Tag Archives: capitalism

“Money-manager capitalism has ‘fed political revolt’ in America and Europe: Philip Collins

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In the Times, Philip Collins* writes that western “money-manager capitalism,” (term coined by Hyman Minsky), has changed the patterns of incentives and rewards in the economy, leading to stagnation in productivity and wages by reducing the capital investment that supports their growth.

He cites Erikson & Weigel: “A decade has passed since banks and financial houses began to crumble and took Western economies to the brink of collapse, but economic growth on both sides of the Atlantic remains weak. It is still determined more by governments and central banks than the animal spirits of entrepreneurial capitalism.

Economic developments before and after the crisis that started in 2007 have fed political revolt. In both America and Europe, people are angry about their poor income growth, and they indict the “one percent” or “the establishment” for pursuing policies that benefit the rich at the expense of the middle class. They feel that the age of cost-cutting McKinsey consultants, cheap capital, and Wall Street financial engineers brought prosperity to the professional classes, but that, as a result, everyone else’s expectations were revised permanently downward: “The revolt comes from both the Left and the Right, but the underlying premise is shared: capitalism hasn’t been working for me!”

Collins then adds that business investment has been falling as a proportion of GDP since the 1970s.

”Money that ought to be invested is instead flowing to shareholders in the form of dividends and buybacks. Too rapid a recourse to mergers is generating payments for unworthy executives and creating giant companies which do their best to evade fair taxation. All the while they buttress their position with expensive and effective lobbying to keep regulators sweet”.

He cites two sets of linked consequences

  • Unemployment among the young and low-skilled has increased and wages for those in work have stagnated.
  • The vast majority of the returns from the last decade of capitalist activity have accrued to those who are already rich in assets.

This trend within capitalism itself accelerated after the 2008 crash by central banks whose incontinent monetary policy had inflated asset prices.

Under capitalism it seemed, on the whole, that things could only get better. Growth made us more prosperous tomorrow than we are today. When that promise broke, the response was a growth in radical movements to the left and right.

The obvious answer, according to Collins includes:

  • shifting the burden of taxation away from income and towards wealth;
  • imposing a higher inheritance tax, to prevent large transfers of privilege;
  • taxing the capital gain on the residential home;
  • taxing land, of all the assets the least easy to hide;
  • cutting income tax for people who take home the average wage or less;
  • and earmarking some of the proceeds for the social care system which is a disgrace in a rich country.

Michael Gove, Secretary of State for Environment, Food and Rural Affairs, considers the deeper causes of populism. He believes that the British have seen so much of what they value which is beyond economics — whether love of place and landscape or the integrity of their cultural attachments — overlooked or ignored. He advocates:

  • reform of corporate governance,
  • better pricing of environmental costs,
  • changes to investment incentives and procurement rules,
  • “smarter” regulation
  • and no access for not corporate lobbyists.

But, Collins reflects: “Conservatives often give bold speeches which herald no action.

“After the expenses scandal David Cameron diagnosed all that was wrong with politics and proclaimed a radical plan to put it right, not a word of which ever materialised.

“In her first address as prime minister, Theresa May set out the array of social issues which would define her premiership. Mired in Brexit, we are still waiting.

“There is every chance that Mr Gove’s speech on capitalism will fall into the same category”.

Collins ends, ”The reason why the Conservative Party will not act . . . (is that) it is going to have to upset some natural-voting Conservatives. A state intervention to break up successful companies, an expansive set of welfare schemes and a government dedicated to imposing taxes on wealth. It doesn’t sound very likely from this government”.

 

 

Phillip Collins is the leader writer and columnist for The Times, chairman of Demos, Visiting Fellow at the London School of Economics, associate editor of Prospect magazine journalist, academic, banker and speechwriter

 

 

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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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