Hashtag Activism

In 1706 Sir John Holt proclaimed "One may be a villein in England, but not a slave."  This marked the beginning of journey that, in a sense, ended with the UN Declaration of Human Rights imposing a global ban on slavery in 1948...

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During those intervening 240 years the British Empire paid a great price in blood and treasure to threaten, bribe and outright force, first the suppression and then the abolition of the slave trade. Britain wasn't the first nation to ban slavery within its borders, in fact it took us until 1807 to pass an Abolition Bill, almost three hundred years after the first such legislation is recorded.  But it was the British, from their position as a global superpower, that decided the trade would end not just within their borders, but globally - and having made that decision it was pursued not just with words and speeches, but with actions...

1807: The West African Squadron is established to patrol the African coast and seize slaving ships. Over the course of its existence the Squadron would free 160,000 slaves, capture over 1,000 slaving ships, and at its peak accounted for a sixth of the Royal Navy. In relative terms around £4 billion a year would have been needed to support the Squadron, and 1,587 men lost their lives while serving aboard its ships between 1830 and 186.

1815: The British pay the Portuguese £750,000 to end their pursuit of the slave trade north of the equator (approximately £5.6 billion relative to today).  Also in 1815 at the Congress of Vienna the British use their influence as part of the victorious coalition against Napoleon to have the condemnation of the slave trade written into international law.

1817: The British pay the Spanish £400,000 (£2.98 billion, 2014) to end the slave trade to the Caribbean islands.

1834: Slavery is abolished not just in Britain, but throughout the Empire, freeing 750,000 slaves throughout Africa. As other territories are annexed by the British, the ban on slavery extends.

1839: The Britain and Foreign Anti-Slavery Society is founded, the world's oldest international human rights lobby group.

1842: British pushes for an extension of the ban on Portuguese slave trading to include south of the equator (pass if this implies you could sail along the equator directly and avoid both treaties.)

1845: The West African Squadron reaches its peak with the addition of 36 extra ships - making it one of the largest fleets in the world.

1847: The British force the Ottoman Empire, itself a virtual superpower, into a ban on the slave trade from Africa.

1850: Brazil is forced into adopt a law criminalizing the transportation of slaves.

In addition to the above there were also treaties and annexations virtually every year from 1830 onwards either extending the ban on the slave trade or outright abolishing it. Each of these was no doubt accompanied by financial incentives and military threats. While I haven't had the time to investigate each and every territorial acquisition of the British Empire, I'm fairly confident at least some few were undertaken from an anti-slavery perspective, which took on an almost religious status amongst the British liberal elite. This was to be one of the great achievements of the Pax Britannia, a legacy to the world of enlightened imperialism.

Suffice to say Britain spent tens, perhaps even hundreds, of billions of pounds in today's money, and lost thousands of lives to end the slave trade, and while politics, presentation and bluster had their place in this achievement it was blood and gold that ultimately did the deed.

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So... to the point of all this (and where the title of this piece comes in)... this is not, as some may have expected, simply a show-and-tell of a little taught, and less appreciated, historical fact. In fact it relates to a summit meeting that has been taking place at the ExCel center in London this week - the End Sexual Violence in Conflict summit. This "high profile" event has been headlined by William Hague Esq (Foreign Secretary) and Angelina Jolie who, according to the Evening Standard, has the (dubious) special ability of 'being able to speak and have world leader's listen' (to paraphrase). By this I assume they mean the leaders of the largely anglophone developed world. Places such as America, the UK, Australia and Canada - i.e. places where ongoing civil wars rife with sexual violence are not prevalent.

Over five days of talks, speeches, workshop and demonstrations various members of the political and media circles will " ... [create] irreversible momentum against sexual violence in conflict and practical action that impacts those on the ground." So far the main achievement appears to have been the launch of the 'hash tag' "#TimeToAct, though the arrival of Brad Pitt has apparently produced more media attention than anything else to date.

My point here is not to trivialize violence in conflict, or even to comment on war crimes (or war or crimes) in general. But rather to remind people exactly what it takes to bring about a global change. It requires hundreds of billions of pounds of funding, it requires fleets and armies and airforces, it requires hundreds of thousands of men willing to go to war for an idea, and thousands of families willing to see their sons, brothers and fathers come home in a body bag. A few million trendy urban-elites in New York, London and Washington spending 10 seconds "re-tweeting" a platitude will achieve absolutely nothing.

At the opening ceremony of the summit Jolie made a threat to those who engage in sexual violence in conflict, "We will come for you," she said (and added somewhat less threateningly "in an organized manner"), but who is the "we" in this? Angelina Jolie, for all her Holywood star power, does not control any of the world's military power, and all her personal wealth amounts to a drop in the ocean in terms of governments and global power politics. When William Wilberforce stood before Parliament in 1791 and declared;

"Never, never will we desist till we have wiped away this scandal from the Christian name, released ourselves from the load of guilt, under which we at present labour, and extinguished every trace of this bloody traffic, of which our posterity, looking back to the history of these enlightened times, will scarce believe that it has been suffered to exist so long a disgrace and dishonour to this country."

Not only did he display a mastery of the English language which escapes the majority of modern day parliamentarians, he also knew exactly who he meant by "we". "We" was the British Empire, army, money, fleets, soft and hard power. While it may have taken another decade for Parliament to finally agree with Wilberforce and his Saints, when it did, it did so with the full intention of action not merely of noise.

A comparable event occurred recently with the kidnapping of 180 school children by the Boko Haram militia. To listen to the media and political ramblings on this subject you would have thought the US had assembled a hundred thousand man invasion force, descend on the jungles of Nigeria with fire and brimstone, and was on the verge of returning all of the captured children along with the barely identifiable remains of their kidnappers. We had apparently shown "resolution" against this crime, we had acted "decisively" and the US had "lead global opinion." What they actually meant was a few famous people had posted a selfie under the hastag #FreeOurGirls.

This is not diplomacy, it is not global leadership, it is self-centered blabbering supported by a common culture which has got confused between action and talking about action. And while it lasts the world will continue to tumble down its current trajectory of chaos, extremism and ethnic violence. As Theodore Roosevelt once said "Speak softly and carry a big stick," I can only imagine what our equivalent today is "Shriek incoherently and forget you ever had a stick?"

/Z

Holding the Wrong Opinion - Responses

As usual Google doesn't let you type out a long enough response in the comments section. Hence, Part II!

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Hi Alex,

Thanks for your responses, as always good to hear opinions and feedback on what I write about. It’s a really interesting observation that UKIP are in practice in the wrong election – your definitely right on the point that to achieve the goal of Britain leaving the EU requires a Westminster presence, however, from a practical/strategic perspective it is easier to break into the Euro-elections due to low voter turn-out (33% I think was the figure the BBC quoted) and the use of a PR system. This gives UKIP money and publicity in support of a Westminster campaign. Furthermore a “Brexit” is going to be a lot more practical with both a Westminster and Brussels presence, so taking MEP seats has a sound political basis.

I would be interested in some examples of what you consider “EU progress” and UKIP slowing this down – their stated position Is that any further transfer of powers to Brussels is a priorii a bad thing, and in my experience ‘EU progress’ is often a euphemism for increased integration. Same thing goes for internal reform – have there been examples of this, and did UKIP oppose them?

The second part is indeed a very bleak take on the future of Europe, but ultimately from a practical perspective I don’t see how a currency and political union can work in Europe with the destruction of European identities. America works because everyone identifies as “American”. The rich states subsidize the poor ones, and federal institutions are seen as accountable to the American people. However to achieve this in Europe requires the breakdown of national identities that go back literally thousands of years – as I mentioned in the original post, some people may say this is a good thing, and we should all embrace being “European,” but personally I consider my culture, traditions and heritage to be an important part of who I am, and would lament that loss of history in future generations.

To some of your more practical points about the EU, I have to disagree

“… ruled by a British government… no matter how deep EU integration goes.”

Aside from the logical argument that a suitably deep level of integration by definition means the end of the nation state, there is also an undercurrent in EU affairs that a federal super-state (The United States of Europe) is the ultimate objective;

“Europe's nations should be guided towards the super-state without their people understanding what is happening. This can be accomplished by successive steps, each disguised as having an economic purpose, but which will eventually and irreversibly lead to federation'.

Jean Monnet”

“I would like to see the development of a European public space, where European issues are discussed and debated from a European standpoint. We cannot continue trying to solve European problems just with national solutions,”
Jose Barroso

“the time of the homogenous nation state is over”

Herman Van Rompuy.

There are plenty of other quotes along these lines, (the above came from a quick 10minute google-search to make sure I got the right names), one I couldn’t find, but was a attributed to a “senior European figure” on the same day Barroso made a number of speeches, was that within the “Brussels bubble” senior European figures see themselves as the ‘priesthood’ of a new age, and those who disagree with them about the future of Europe are wrong.

There are economic and political arguments for a federalist, integrated European super-state, and much of my hostility to the European project would be removed if this was accepted as the end goal. But as it stands at the moment; “ever closer union” together with senior EU figures stating the nation-state is an obsolete idea that people need to be (unwittingly) lead away from, sounds like a deliberate attempt to bring about a federal super-state, and by extension loss of sovereignty for member states.

“The ideal solution”

Just to clarify here- personally I think it is an awful idea to have Europe broken into micro-regions as part of a macro-superstate. That certainly appears to be the EU’s goal, and as mentioned elsewhere, I can see the logic behind it but personally I am still a supporter of the nation state and then supra-national bodies such as the UN, NATO, NAFTA and the Commonwealth to deal with international issues. A community of nations, not a super-state.

“Decisions best made locally will be made locally…”

In an ideal paradigm world this may be true, yet our own examples of layered government show this is a contentious issue that often decides into squabbling and feuding between layers of government. Local (council) government and central (Westminster) government are often in conflict due to different political alignments (Labour Council, Tory government), and the inevitable ‘power drag’ – central governments want more control, councils want more independence.

The Scottish Parliament is an excellent case in point, again it may be a cynical view, but personally I feel the SNP’s drive for independence has far more to do with certain senior political figures in Holyrood wanting more personal power than it does about long term benefits for Scotland. When those able politicians (and for all my personal dislike Salmond is highly effective) are in central government powers get sucked to the centre, when they are in the provinces we get regionalisation. Neither is necessarily the “best” place for decisions to be made, yet the too-ing and fro-ing itself can be divisive and damaging.

On the flip side, have continental level responses proved effective in virtually any area? The Euro has succeeded in crushing southern Europe into permanent slump (25-30% unemployment in Spain, in Italy the only sector growing seems to be the black market), while Germany currently has the world’s largest trade surplus thanks to a depressed exchange rate. Free movement of people may have benefitted individuals, but at a continental level we have Eastern European countries who have seen entire cohorts of their population leave – Romania has lost 12% of its population since accession, leaving behind a shell of a country and producing culture and infrastructure strains elsewhere.

“The EU Commission are completely answerable to the EU Council and Parliament”

I was originally going to work though the various institutions in turn, but this is worthy of entire series of posts on its own, instead a more concise answer would be “how are they accountable to me.” Having a group of organisations who are only accountable to each other breeds both contempt for the electorate as a whole, and the potential for corruption. Our own domestic political system suffers from this despite a more immediate link between voters and candidates. Britain is effectively run by the “Quad” (Cameron, Clegg, Alexander and Osborne). Quad decisions are taken in private, without wider discussion and presented to the Cabinet as a fait accompli. The Cabinet then (without much choice) ratifies those decisions and present them to Parliament, where the back benches vote it through by order. In theory the Cabinet is accountable to Parliament and Parliament is accountable to the voters, but in practice we have a four-man band running the country.

The second issue is one of transparency and scrutability. The British media keeps a vigorous spotlight on the affairs of government, and the bipartisan nature of the media mean it is always in someone’s interest to run damaging stories on any of the main political parties. The Daily Telegraph’s extensive probe in MP’s expenses is a good example of a free press bringing to light abuses within the system, and the elected officials of the day being forced to respond.

The detached nature of EU discussions and the general downplaying of the role the EU plays in our government (as an aside it is a curious paradox that pro-EU campaigns claim both that it is vital to our prosperity to be a central part of the EU because of how important it is, and simultaneously dismiss the concerns around sovereignty loss on the basis that the EU doesn’t have much impact on domestic affairs), means there is ultimately far less transparency around the EU decision making process.

As an specific example – the ECB is required to answer questions from the European Parliament, but is free to withhold documentation relating to internal meetings and decision making processes, and is not required to explain itself to other institutions. Compare with the BoE which although independent has to publish the minutes of key meetings, and the Governor’s requirement to provide a detailed account on a month by month basis of why key target’s aren’t achieved.

There is also the example of Mario Monti in Italy and Lucas Papademons in Greece – technocratic banker / eurocrats appointed as the prime minister of a nation state by the EU institutions. If this happened in the UK and say a German central banker was appointed as Prime Minister without an election, would we really consider this democratic? And by extension are Monti and Papademons accountable to the European electorate, or the institutions that put them in place?

“It does not aim…”

I’m deliberately skipping over some comments about national / regional identity etc since they are explicitly bound up in the idea of whether the EU is out to destroy the nation state. If I were confident that the intention of the EU was a “thin layer of continental collaboration” with nation states left to manage their own internal affairs in peace, then I would largely support the idea. Ultimately this is what the League of Nations, the Club of Rome, and various other pan-European bodies have sought to do in the past. However, as mentioned above, to me the stance and substance of EU actions and speeches is the relentless advancement of continental government, at the expense of national identities and independence.

“The notion that everything can and must be run at national level”

I am certainly not advocating a completely isolationist view of the world with each nation a realm-unto-itself. However, there is a material difference between supra-national bodies such as the WTO, WHO, UN, NATO, the Commonwealth, the EEA, NAFTA and so on, and a federalist EU superstate. I would question why it is foolish to believe that nation-state organisation, properly embedded in a set of global or continental organisations such as those mentioned above, with internal mechanisms for local government where appropriate, is so inferior to federalist super-states?

“The UK and other European nations benefit a lot by collaborating closely on many issues they would traditionally have done themselves, at very little cost”

I’m going to have to call for examples on this one – while most of the facts about the costs and benefits of EU membership are obscured or simply not available (deliberately so in my opinion since it benefits both sides of the argument to be able to make ludicrous claims), I’ve seen very little evidence of clear, defined benefits to the UK, that are a result of the EU, and could not have been replicated in other supra-national bodies. Britain (along with Germany) is the only country to have contributed more to the EU budget every year than it took out, we have lost rights over our fishing (CFP), our judicial system is at odds with a continental system (which has a very different evolution and legal tradition), we run a trade deficit with Europe, and the EU is currently trying to impose a FTT, whose sole impact will be to cripple London as a financial centre to the benefit of New York and Singapore.

 Final Thoughts

As I mentioned in my original post, I genuinely support some reasoned, in-depth debate on the European question, and I think it’s great to hear some positive arguments in favour of the EU rather than simply belittling Eurosceptics. I’d be interested in your take on some of the quotes above, and on the examples of British benefits to membership. As a final point – if Britain does vote to leave the EU in a referendum in 2017, do you think we will be allowed to go? The only historical precedent is the southern states of the US choosing to leave the Union they had been assured was voluntary in 1861…

 

Holding The Wrong Opinion

I've been a bit lackluster on my posting recently, partly as a result of holding various offline debates (and therefore satisfying my need to opine) and partly due to 40k and CK2 soaking up much of my spare time (watch this space for a historical recount of the triumphs and tragedies of House ua Briain on its journey from Earls of Thomond to Emperors of Britannia), however, I couldn't really let the euro-elections pass without some form of comment.

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More so then previous European elections, this particular round of vote-casting has attracted an unusual level of both media, and general, attention. Political debates and comments have appeared across both online and offline platforms, voting became a sufficiently trendy activity to attract facebook and twitter posts.

The reason for this level of interest is, to me at least, purely a function of the UKIP phenomena. Regardless of whether you support UKIP (or Ukip as it now seems to be), the potential for a new political party to make a mark on a system which has been dominated by the three established parties for my entire lifetime has been enough to attract attention. This is not, however, going to be a column specifically about Ukip, or indeed any particular party's policies, its not even going to be about Europe in general. Instead, this is about something far more sinister, and to me, far more concerning - the relentless vilification of political dissent, both in the media, and by the general population.

I once believed that Britain (and the British in general) honored the idea of free of speech, and freedom of political beliefs. We may disagree with certain political views (generally extremism of either direction), but on the whole Britain's liberal traditions stood strong. Having watched the recent elections unfold, I now believe this is no longer the case. While on a mass-media level I am not surprised by the effort expending on smearing Farage and the Ukippers (none of the main media outlets would benefit from the established political paradigm shifting), what I was surprised at was the vitriol with which people I had previously considered "reasonable" attacked Ukip candidates, Ukip voters, and Ukip electoral victories.

There are plenty of avenues for a reasoned attack on Ukip's position - positive arguments in favor of EU integration and multiculturalism would be one.  Objective, unbiased research showing how the indigenous British population has benefited by sustained EU immigration would be another. Likewise demonstrable examples of EU regulation producing better outcomes than an independent Britain could have achieved would at least provide a coherent explanation of why the costs of extra regulation should be borne. On a more basic level, an honest acknowledgement that membership of the EU means loss of sovereignty, but that this loss came with more important benefits would give meaningful context to the In / Out debate.

I, personally, haven't seen any of the above. Economically I think there are (strong) arguments for membership of the EEA (the European free trade zone), but not why this requires extensive political integration. Again I've seen solid, reasoned arguments about why attracting immigrants with high or much-need skill sets adds value to an economy (Australia's policy often being sited as a practical example), but not for an open-door policy to countries with a significantly lower standard of living (and the economic tension that breeds).

What I have seen, is; condescension, derision and outright hostility to people expressing a pro-Ukip position. Whether its labeling people fascists, racists, illiterate or mocking "little Englanders" this is a sustained attack not on the logic of people's opinions, or a rebuttal of the evidence they are basing that opinion on, but personal attacks against people for expressing their political opinions. That is something which anyone who places some value in the liberal enlightenment tradition should find repulsive. I may not agree with you, I may actively try to convince you to change your opinion by pointing out the flaws in your reason or showing the benefits of an alternative position. I may in the end simply throw my hands up in the air and accept your position is one rooted firmly in emotion and passion not logic and reason and thus further debate is futile. But ultimately, I will still support your right to an opinion, your right to vote, and the premise that everyone's vote counts equally. I will not call you a bigoted racist, by extension you voted "wrong".

Our democratic process is based on the idea that each area will be represented by the largest group within that area; it does not allow for pre-selection of parties and candidates based on some infallible moral code that weeds out "wrong" opinions, it does not allow for someone people to have more voting power than others because they hold the "right" opinions, power is given the people to make up their own minds, and we all tacitly agree to abide by the outcome (a duty that is lost on most people).

By way of being fair, I should note that this is hardly a one-way street. While anti-kippers are busy labeling people fruitcakes and loonies, the Kippers themselves are quick to label anyone not part of their movement as slaves to the establishment, traitors, white-apologists and so on. This is just as much a problem, and is one of the reasons (in my opinion) Ukip will never be in a position to form a government. While anger and passion will speak to parts of electorate that up until now have largely been ignored, government is (or should be) about strategy, planning and boring fundamentals. Farage does not look like a Prime Minister in waiting, and Ukip does not have the stability and endurance of a governing party. Blair and New Labour had it when they delivered three election victories, and the Tories, in their better moments, have the most genuine claim to being the party of government.

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On a more reflective and pensive note, I believe we are living through the death throes of the nation-state in Europe. Some may cheer this, and claim we are moving into an enlightened age. But to me, it is a sad passing of an ideal that has carried mankind through thousands of years of history. When the European Union has successfully eroded away the powers of national governments we will be left in a world of micro-regions, supra-national governments and group-think. I will no longer be able to call myself British, I will be European, with nothing to distinguish me from 500 million others, or I will be a member of some arbitrary micro-region (South East English? Wessexian?), its history largely meaningless to me, since my regional identity will be transient at best; Hampshirarian today, Londonisn tomorrow, Castilian in my retirement.

Democracy will have long since been extinguished, rule will be by Commission, Committee and Court, the European Parliament little more than a token remembrance. The tides of humanity will wash back and forth between the Atlantic and the Baltic as regional councils succeed in poaching bigger budgets from Federal departments and are therefore able to offer more generous welfare states or more subsidized living. And I hope that if, or when, this grey dystopian world of pan-culturalism, political correctness and over regulation comes to pass, those who mocked and insulted the believers in national pride and sovereignty look around and say "This is paradise".

/Z

One.. Two... One-Two-Three

There are some very strange ideas floating round on the interwebs about the cornerstones of all economic debate - goods, services and money. This is an attempt to straighten out some of the more blatant misunderstandings.

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The Three Sectors

Economic theory tends to break economic activity down into three segments, imaginatively named Primary, Secondary and Tertiary. This can a useful distinction when categorizing different economies, more "developed" economies tend towards a higher proportion of activity occurring in the secondary and tertiary sectors, and this has other uses in discussing how particularly industries may rely on others. It was never intended as a measure of how "good" or "useful" a certain industry is. In economic terms an industry (either a particular company or group of companies) is ""better"" (in a huge string of inverted commas) if it produces (adds) more wealth than another industry, regardless of where on the 1 / 2 / 3 scale the industries in question sit.

To briefly clarify;

Primary industries deal directly with natural resources. This therefore covers things like mining, forestry, farming, and oil and gas extraction. Under-developed nations tend to have a lot of primary economic activity because it (generally - oil and gas being the exception) can be undertaken with a labour heavy base rather than a capital intensive one.  The "value adding" component of the primary industry is predominately a function of location - iron ore in a warehouse is worth more than iron ore a mile underground even though the object itself hasn't changed.

Secondary industries deal with manufactured goods. This could potentially be broken down further into 2.1 and 2.2; 2.1 industries take the output from the primary industries and create manufactured goods (i.e. take iron ore and turn it into iron bars), while 2.2 industries take manufactured goods and use them to create more complicated manufactured goods (take iron bars and turn them into knives and forks).  The value adding component of secondary industries comes from the increased utility the same amount of physical material can have in different forms. (In the example above 10 sets of knives and forks has more value than the pure value of the metal because the form has a function).

Finally the tertiary industry deals with services. An exact definition of what a service industry is can be a little harder, though I'd take a punt that services deal with where and when things are rather than what they are. As an example a transport company provides a service - i.e. moving your 1,000 tonnes of wheat from point A to point B; they haven't changed the product, but they have changed where it is, thus adding value (it has practically speaking very little value in a barn on a farm, but potentially enormous value as the input to a corn-flake factory). The value adding component of the service industry is allowing the utilizing goods.

It should be pointed out that these definitions are a little blurry round the edges - this isn't really that relavent and shouldn't be used to derail the general thrust of this piece, but its something to be aware of. (For example you could argue mining is changing the location of an object and hence a service industry, although intuitively we all accept that a copper mine is doing something different to UPS  though on paper they are both moving an object from A to B, likewise the distinction between utilizing a set of goods to add value (service) and manufacturing a new good (secondary) could be blurred).

I'm going to take a slightly tangent here to talk about what value actual means.

Value, Utility and Moneys

 In economics the term utility appears, and while sufficient for the purposes of economics-as-maths and as a placeholder word for a general concept in economics-as-social science, it often gets mistranslated into common English. Utility is roughly speaking the benefit we get from consuming a good or service. Somewhat unfortunately this will be different for each individual. While I will derive some benefit (happiness, pleasure, etc) from eating a cake, there will be other people who would have got more or less benefit had they been the ones eating the cake. This conundrum presents all kinds of problems for economists since it undermines the idea that a group of rational agents presented with the same choice will make the same decision. (For example do you want this piece of cake or this piece of banana, I would pick the cake, others would pick the banana, but we are both acting according to the same utility-maximizing principle).

 To circumvent this principle economics often equates utility which is person-specific and difficult to quantify (happiness is best seen ordinally rather than cardinally - i.e. you can say you were happier in situation A than in situation B, but not by how many "units") with money. Money is great since it is easily quantifiable, easily observable, and, in the modern market place, easily transferable. The idea is that while there will be specific combinations of items valued at £10,000 that any given person prefers over other 'baskets' worth £10,000, having £11,000 will always allow you to have a higher total level of utility than £10,000. (Fuzzy indifference curves aside).  The risk however is that in the world of faux-business that passes as "man down the pub / man on a forum" economic debate money gets seen as the end in and of itself, rather than as a proxy for the consumption of goods and services.

So, to reiterate; money is not value. Value is a measure of utility. Money is a proxy for value only.

In practice this means that when assessing the output of an industry and ultimate question is how does this make people happy - that is, give them utility. Not how does this industry contribute to the circulation of the bits of coloured paper that we use as a medium of exchange.

"Winning" at trade

There have been plenty of people through history (and indeed in the modern world) who have acquired vast fortunes through trade and business. Though to those who cry out against the perceived wealth inequality between the "1%" and the rest in today's world, it may be worth checking out the equivalent in today's money of the fortunes accumulated by the original barons of industry, (whether it be textiles, ironworks, railways or whatever) and historical rulers (wiki has a somewhat dubious claim that the Roman orator, general and politician Crassus may have accumulated a personal fortune equivalent to the annual Budget of the entire Roman Empire. Based on some very dubious extrapolations compared to the gdp of the British Empire (which had a comparable % of global population and technology), this would be equivalent of 1.3 trillion dollars in today's money - that's 17 times more than Bill Gates, or about 2.5 times the combined wealth of today's ten richest billionaires.).

There are two ways you can acquire wealth through business/trade (through all of this I'm ignoring the distinction between you personally, and "you" in the sense of a business you own. It's now a meaningful distinction in this context). 

The first is to take some inputs (say iron bars, timber, gravel, nails, and largely unskilled labour), and turn them into something which has more value then the inputs themselves had (i.e. a railway network). Through this process the total aggregate value of all the goods and services in the economy increases, i.e. the total cake gets bigger. A canny owner/businessmen can pocket a significant chunk of that increase for himself, thereby becoming fantastically wealthy. But the point is he has created value. The railway example is very informative - imagine you are a dairy farmer, you sell milk. Without a railway you can only sell to the nearby village and other farms, and you'll end up throwing away a lot of milk you can't sell (particularly since your likely to be surrounded by other dairy farms). Along comes the railway and suddenly you can sell you milk (remember this is fresh milk before refrigeration etc) in the nearby town, which will always have someone looking to buy it. Net result? You get to sell more of your product and make more money. Of course you have to pay to use the railway. So lets say you make an additional £15 a day from selling your goods, and you have to pay £5 of that to the railway. Your still better off, potentially a lot better off. But the guy who owns the railway? He make's £5 of you. And the next farmer, and the next, and the next, and so on, until he's earning hundreds of thousands every single day.

This is capitalism as it's meant to work - you create value, and in doing so you get to keep some of it, and some of it flows out into the economy benefiting others. (Indirectly all that money you keep for yourself still has a benefit, since it means you'll consume more goods and services yourself, thereby creating work for others). The key to the genuinely mega-rich in this process is to come up with something that benefits everyone, so you get a bit of value of everyone. Railway became a service consumed by the entire economy, so the barons got their slice of every cake in the country. Bill Gates made his fortune of Windows - a system which virtually every computer on the planet uses.

"Cheating" at trade

The alternative is to take some inputs (a bank account, an advertising budget, and some fancy linguistics) and  create a product with no value ( a ponzi scheme), and then get people to buy it.

The idea here is that you got more for the product then its worth, thereby pocketing the difference. Note - this isn't you got more than the inputs are worth (which is true of any value adding industry), you got more than the finished product is worth.

What should hopefully be apparent is that this system relies on some form of deception, often deliberate - it relies on convincing people things are worth more then they actually are. Going back to our point above about value, at heart this means telling people that products or services will do something that actually they won't.

The ponzi scheme is an example of a financial product / service, that offers to take your money and give you back more money at some future point. Fine, that's the basis of virtually all investments, but the ponzi scheme is predicted on a disparity of information - the person running the scheme knows full well that the "product" has no real value since it will never return any of the money. But the investors don't know this , and therefore complete the purchase. 

Cheating at trade does allow you to get rich, but the overall size of the economy hasn't changed. Blank DVDs don't gain "real" value (i.e. they don't add more utility when consumed) by being packaged up in movie boxes and sold as films. Thus this type of trade is about shifting value from one person to another, not creating new wealth.

As an aside, generally you don't get super rich with this approach - why? Because it relies on continually deceiving people and 1.) people are harder to trick as the amount of money involved goes up, and 2.) it gets harder to trick people a second time.  A function of a wealth creating industry is that it encourages repeat use. In the example of the dairy farmer above, having gone to market, sold your milk, and got home with a profit, you are more inclined to do it again, i.e. when you get some more product you will make use of the railway to again increase its value by taking it somewhere you can sell it. On the other hand if the railway were a "cheating at trade" idea - (i.e. if there were no trains so you can't actually move things, or maybe you can't get out at the other end ??), then you won't do it a second time.

Value is Perceptive

A clarification is required here, to distinguish two different concepts.

1.) Promoting and advertising a value adding product

2.) A cheating at trade (value-reallocating) product.

Having created a product (iphone, Imperial Knight titan, chocolate cake), you naturally want people to part with money in exchange for the product. Advertising lets people know your product exists, and promotes its benefits and features. The price you set will be as high as you think people will pay. However we have a concept of "fair" or "honest" advertising. It is considered an institution of trade that you can't flat out lie about your product to encourage people to buy it, and if you do consumers have various rights of recourse to get their money back.

Examples flash by on a fairly regular basis, though they are generally on the grey areas round the edge - yes the product will do what's advertised, but only in certain, unlikely circumstances. Hence we have the term "misleading" advertising. This is promotion taken the extremes, with the positives stressed unreasonably, and the negatives covered up. Personally I may dislike the extent to which this occurs, but it is still (just) in the realms of "winning at trade" - your product does have advantages and does create value. You've just exaggerated to what extent and for whom.

"False" advertising on the other hand is the precursor to "cheating" at trade. Adverts for a color TV that is actually black and white, for a 3 for 2 offer that actually only includes 1 product, or books that turn out to be full of blank pages, would all quickly fall foul of "cheating" at trade. The distinction here is you are advertising a benefit that doesn't exist.

A few points then;

Banking and Financial Services

I often come across claims that the Banking sector doesn't add value, it just re-allocates value from customers to bankers. In effect the claim that it is part of the cheating camp. To begin I'm going to split off the fantasy world of derivatives trading and investment banking. Yes, I can quite accept that the trading world is focused on exploiting knowledge inequalities to sell things for more than they are worth by apparently offering benefits which you full well know don't exist. However the people in this world know the "rules of the game" and are not part of the regular consumer/producer market. This is not unlike going to a poker tournament and then complaining all the people there were trying to win your money off you.

"Retail" i.e. everyday, banking, adds value in a huge range of ways;

1.) It provides a safe, secure, easily accessible way to keep your money. Imagine if you had to keep all your money as notes under the bed, and your life savings as either gold or coin in your house.

2.) It allows access to the electronic payment world - direct debits, standing orders, debit and credit cards and so on are all services that allow you to easily manipulate when and where your money is.

3.) It provides a method of borrowing money to bring forward future consumption. On the whole I would conjecture banks are pretty clear in their advertising of how much you will borrow and how much you will pay back. It is then up to you to decide if that cost (i.e. the interest) is worth the value (whatever it is your planning on using the money to acquire and consume).

4.) In climes more typical than today's 0.5% BoE base rate world, it provides a low return, ultra-low risk investment (bank deposits are liquid investments in the bank. But they are incredibly safe since it would require an insolvent government before regular deposits were lost).

One of the points I raised in the "value adding vs value stealing" sections was that a value-adding industry attracts repeat (or ongoing) business, while a value-stealing one finds it difficult to get people to re-use or re-purchase a product once they know what they are really getting.

So, if banking is such a huge scam, with no benefit to the regular user, why does everyone have a bank account? Why do people still want to take out mortgages and credit cards? Why is the complaint not so much "we don't want banking" but "we don't want to pay for banking?".

The PPI scandal bears some consideration here since it appears to meet the above criteria for cheating ("having found out what it is I don't want it anymore"). Without risking an entirely new topic, I would suggest the consideration is not so much the product itself, but how it was sold. A mismatch can occur when a customer doesn't realize they are in a sales conversation.

Two examples:

1.) You go to a used car salesman and he tells you XYZ car is brilliant. You know this is a sales pitch (advertising) and therefore to be careful to check the product is what you expect. Its unlikely your being directly lied to (i.e. car has a year's MOT when in fact it failed its MOT), but your probably getting the best possible version of the truth.

2.) You go to the dentist and they tell you you need XYZ treatment. Here you expect your being informed as to what would be best for you, not being given the spiel on a particular product. We expect medical professionals (and legal, mechanics etc), to be acting in an advisory capacity not a sales capacity.

Now imagine the problem that arises when the customer thinks they are in situation 2.) and the salesman thinks its situation 1.).  The general public, who until recently, largely saw the banks as social institutions, if not an extension of government, would have sat down with a customer service rep, and probably assumed that if they were offered a product it was a good idea to take it, in the same way that if your dentist says you need a filling, you assume he's acting in your best interests. On the other hand, the CSR, who has sales targets, sales coaching and a sales focused job description, sits down to the same meeting with the intention of shedding the best possible light on his products, and assumes the customer knows they are being sold to - in the same way that the salesman in PC World or Currys knows that the customers knows its a sales pitch.

This then leads to "mis-selling" scandals.

Do I have much sympathy for people who were given the details of a product, read them, decided they wanted it, then changed their mind? - No. This is a straight case of your making a judgement on the value you get from different baskets of goods then changing your mind.

Do I have sympathy with people who thought they were being advised, but were in fact being sold to? Yes - to some extent. Though ultimately you still bought a product, and you probably weren't actually lied to about what it did.

Finally, do I have sympathy with people who sought financial advice and were told to buy a product they didn't need? Absolutely - this is a cut and dried case of "value by cheating". If the service you sell is financial advise, and your giving people bad advice driven by your own targets or commissions, then your being misleading when you advertise "advice".

All hail Manufacturing

I was going to end with a comparison between the German and UK economies in response to the perennial racket that we should shift back towards manufacturing because somehow manufacturing is more holy than financial services. However, this is probably a topic that justifies its own post, so a few observations only;

1.) Yes Germany has both a bigger manufacturing base, and is the worlds top exporter.

2.) Yes there does seem to be a trend that western countries export pretty much all of their manufactured goods.

3.) The causation on the above is not clear. This could simply be saying we've shifted labour and capital out of manufacturing to higher value-adding industries and used the money to buy cheap manufactured goods from other people (China, Taiwan etc). The manufacturing that has remained is the capital and skill intensive industries which are primarily exporters by nature (automotive, aerospace etc). Therefore pivotting back to semi and low skilled manufacturing will not add a great deal of value, though it might improve the balance of trade position.

4.) Germany has an artificially low exchange rate thanks to the Euro, which boosts its export capacity.

5.) German work and investment ethics are far superior to those in the UK. It doesn't really matter whether your in manufacturing or servicing, a culture which promotes skills, training, experience, and inwards investment will have solid fundamentals. Germany excels in these areas. The UK does not.

6.) We could focus on making our services an exportable commodity. If we are good at financial services then specialize in that and sell it globally. Someone once said "not everyone can sell insurance" - this is true. But there is no reason why one person/country can't sell everyone's insurance. Maybe we should be looking at how to sell what we do have, not what we may theoritically have if we re-build the whole economy.



Conclusion (the TL;DR version)

You can either dig stuff up, turn stuff into other stuff, or make people's lives easier. They are all value adding. Proper capitalists create value and get rich by getting a slice of a growing cake. You can cheat by misleading people over your products, but this isn't how stable, ongoing industries operate. And no, everyone making chairs isn't a superior position to everyone selling insurance.

Happy Trails,

/Z