Friday, 30 September 2011

Fast Buck Economics

"We must challenge irresponsible, predatory practices wherever we find them"
Ed Miliband, Labour party conference

Politicians have always been opportunists. New labour was in power for over a decade and when times were good they were best of friends with business. Now stagflation has hit due to successive Government policies and its time to blame the free market, predatory business methods, the so called 'fast buck society'. The war is now on between the private sector versus the so called public sector. Yet public and private sectors are widely misunderstood by the majority of the population. Contrary to popular opinion, public sector entities are in fact not run by the people and are controlled by the few. The private sector are the organisations in the hands of society.

When the details are examined it is clear to see that companies run on the principle of individual demands. If we first examine big multinational companies, the sort of companies conspiracy theories label as 'corpocracies', so big they dictate the way we live. In reality you and I will probably own a part of the company. Companies start small. Once they get bigger with a more mature business model they go public, offering to sell a part of the business to raise capital. Many multinationals are in fact owned by the people. Part of your pension fund. Your saving funds. Your employment contract or bonus scheme. We all own bits of these companies. They are generally owned by the people. They also exist to serve our needs, if not they go bust. All multinationals start like this, with very little assets or capital but grew by doing something right, by selling products people wanted. 

These companies are run by these very shareholders who are usually represented by a board. Their aim is to grow the business, to increase the share price and increase profits so as to maximise the yield on your shares. 'Its all about the money', yes that's how complex societies perform economic calculation. Money is meaningless. Its used as a medium for exchange in a complex society such as our own. So 'profit' or 'maximise returns' may be taught under a negative banner but in reality under an objective view it means 'satisfying consumer demand' and 'ensuring effective use of societies scare resources', in order to provide us all with a better standard of living.

The great thing about big companies is they start small. Big companies always fear the little guy. Their business models are always under constant threat from new ideas, the innovation of small startups, the new ideas they bring. They break old conventions, create new markets by removing the old established ones. This is the true public sector. Anyone regardless of skin colour, background or origin can meet the needs of society. 

Contrast this with the public sector run by monopolistic entities. They have no pressure to use societies resources effectively, in fact usually the opposite happens as Governments believe they should protect jobs, those old industries that other people in the private sector found we could automate. They try to meet consumer demand based on centralised planning objectives, not on consumer demand. They take resources from society at will. Pay your taxes or go to jail. That tax money, as has always been proven, could be far better utilised by the private sector. With the supply and demand dynamics driven by price signals of the free market, resources could be far more effectively utilised. Economics isn't rocket science. Prices, supply and demand - that's all you need to know. Those mathematical models are broken by the fact that human innovation can't be modelled. There is no science into how new markets are created or how many people want flat screen TV's. Only prices can direct all this activity on a micro scale. The innovators always break these neat mathematical or central planned models. 

I still await for the public sector to offer me something that is truly free. Sure we get the 'free' schools, hospitals, libraries and so on, but its not free, lets not kid ourselves. Taxes are huge these days due to fiscal drag and inflation over the years. Meanwhile the free market does give freebies. Regardless of income we all have access to online encyclopedias with millions of articles, free videos on youtube, free email with 8Gb storage, free document software in the cloud. Between ten and fifteen years ago you had to pay for this. Now its all free to anyone inclined to use it. I can access millions of songs for a flat subscription fee and my whole music library follows me on any device. I used to dream of tools like this as child, now it has become reality for only $9 a month. That's the private sector, driving down costs and increasing the quality of its products. 

During the same period council tax bills have kept increasing. NHS treatments have been further rationed where people can't get urgent operations for months. General VAT has risen. No more free dental care, but we still have the taxes. State pensions are shrinking and are moved further back with many asked to put more money into the schemes. University used to involve no fees, now youngsters have to pay up to £9,000 a year. Costs go up, product quality goes down, the complete opposite of the private sector. 

So what about these predatory businesses? 'Excessive profit' is always my favourite misunderstood slogan. There is no such thing as excessive profit, if there is why doesn't everyone buy shares in the company and we can all be rich! The media mumbles when such companies make a loss six months later or when some even go bust. Even then this becomes a crime despite the fact that it releases societies scarce resources for others to use in a more effective manner. 

With the public sector and socialism there is no such thing as individual liberty. Why don't the socialist do good'ers set up the peoples oil company or the peoples software house? Its because they can't be bothered, its much easier for them to expropriate others hard earned wealth, the producers, for them to waste. Public sector entities will never be run in the interests of society, they will be run on short term whims of politicians seeking to gain short term affection from the public or by idealists who believe society has unlimited resources and promise everyone a Utopian world. Private companies are created by the people, they compete for societies scarce resources and meet all our demands. Fast Buck Economics? More like opportunistic Socialist Economics.


  1. Really lucid summary of the reality of markets and monopoly in everyday life. Sadly (mostly) lefties don't want to have their prejudices challenged by how it works. Passing thought: how can this view be better seen and promoted in the the popular media? Like it.

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  3. Good question Flynn.

    Ideas such as removal of government and the state will take years to come to pass. It takes a long time for people to see the light. Hundreds of years the majority didn't have the vote. People were seen to be too incompetent to manage their affairs so it was dictated by the elite and many felt this was fine. People used to believe that kings were appointed by God and there was nothing wrong with absolute rule. They felt it was required. Democracy never came to pass for so long as people felt it would not be beneficial and couldn't see the need for it.

    Its similar to today when you say to abolish the state. People are so ingrained into the system that they can't see the benefit. Thats why it takes time. Government will keep messing up, and people will become more aware over time. Whether we see the change over our lifetime is another question.