I have been enjoying the debates around Occupy Wall Street (OWS) and the rather enterprising global spins offs. We have heard a fair bit about these so called anti-capitalists and we have ‘enjoyed’ three years of recession. However I fear we have made little progress. Watching BBC TV last night I was stirred into writing a short piece on solutions – safe in the knowledge it will be largely ignored.
What has begun to worry me is the misuse of the phrase capitalist. There was a classic example of this on last night’s ‘Have I Got News For You’ – watch it here if you missed it. One Louise Mensch MP – who also is keen on fox hunting and brought us the idea of shutting down Facebook and Twitter after the riots - is, it turns out, something to do with the Department of Culture Media and Sports. The link to the economy is, for those that missed the show, centred on the protestors outside of St Pauls (London’s version of OWS). Her message was simple. These people want to end capitalism but they drink coffee in Starbucks therefore are hypocrites as they enjoy all of capitalisms’ gifts.
Why does this concern me? Well quite simply we seem to be mixing up what is happening in financial markets with capitalism. This is not helped by the constant referral to these protestors as anti-capitalist. They seem to me a rag tagged bunch of mostly well meaning people – I’m sure with a variety of views. But I don’t represent them and am not here to defend them. What concerns me is the loss of clarity in the debate. Let’s jump straight to it.
Capitalism is simply the private ownership of the means of production with an interest in receiving a profit. Starbucks does that well. I’m sure the manufactures of the tents the protestors are sleeping in do that ok too. I’m not so certain that is what is happening in the City’s financial districts though. I want to look at three things in turn: equity; communities; debt.
The stock market (should) exist to match buyers and sellers. Companies that need funds are matched with investors. But is this happening? It seems more and more that we are focusing on daily movements, on short-termism and on profit taking. The plan is not to invest but to speculate, to gamble on short-term movements. There is a really simple cost free solution to this. Delay all trades by 24 hours, better still 7 days. When a company does an initial public offering (IPO) it is not disadvantaged by that process taking weeks or even months so why should it be disadvantaged once it floats. The liquidity of the investment market is not restricted by a gap between decision and action. The speculators on the other hand are. The property market already has long periods between decision and exchange and seems unaffected – really why do equity trades have to be instant?
Commodities are much more straightforward. Again delay would help. Overall though commodity prices are driven by demand for that good. Speculators are having an impact but there seems some stability. Delay here would also produce some stability as would regulation.
Debt is more slippery. Investors have lent money to countries that may default. This is the risk investors take – or is it? It seems now that governments will go out of their way to bail out these miscalculations on the part of investors. The investors got it wrong. The government was not that safe a bet; the ratings agencies were not that reliable. Now these investors are very well paid experts who got it wrong. There should be a risk side to this risk/reward equation. Of course governments tell us that if they default they risk higher interest rates – but what of this? At the moment we are bankrupting ourselves to bail out the banks – what difference would the alternative of slightly higher rates of interest be instead of the expense of providing funds? Why can’t we restore capitalism to these markets – why are they being subsidised?
So can we have business news back on TV instead of this constant reference to ‘markets’? Can we have a government that stands up and says we are a capitalist democracy and explains to banks that this includes them? Can we see a government that focuses on growth in the real economy and forwards plans and initiatives to stimulate economic growth instead of making constant reference to the whims of speculators? We can grow our way out of this – we can’t bet our way out.
What has begun to worry me is the misuse of the phrase capitalist. There was a classic example of this on last night’s ‘Have I Got News For You’ – watch it here if you missed it. One Louise Mensch MP – who also is keen on fox hunting and brought us the idea of shutting down Facebook and Twitter after the riots - is, it turns out, something to do with the Department of Culture Media and Sports. The link to the economy is, for those that missed the show, centred on the protestors outside of St Pauls (London’s version of OWS). Her message was simple. These people want to end capitalism but they drink coffee in Starbucks therefore are hypocrites as they enjoy all of capitalisms’ gifts.
Why does this concern me? Well quite simply we seem to be mixing up what is happening in financial markets with capitalism. This is not helped by the constant referral to these protestors as anti-capitalist. They seem to me a rag tagged bunch of mostly well meaning people – I’m sure with a variety of views. But I don’t represent them and am not here to defend them. What concerns me is the loss of clarity in the debate. Let’s jump straight to it.
Capitalism is simply the private ownership of the means of production with an interest in receiving a profit. Starbucks does that well. I’m sure the manufactures of the tents the protestors are sleeping in do that ok too. I’m not so certain that is what is happening in the City’s financial districts though. I want to look at three things in turn: equity; communities; debt.
The stock market (should) exist to match buyers and sellers. Companies that need funds are matched with investors. But is this happening? It seems more and more that we are focusing on daily movements, on short-termism and on profit taking. The plan is not to invest but to speculate, to gamble on short-term movements. There is a really simple cost free solution to this. Delay all trades by 24 hours, better still 7 days. When a company does an initial public offering (IPO) it is not disadvantaged by that process taking weeks or even months so why should it be disadvantaged once it floats. The liquidity of the investment market is not restricted by a gap between decision and action. The speculators on the other hand are. The property market already has long periods between decision and exchange and seems unaffected – really why do equity trades have to be instant?
Commodities are much more straightforward. Again delay would help. Overall though commodity prices are driven by demand for that good. Speculators are having an impact but there seems some stability. Delay here would also produce some stability as would regulation.
Debt is more slippery. Investors have lent money to countries that may default. This is the risk investors take – or is it? It seems now that governments will go out of their way to bail out these miscalculations on the part of investors. The investors got it wrong. The government was not that safe a bet; the ratings agencies were not that reliable. Now these investors are very well paid experts who got it wrong. There should be a risk side to this risk/reward equation. Of course governments tell us that if they default they risk higher interest rates – but what of this? At the moment we are bankrupting ourselves to bail out the banks – what difference would the alternative of slightly higher rates of interest be instead of the expense of providing funds? Why can’t we restore capitalism to these markets – why are they being subsidised?
So can we have business news back on TV instead of this constant reference to ‘markets’? Can we have a government that stands up and says we are a capitalist democracy and explains to banks that this includes them? Can we see a government that focuses on growth in the real economy and forwards plans and initiatives to stimulate economic growth instead of making constant reference to the whims of speculators? We can grow our way out of this – we can’t bet our way out.
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