealth explosion has been broadly welcomed across the political spectrum. Tony Blair has applauded the rise of the super-rich. As Peter Mandelson put it, New Labour is relaxed about people getting "filthy rich".

Today's consensus is that provided we improve the lot of the poorest, the gap is no longer an issue. The wealth boom is defended as a sign of a more entrepreneurial Britain. Few could quibble with modern levels of personal enrichment if they reflected successful business creation and added value at historic levels. But is this really what has been driving runaway executive pay, soaring City fees and record bonuses?

Regrettably, the answer appears mainly to be no. Of course, there are many examples of entrepreneurs, from James Dyson to the internet pioneers, who have created wealth, jobs and opportunities and are widely seen as worth their place at the top. But founding entrepreneurs hardly dominate the rich lists. We are not living through an entrepreneurial and economic renaissance in which the new rich are making society wealthier, dragging up the rest of us. In fact, Britain has internationally low innovation and productivity rates.

Today's escalating personal fortunes are not closely linked to record levels of wealth creation. Rather, the ranks of the rich contain many tycoons, investment bankers and business executives who, far from creating wealth, have taken advantage of our pro-rich culture to grab a larger slice of the cake. Far from what some pro-wealth supporters claim is a "positive-sum game" with no losers, what is happening is a complex transfer of wealth from ordinary taxpayers, shareholders and customers.

The modern entrepreneur tends to play a very different role from that of the moguls of the past. They are more likely to have made their money not through building up firms and products from scratch, or adding value by introducing new processes, but through financial raiding, deal-making and speculative share-dealing, which involve less risk and arguably create less, if any, wealth.

Twenty years ago the typical chief executive of a FTSE 100 company earned some 25 times the pay of the average worker; today it is close to 120 times. This surge might be justified if it had been driven by a transformation in Britain's business performance. But this is decidedly not the case. A Manchester University study has shown that top-company heads have enjoyed pay increases that have greatly outstripped a range of measures of business performance. "Value skimming" is how the authors defined it. The business magazine Management Today has condemned the growing gulf in pay as defying "any sense of fairness".

"Rewards for failure" have become the norm. Most chief executives have negotiated contracts that guarantee them, even when pushed out, generous payoffs known as "golden parachutes". The management expert Charles Handy has noted that such payouts have made ineptitude by senior executives the shortest route to millionaire status. In America they are known as "golden condoms" because they "protect the executive and screw the shareholder". It is reminiscent of the phrase used by the former deputy chairman of Lloyd's: "God would not have made them sheep if he did not intend them to be fleeced."

Most City bankers are also engaged in a form of "value skimming". The City in effect operates as a giant, informal cartel, charging excessive fees for activity that, for the most part, involves the transfer (or sometimes destruction) of wealth, rather than its creation. Increasingly, the emphasis is on short-term, "fast-buck" deals that are at odds with the patient organisation-building on which enduring companies and long-term wealth creation are founded and many large and successful companies were originally built. Mergers and acquisitions are often driven by the prospect of fat bonuses and fees for directors and their City advisers rather than the long-term interests of the companies.

Financial speculation, the source of many modern fortunes, is rarely associated with creating value. As one leading figure in the hedge fund industry has admitted: "When I first went into the City, I could not believe that anyone would want to pay me so much for creating nothing."

Modern entrepreneurship and tax avoidance largely go hand in hand. There are few top tycoons who have not exploited tax loopholes to boost their personal fortunes - at the expense of the broad body of taxpayers. Philip Green has saved hundreds of millions in personal tax in the past three years because ownership of his companies - Bhs and Arcadia - is vested in the hands of his wife, Tina, who is a resident of Monaco. (With 5,000 Britons, mostly businessmen, living in Monaco, the tax haven has become known as le rocher anglais.) Sir Richard Branson, Lakshmi Mittal and Hans Rausing all use offshore tax havens, quite legally, to reduce their tax liabilities.

Successive (and welcome) attempts to encourage a new enterprise culture would, we were promised, lead to a process of "trickle-down" and, ultimately, benefit us all. In fact, what has happened is that the richest 1% have been taking an increasingly disproportionate share of the nation's wealth: 23% today compared with 17% at the end of the 1980s. In contrast, the share going to the bottom half of the population has fallen from 10% to 6%. This is more "trickle-up" than "trickle-down".

There is nothing inevitable about the soaring wealth gap. It is a largely Anglo-Saxon phenomenon. The "anything goes" culture can be challenged, as it was in the postwar era when a social norm emerged that effectively capped runaway greed at the top. However, recent years have seen the decline of the shame gene that once kept corporate abuse in check. Just as shareholders have been expressing their outrage at some of the worst excesses of company executives, the government has the power and the public's backing to take a lead on what is acceptable. That capitalism has its "unacceptable face" was, after all, openly acknowledged by a Conservative prime minister - Edward Heath - and not that long ago.

Stewart Lansley is the author of Rich Britain, The Rise and Rise of the New Super-Wealthy; a longer version of this article appears in April's Fabian Review

Sorry for all that "politics of envy" guff. As I have said previously on this blog, I'm not jealous of any of these plutocratic parasites, because after all, money can't buy you good looks (dodgy plastic surgery yes, but not good looks). Moreover, as Herr Marx said, every ruling class creates its own grave diggers. If the oil doesn't run out, I think it will be the personal debt mountain that will bring the whole thing crashing down (I'm assuming that Boy George doesn't get around to nuking Iran...).

John Harris is a damn good writer. I have a copy of his The Last Party: Blair, Britpop and the Demise of English Rock, which is one of the best books about pop music in a wider social context that I have read (England's Dreaming, Jon Savage's tome on Sex Pistols and Punk is a valiant effort, but gets caught up in Savage's own pretensions). Harris is also a good writer on politics in its wider sense (type his name into the Guardian website search engine for some examples) and the article below suggests that the cunning plan to get young people (Bloody hell I sound old!!!), especially students, into sky high levels of debt will make them apolitical (if you work all hours to pay off debts what freetime do you have?) might well backfire: unintended consequences and all that...

Generation Debt is changing, but not as Mr Blair imagines: As the financial screws tighten for the under-30s, there are signs they are turning away from the spirit of the free market
John Harris, The Guardian, Wednesday March 29, 2006

'Change is marching on again," the prime minister told us last year, in a Labour conference speech that contained the now-obligatory iPod reference. "Perhaps our children more readily understand this and embrace it than we do." In context, the C-word was shorthand for the usual ideas: education as a functional method of economic advancement, the imperative to make sure everything is personalised and priced, the notion of a career as several decades spent pinballing between increasingly fragile jobs. But who could argue with the razor-like instincts of youth? Their economic combat skills hardened by all those enterprise courses, their eyes eternally scanning the markets, this was the future into which they were speeding.

Unfortunately, things don't seem to be working out like that. Yesterday brought news of a study by the Financial Services Authority and Bristol University suggesting a young generation snarled up in debt, with nonexistent savings and what seems to be chronic financial ineptitude. In the States, meanwhile, there is currently much fuss over Generation Debt, a crisp polemic by 24-year-old Anya Kamenetz, a Louisiana-born Yale graduate who writes with the same elegant indignation that defined Naomi Klein's No Logo. From Ivy League undergrads to the new proletarians who see out their working lives at Subway and K-Mart, her book is built around experiences crystallised in its killer strapline: "Why now is a terrible time to be young".
The plot goes something like this. After two decades of post-Reagan politics and economics, the under-30s find themselves in a predicament loaded with tension. Higher education brings the prospect of astronomical debt, exacerbated by being "marinated in the most aggressive advertising and marketing environment ever known" (the most crafty exemplars of which are America's credit-card companies). Should you manage to graduate, you may well find that a degree holds out no guarantee of fulfilling or dependable employment. If you don't make it to college, meanwhile, you're likely to be earning pin money in a "grinding, impersonal and dead-end job", while being told that ever more rickety welfare provision means you should be saving money you haven't actually got. Home ownership is a distant dream; starting a family seems cripplingly expensive. "Mom, Dad - listen up," Kamanetz implores. "Things have changed. We're not doing as well as you did. And if something doesn't change soon, it's unlikely that we ever will."

Give or take a deluge of very American detail, the outlines of the story neatly fit the British experience. The debate over tuition fees may have gone quiet, but a new reality is upon us: a couple of weeks ago, it was reported that a fifth of British students are now living with their parents. Moreover, the maths that underpinned the scheme looks to have been rather optimistic: back when the changes were first proposed, ministers made repeated references to the idea that, over their lifetimes, graduates would earn £400,000 more than those who didn't make it to university; now researchers at the University of Swansea claim that, in the case of male arts graduates, the figure is more like £22,000.

Should you miss out on higher education, your working life will initially be made all the more unfulfilling by a respectable kind of ageism. The full minimum wage is delayed until 22. If you haven't had kids, the working tax credit won't be available until you've turned 25. Throw in the fact that it's young people who disproportionately staff our call centres and supermarkets, and the upshot is clear enough. According to a recent report by the centre-right thinktank Reform, while those aged 30-39 have seen their average weekly gross pay rise by 79% since 1998, those aged from 22 to 29 have managed only about a third of that figure. The FSA report shows 64% of 18-30s burdened by loans and credit-card debt, and snared by historical bad luck: although their apparent lack of financial clue suggests a devil-may-care outlook, which they might have assumed was their birthright, ignoring the bills is no longer an option. At the last count, around 60% of individual bankrupts were under 30.

The picture does not exactly suggest a generation of enthusiastic free-marketeers - and if Kamanetz's book is to be believed, the prevailing politics of the under-30s may turn out to be a lot more interesting. Certainly, the neo-liberal right could yet rejoice in their possible rebellion against a welfare state that may be able look after their parents' generation only at a punitive cost to themselves. But Generation Debt also contains augurs of surprising moves in a more collectivist direction. In its account, "a new generation of labour organisers and advocates" is addressing the flimsiness of the American service economy by reinventing, of all things, trade unionism. At the same time, more than a few American students are trying to revive the quaint idea that education is a social good and taxation ought to fund more of it. And look at current events in France: university students renewing the spirit of 1968's evenements in response to the fact that the government's loosening of employment regulations will start, naturally enough, with those under 26.

Therein lies a compelling spectacle: a generation tapping into the kind of politics that it had supposedly rendered obsolete. Mr Blair's beloved change, it seems, may yet march in a rather unexpected direction.

Sunday, April 09, 2006

More Iran V USA talk

People are worrying about bird flu here when the serious stuff is going on elsewhere.
I tracked down the original Seymour Hersch article about US plans to attack Iran to the New Yorker here