Category Archives: finance

Japan: a model of capitalism that manages to balance income growth and income distribution

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Jesper Koll, one of the top Japan strategists and economists, observes that Japan’s economy is performing well and deserves more attention as a model of capitalism that manages to balance income growth and income distribution. Some points made in his article, which may be read in full here, follow. 

The goal of an economy is to create and sustain a stable society. To do so, an economy must produce growth and must distribute the spoils of that growth in a fair and equitable way.

At the end of last year, the median net financial wealth for households in Japan stood at $96,000. In the United States, the same number was $50,000. The average Japanese is de facto twice as wealthy as the average American.

At the bottom end in Japan, approximately 9% of households own less than $10,000 worth of net financial assets. In America, that’s true for 28% of all households. Japan certainly does have an ‘underbelly of poor’, but relatively few are truly left behind financially.

When U.S. presidential candidate Hillary Clinton talked about “deplorables” during the 2016 campaign she missed the point: What is truly deplorable is the fact that the U.S. ruling elite, of which Clinton is a leading member, allowed this gravely destabilizing financial inequality to happen in the first place.

According to the OECD database American median incomes rose by approximately $24,000, from $36,000 to $60,000 between 2016 and 2017. Over the same period, Japanese median incomes rose from $27,000 to $51,000, i.e. a similar increase of $24,000, prospering at about the same pace.

So much for the myth that Japan has been stagnating.

The bottom 10% of income earners in Japan strongly outperformed their American counterparts: Between 2000 and 2017, the bottom 10% of income earners saw a $15,000 rise in earnings in Japan, from $17,000 to $32,000. Their U.S. counterparts got only $10,000 more income, from $18,000 to $28,000.

If you are among the bottom 10% of income earners, you are now better off in Japan than in America ($32,000 versus $28,000)

How did Japan successfully bring up the poor? The growing scarcity of labor is forcing steadfast improvement in employment offered — not part time or contracts, but full time — as well as steadfast pay increases for particular jobs at the bottom end of the employment attractiveness spectrum. General white collar sales or management jobs have seen relatively pedestrian pay increases, but truck drivers, construction workers and shipbuilders have seen their pay almost double in recent years.

(Ed) A Tokyo contact agrees that the rapidly declining working age population helps a lot. As automation is coming on a scale not imagined, a lot of countries will struggle with unemployment and that may well put Japan in a very strong position over the next 20yrs or so.

Koll comments that the government deserves credit for actively encouraging positive changes in employers attitudes. This year’s tax code changes should make it easier for spouses to seek higher incomes — not by taxing the rich but by removing a tax ceiling for the poor. The overall impact of rising female participation is already very positive in general for society as a whole, for closing the gap between the rich and the poor in particular.

The overall outcome produced by the Japanese economic system is extremely positive. Japan manages to balance income growth and income distribution unlike many other advanced economies.

Japan’s economy is working well and deserves more attention as a model for “capitalism that works.” The system is very good at bringing up the bottom of the income pyramid and generating exceptional inclusion for all in financial wealth creation.

Japan deserves the Nobel Prize for applied economics.

 

 

 

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People from 6 countries visited the site in March.

There were twelve times more visitors from the USA than the next largest group from the UK.

 Top posts  

Brexit: moving away from globalisation towards self-reliance.

In this post, Colin Hines draws attention to Green MEP Molly Scott Cato’s publication and launch of a report by Victor Anderson and Rupert Read: ‘Brexit and Trade Moving from Globalisation to Self-reliance’. Read more here.

Prem Sikka: a critic of the Pin-Stripe Mafia

Accounting professor Prem Sikka received the Abraham Briloff award from The Accountant and International Accounting Bulletin.

The award was presented at a conference and awards dinner in London on 4 October – The Digital Accountancy Forum & Awards 2017. Read more here.

 

 

 

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Fiscal Money

Biagio Bossone, formerly at Banca d’Italia, the IMF, and the World Bank, an international financial consultant and Chairman of the San Marino Banking Association and a member of the Group of Fiscal Money, Italy, comments on an article in the Financial Times by Martin Wolf. 

“Mr Wolf agrees that the fiscal money proposal that we have developed and promoted for years is technically possible, albeit that “it would surely create hysteria in Northern Europe”. Well, it shouldn’t.

“Fiscal money would be issued as transferable and negotiable bearer bonds, which recipients would be entitled to use for tax rebates two years after issuance. Such bonds would carry immediate value, since they incorporate sure claims to future fiscal savings, and would be immediately exchangeable against euros or usable as payment instruments in parallel to the euro.

“Under European accounting rules, they would not constitute public debt. Fiscal money would be allocated, free of charge, to supplement employees’ income, reduce enterprises’ tax wedge on labour, and fund public investments as well as social expenses.

“Fiscal money is sometimes wrongly characterised as the anteroom of Italexit. Quite the contrary — it provides a way to overcome the eurosystem’s dysfunctionalities that condemn the Italian economy to a permanent state of depression”.

Fiscal Money has been proposed to the Italian government to boost aggregate demand and increase GDP without increasing public debt

In Social Europe, journalist Enrico Grazzini examines the main differences between various proposals:

  • Fiscal Money or Tax Discount Bonds (TBDs) are issued by the state and backed by the future tax revenues. TDBs would be assigned directly to the households, companies and (only pro quota) to government administrations as the best, and maybe the only way to overcome the liquidity trap and the austerity constraints.
  • Helicopter Money involves a central bank dropping free money straight into people’s pockets, recently advocated by many economists (such as Eric Lonergan and Martin Wolf, chief economics commentator at the Financial Times) as the very best solution of last resort to increase demand and face the next possible crisis.
  • and Quantitative Easing for the People, proposed by Labour Party leader Jeremy Corbyn, who would like the Bank of England to issue new money to finance a state bank and public investment as the optimum way to expand the British economy in an equitable way.

Bossone summarises: “Fiscal Money would allow Italy to expand domestic demand and improve enterprise competitiveness, while avoiding any increase in public debt and breaches of the fiscal compact. In fact, it would make debt sustainable, reversing the effect of years of austerity, and would remove any inducement for the European Central Bank to withdraw Mario Draghi’s “whatever it takes” pledge”.

For more information go to: https://monetafiscale.it/english-version/, https://www.zerohedge.com/news/2017-10-15/italys-parallel-fiscal-currency-all-you-need-know and https://www.socialeurope.eu/fiscal-money-better-helicopter-money-qep-beating-deflation-austerity

 

 

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In condemnation of privatisation – the naked pursuit of wealth

The ideology of competition and superiority permeates our culture, and the cult of privatisation is at the root of sub-standard, expensive railways, electricity, gas and water; miserable prisons; inadequate care; decreasing legal aid; and failing mental health services.

Personal success and the creation of wealth are goals in a wilderness of private interests. ‘Success’ has widely come to be defined in terms of superiority over others.

Our system of knighthoods and damehoods – the invidious use of ‘Lord’ and ‘Lady’ – symbolise a power structure where outsiders are tolerated, and often quietly absorbed into a corrupt environment.

People motivated by greed, like the authors of devastated pension funds, suddenly and mysteriously reappear in positions of authority. It is as if history has ceased to exist. Those with the courage to expose them are vilified.

Recent media expositions relating to the House of Saud and the huge-scale laundering of the ill-gotten gains of oligarchs and dictators through the City of London, for example, portray the corruption. Empty luxury flats are more desirable than homes for people.

Armaments, for some, are more important to our wellbeing than the lives of underprivileged Yemeni families.

This presents a challenge. Condemnation is not the way to tackle the cult of success. We need successful artists, business people, musicians, actors, social workers, doctors, scientists and engineers – and we must find ways of stimulating and supporting them.

A redefined concept of success will lie in focusing on the huge potential of every single member of our society and not just those with the existing resources – physical, mental, economic – to realise themselves. 

Edited from an article by Roger Iredale in the Friend, 23 February 2018

 

 

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Should Labour put an end to PFI schemes and outsourcing?

George Parker of the Financial Times reported on the content of a video by Labour leader Jeremy Corbyn, watched almost 300,000 times in 24 hours on Facebook.

Corbyn sees the collapse of Carillion, the company responsible for everything from building hospitals to providing school meals, as a “watershed” moment that proves that the private sector should not be running swathes of Britain’s public services. More here.

The revolution in outsourcing public services was started by Margaret Thatcher and continued by New Labour under Tony Blair. Since 1980 public services — from providing school meals to refuelling RAF aircraft — have been outsourced to the private sector. Questions have been about whether the taxpayer is getting best value for money from some contracts, listed here. There is more on unsafe PFI hospitals and collapsing PFI schools here.

Should PFI schemes and outsourcing be ended under Labour? There is a substantial body of opinion that, though much of the criticism of PFI is justified, and relevant to the debate on outsourcing, this would be a mistake.  

The FT points put that the big driver of PFI has long been the desire to keep debt off the government’s balance sheet. A correspondent agrees with this: “Certainly, otherwise Tony Blair and Gordon Brown would have been accused of profligacy, whereas using PFI allowed them to be popular in the short term whilst transferring the problem to future generations”.

The civil service, according to the FT, is often very bad at specifying what it wants and managing contracts – our correspondent adds: “Because they change their minds part way through!!” 

Both agree that the processes for assessing the value of PFI projects, monitoring projects and evaluating PFI’s overall performance must become more rigorous.

Reports from the National Audit Office and the Public Accounts Select Committee indicate that successive governments have indeed been accepting unrealistically low bids, leading to inadequate levels of staffing. The Times this week quoted from a report issued by Balfour Beatty that in future it needs to move away from the position where fixed-price contracts, risk transfer and lowest-cost tendering are the norm.

Should hospitals, schools, prisons etc be built with cheap and flexible funding from the Public Works Loan Board? This arm of the Treasury has been helping to finance capital spending by local government since 1793. Its interest rates, linked to those in the gilt-edged market, have been at exceptionally low levels since the financial crisis of 2007-08.

Our correspondent responds: “Very good idea – but still needs a proper project managing organisation”.

 

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Time for change: junk the Anglo-Saxon model* in 2018

The FT reports that senior executives at several of the largest US banks have privately told the Trump administration they feared the prospect of a Labour victory if Britain were forced into new elections.

It then referred to a report by analysts at Morgan Stanley arguing that a Corbyn government would mark the “most significant political shift in the UK” since Margaret Thatcher’s election and may represent a “bigger risk than Brexit” to the British economy. It predicted snap elections next year, arguing that the prospect of a return to the polls “is much more scary from an equity perspective than Brexit”.

Jeremy Corbyn gave ‘a clear response’ to Morgan Stanley in a video (left) published on social media reflecting anti-Wall Street rhetoric from some mainstream politicians in the US and Europe, saying: “These are the same speculators and gamblers who crashed our economy in 2008 . . . could anyone refute the headline claim that bankers are indeed glorified gamblers playing with the fate of our nation?”

He warned global banks that operate out of the City of London that he would indeed be a “threat” to their business if he became prime minister.

He singled out Morgan Stanley, the US investment bank, for particular criticism, arguing that James Gorman, its chief executive, was paying himself a salary of millions of pounds as ordinary British workers are “finding it harder to get by”.

Corbyn blamed the “greed” of the big banks and said the financial crisis they caused had led to a “crisis” in the public services: “because the Tories used the aftermath of the financial crisis to push through unnecessary and deeply damaging austerity”.

The FT points out that donors linked to Morgan Stanley had given £350,000 to the Tory party since 2006 and Philip Hammond, the chancellor, had met the bank four times, most recently in April 2017. The bank also had strong ties to New Labour: “Alistair Darling, a Labour chancellor until 2010, has served on the bank’s board since 2015. Jeremy Heywood, head of Britain’s civil service, was a managing director at Morgan Stanley, including as co-head of UK investment banking, before returning to public service in 2007”.

A step forward?

In a December article the FT pointed out that the UK lacks the kind of community banks or Sparkassen that are the bedrock of small business lending in many other countries adding: “When Labour’s John McDonnell, the shadow chancellor, calls for a network of regional banks, he is calling attention to a real issue”. And an FT reader commented, “The single most important ethos change required is this: publish everyone’s tax returns”:

  • In Norway, you can walk into your local library or central council office and see how much tax your boss paid, how much tax your councillor paid, how much tax your politician paid.
  • This means major tax avoidance, complex schemes, major offshoring, etc, is almost impossible, because it combines morality and social morals with ethics and taxation.
  • We need to minimise this offshoring and tax avoidance; but the people in control of the information media flow, plus the politicians, rely on exactly these methods to increase their cash reserves.

But first give hope to many by electing a truly social democratic party.

Is the rainbow suggesting a new party logo?

*the Anglo-Saxon model

 

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Prem Sikka: a critic of the Pin-Stripe Mafia

Accounting professor Prem Sikka received the Abraham Briloff award from The Accountant and International Accounting Bulletin at a conference and awards dinner in London on 4 October – The Digital Accountancy Forum & Awards 2017.

The award is named after Abraham Briloff (19 July 1917 –12 December 2013) who would have been 100 this year.

Abe was a professionally qualified USA accountant and accountancy professor who gained fame through his prolific writing and fierce criticism of malpractice within the profession (left).

He called upon the profession to act ethically and argued that in return for enormous social privileges and status, it must have a genuine commitment to society and be able to “see beyond the numbers” as he told The Accountant in an interview in 2013 a few months before his death.

Sikka is emeritus professor of accounting at the University of Essex, which he joined in 1996. Before that he worked at the University of East London between. He qualified with ACCA in 1977 and held various accounting positions in industry and commerce before committing to a career to academia.

Many of his articles may be read here. To get the real flavour of his outspoken assessment of the Big 4 accounting firms, listen to The Pin-Stripe Mafia: How Accountancy Firms Destroy Societies.

  • In 2003, Sikka helped the launch of the Tax Justice Network and is now one of its senior advisers (unpaid).
  • He has advised and given evidence to the EU and UK parliamentary committees.
  • Most recently, he was an adviser to the UK House of Commons Work and Pensions Committee for its investigation into BHS and related pension matters.
  • His research on accountancy, auditing, corporate governance, money laundering, insolvency and business affairs has been published in books, international journals, newspapers and magazines.

Sikka was given the award for his extraordinary contribution in promoting transparency and public accountability of businesses

This award recognises the work of an individual who has sought to improve transparency and accountability by asking the hard questions and questioning the dominant apparatus of truth, recognising that accountancy goes beyond debit and credit to subsume a broad canvas of disciplines involving the liberal arts and sciences. This recognises that accounting is a moral and political practice rather than a technical one.

The Accountant and International Accounting Bulletin editor Vincent Huck said: “No one other than Prem Sikka fits the bill better to receive an award named after Abraham Briloff. Not only do they share a common set of ideas, but they have the same insatiable drive and passion in promoting them. The accountancy profession and professionals often boast of occupying a moral high ground and claim that they act in the ‘public interest’, but such claims are now increasingly met with public scepticism. Rather than addressing the criticism, professionals have often been too quick to dismiss it, even when it comes from their own ranks. The profession needs to nurture its critics as, ultimately, a profession is only as good as its critics.”

The UK Shadow Chancellor of the Exchequer John McDonnell presented the award to professor Prem Sikka. He said: “It’s an honour to be asked to present this for someone who I think will be long known for the work that he’s done and laying the foundation of a fair, just, open and transparent tax system.” He praised Sikka for his role in setting up the Tax Justice Network in 2003 at a time when people where not necessarily interested in tax avoidance and evasion and for his contribution as an advisor to the House of Commons select committees, various individual MPs, the Labour party as well as other parties.

“Many of the policies that we are advocating at the moment are based on the work that Prem has done over the years,” McDonnell said, including:

  • The importance of opening up the books,
  • the importance of having a register of beneficial interest and
  • the importance of having an effective HMRC.

The Shadow Chancellor added that Sikka and his team have just undertaken a review of the HMRC and the resources that they need to ensure that there is an effective tax operation within this country, ending:

“And much of the legislation that you will see us promoting in parliament, often on all sides of the house, will be done as a result of the work that he’s done and the advice that he’s given us as to how we can establish fairness and transparency within the tax system.”

 

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