Nineteen Eighty-Four is here. Did you even notice?

  Between the totalitarian leanings of our rulers, using the threat of terrorism to ramp up surveillance while simultaneously abandoning the rule of law, and the cries for censorship of the individual by the neopuritans, Orwell’s dystopian vision of Nineteen Eighty-Four is in place. We didn’t heed his warnings, and the state used his book as its strategy:

  • the government plans to enact a law that gives it the right to look at all your electronic ‘metadata’, so it can see who you’ve called, your web searches, etc. “If you have nothing to hide them you’ve nothing to fear”: Orwell’s ubiquitous ‘telescreen’ operated by the omniscient Big Brother.
  • the government bombs countries that even its own parliament has denied it the power to, thereby abandoning the rule of law.
  • the government promotes its wars on terror and war on drugs. It aids this by telling us daily, via its press releases and briefings, who we have to hate: currently this is ‘immigrants flooding into the country unchecked, because of the EU’. Orwell predicted perpetual war and the daily two minute hate.
  • the language we use is being controlled, words we use are being banned, even thoughts are being outlawed. If we offend someone with our words on a subscription service we can be reported to the police and prosecuted. Orwell predicted the idea of ‘thoughtcrime’; this is now a fact: people are in prison for writing words on a forum where readers have to actively choose to read them.
  • the government tells us that debt is too high whilst simultaneously increasing debt, that it is fighting for our freedom in the ‘war on terror’ whilst simultaneously reducing our freedom, that we need to save money by reducing wage rises whilst giving itself inflation-busting pay rises. Orwell predicted ‘doublespeak’, where the state can convince the gullible populace of two contradictory views simultaneously.
  • the government uses your worst fears to promote its agenda. You’re not able to afford healthcare or support yourself in your old age? The state can help you there. Afraid of terrorists? The state can help you there. Worried your children will be uneducated? The state can help you there? Unable to choose which vendor is honest? The state can help you there. Whatever your worst fear, the state has its solution. Orwell predicted that the state would use your worst fears against you to promote your compliance. This is your personal Room 101.

Nineteen Eighty-Four is here.

You don’t see that?

2 + 2 = 5 Comrade.

The Justification of the modern State

When we voluntaryists declare that the state is an immoral coercive authority we are challenged usually with the argument “but without the state the weak would be at the mercy of the strong”.

As voluntaryists we care about the coercion of the weak by the strong more than most would, and so we sympathise with this predicament, we would still say that the coercive power of the state is worse: the cure is worse than the ailment; if the answer is ‘the state’ then you’re asking the wrong question.

But let us assume for the moment that a coercive power has been enacted as an agent ‘of the people’ by a substantial minority of its subjects, and without this coercive power the poor would be abused, robbed, libelled, evicted, or even imprisoned, raped and murdered.

Ignoring the positive rights that many infer on the modern state, let us assume that protecting the weak from the strong is the sole justification for a ‘legitimised’ coercive power, such as the modern state.

So shall we review the current situation in the UK?

  • Legal aid has been effectively withdrawn from many of the poorest people, thereby enabling the ‘powerful’ to ride roughshod over their rights. At the same time habeas corpus and double indemnity have been withdrawn;
  • The libel laws in the UK prevent anyone but the richest from starting, or more importantly winning, a court case;
  • Many of the poorest are subject to sub-standard education reducing their life options, provided with little or no useful career guidance, and condemning them to the dead-end jobs at best, or worse: a life on benefits;
  • The ‘poor’ suffer higher effective tax rates due the application of VAT and ‘sin taxes’ on ‘luxury purchases’, such as fuel, tobacco and alcohol;
  • Many of the poorest are left with few legitimate career options and can end up convicted of victimless crimes, such as prostitution, drug use (with associated theft) and drug dealing. Once imprisoned they struggle to break out of the vicious circle of imprisonment, release and recidivism;
  • Recent historical cases have shown that many in power have raped and potentially murdered young children with the state covering their tracks for decades.

In light of these examples it should be obvious that the modern state is not protecting the weakest from the strong; in fact in the last example it is doing the complete opposite.

Hasn’t the state proved itself to have breached its only justification for existing?

Who will build the roads? We will.

 

 [This was written as a speech and delivered at Libertarian Home in September 2014]

I’ve spoken and written before on the topic of ‘the road to liberty needs a strategy’. I’d like to elaborate on this topic with some subsequent thoughts I’ve had. All libertarians accept that we want to reduce or remove the state, so how do we get to that libertarian nirvana; or at least closer to it?

There is no simple answer.

Murray Rothbard said:

“Only liberty can achieve man’s prosperity, fulfilment and happiness. In short, libertarianism will win because it is true, because it is the correct policy for mankind, and truth will eventually out.”

Whilst I agree with the sentiment I don’t think it’s as easy or inevitable as Rothbard imagined. I don’t believe that we can currently win against the state and its supporters solely via political means. The state has too powerful an incentive to relinquish its existence, and the people are as yet unconvinced of its inherently violent nature.

As Macchiaveli said:

“It must be remembered that there is nothing more difficult to plan, more doubtful of success, nor more dangerous to manage than a new system. For the initiator has the enmity of all who would profit by the preservation of the old institution and merely lukewarm defenders in those who gain by the new ones.”

As I’ve said before there’s no point getting involved in political parties – they’re corrupt and still require taxation, which is ultimately obtained through the threat of violence. And in a democracy they rely on hoodwinking the electorate, buying them off with money stolen from us.

Instead I propose a multi-faceted approach to achieve our libertarian society, utilising anti-political and entrepreneurial economic methods. Some of you may say that I am proposing an agorist approach towards achieving a libertarian society, as described by [Samuel Edward] Konkin III in the New Libertarian Manifesto. Well, while I see some advantages in this approach as a strategy, I am personally closer aligned to Rothbard’s vision of anarcho-capitalism. And I am definitely not going so far as to propose any of the currently-illegal counter-economics tactics that J Neil Shulman introduced to Agorism! Getting into a violent confrontation with the state would not be advantageous; at least not at this stage while it is so powerful.

The first facet of my approach is education.

We can, and should, educate the public about the dangers of the state and how we believe that liberty is the best philosophy for the human race. But how successful is this approach? In the UK the IEA has existed since 1955 and the ASI since 1977; yet they haven’t brought about any discernibly radical change in the thinking of the electorate. In fact a recent (11 May 2014) YouGov poll showed that 60% of respondents wanted rail renationalised compared to 20% who didn’t. Of those who supported renationalisation only 21% thought the trains would then run on time and 22% thought customer service would improve. How has the pro-market argument been lost so badly when less than a quarter of people who want trains renationalised think it will improve the service???

This is shocking!

People are happy to buy innovative or inexpensive products that only the free market can create, yet they want state-owned railways and more NHS?!

Fellow libertarians, we are losing this debate!

We need to educate with facts – we must always take the debate back to empirical evidence of why the market is better than the state. We must destroy their claims with that evidence and thereby expose their ideas as empty rhetoric and lies. For example, almost any scare-story that Ed Miliband brings to the forefront of debate is quickly dismissible with evidence (e.g. his blathering on about “irresponsible capitalism”). We know we have the stronger moral argument: a state based on violence cannot be more moral than a free society built on consent.

However, it’s not enough just to educate, we need to do more than win the debate: we need to encourage people to think differently about the state; we need to alter their perception of it. People need to start questioning the state’s motives and see that its actions are not for the greater good as it claims. To do this we need to control the language of debate, as the statists previously have. This way we can break people’s mental adherence to statist language and encourage them to think about how they are controlled by the state.

We should start by always refer to the state as requiring violence to enact its will, point out that if it couldn’t rely on violence then it would fail. We should always talk about taxes as penalties and benefits as subsidies. We should criticise the concept of tax as indentured labour, and especially criticise sin taxes and their impact on the poor. [For example, of a £12 bottle of spirits only £2.10 goes to the entire value chain – whereas £9.90 goes to the Exchequer. We need to show how sin taxes disproportionately affect the poor, and how most taxes fall heaviest on the poor and working class.]

Most importantly we need to create disillusionment in the state and its agencies.

How do we do that?

You only have to look at the news to find cases that we can talk, blog and tweet about. We should adopt the outrage that statists stir up for our own ends – as the underlying cause of their latest campaign-du-jour is often state failure, not market failure.

For example:

  • power prices – affected by state restrictions, climate levies and pricing controls;
  • rail pricing – affected by state monopoly of the infrastructure and regionally franchised (outsourced) to the highest bidder;
  • crime – affected by state criminalisation of victimless crimes (10,000 out of 84,000 prisoners were in for drug-related offences; 20,000 in for robbery, burglary, theft & handling);
  • youth unemployment – exacerbated by the national minimum wage;
  • bankers’ bonuses – government bailout of banks which market would have let fail;
  • hedge funds – how they increase value, not destroy;
  • finally, holiday prices outside of school terms – state distortion of the market caused by treating schools as prisons and pupils as prisoners; etc.

I propose that we should always use current affairs as a focal point, enabling us to frame the debate around liberty versus the state. Where possible we should utilise contemporary news stories to talk about how evil the state is. We can discuss these on social media, in conversations, in blogs, etc.

For example, recent UK news stories that are appropriate include:

  • Ashya King – taken from NHS by parents to get the treatment they want for him, and are prepared to sell their home to pay for, but were subjected to arrest and imprisonment because they dare to question our national religion of the NHS;
  • Rotherham – police and council ignore or cover up 1,400 cases of child abuse.

And internationally:

  • Police brutality – in the US the murder by police of Mike Brown in Ferguson, Missouri;
  • The plight of Gazans – innocent people being killed in a dispute between two bloodthirsty states (and both were democratically elected, if you want to demonstrate that democracy <> freedom);
  • State surveillance – Snowden’s leaks: revelations to some, no surprise to many of us.

Other historical stories, but still in the public consciousness:

  • Hillsborough – police cover up their incompetence with lies and falsified statements;
  • Bloody Sunday – British army gun down peaceful protesters;
  • Ian Tomlinson – unlawfully killed by Met Police during G20 protests;
  • Jean Charles de Menezes – innocent electrician executed with seven shots to the head after police had held him down and first evacuated a crowded tube train; incidentally, did you know that their shoot-to-kill policy is still in place?

All the above cases can be utilised to demonstrate the power of the state and the fact that it’s only there to protect itself and its agents. Finally, dismiss democracy wherever possible and don’t engage with it. Tell people that you don’t vote and they’ll always respond with “then you have no say”. This is easily countered by firstly pointing out that a bad decision made by millions is no more morally right than a bad decision made by one, or a thousand. Secondly, you can point out that by voting they’re validating 5 years of incompetent and interfering political decisions. They cannot complain as they participated in the election and so implicitly support the winner, whether they voted for them or not.

The second facet is taking action. Talking alone won’t change anything

While it’s very enjoyable, there’s no point sitting month after month, talking about the differences between agorism, voluntaryism, anarchocapitalism, Georgism, objectivism, etc., if nothing comes out of it.

We need to act if we want this new society – nobody else will do it for us.

Marx and Engels may have sat in a room and wrote their philosophy without personally doing anything about enacting it, but the people who did so could see the power they could grab; with libertarianism there is no power structure, so no incentive for power-hungry politicians. We want to liberate people – so to provide for them with alternative market solutions we rely on entrepreneurs. They will be our agents of change…

…and, in fact, they already are. But I’ll come on to that shortly.

So how do we build a strategy to actively undermine the state? The answer is through acts of resistance and even civil disobedience.

Here are a few example ideas:

  • police the police (there are many accounts on Facebook, Twitter and even YouTube that expose police brutality and their ignorance of the laws they claim to be upholding);
  • attend council meetings, film them and blog about them;
  • expose corruption and incompetence of any public officials you encounter (note: Private Eye is great for this);
  • FoI requests (remarkably easy, though often resisted by the challenged organisation);
  • object to legislative in writing at the Green Paper consultation stage;
  • use encryption technologies for communication;
  • Support human rights organisations in their fight against state oppression of the individual;
  • Sit in on public enquiries and blog/tweet about them;
  • write letters to newspapers – blogging doesn’t provide as wide an audience;
  • withdraw from paying for the TV licence;
  • protest on the streets or via petitions (against the latest war, etc.);
  • tax resistance – potentially costly though.

Though these actions will help us undermine public confidence in the state and win the moral argument, people will still primarily care about all the things that affect them – health care, benefits, etc.

So that brings me onto the third facet…

The third facet of my proposed approach: let’s build the society that we want.

Let’s do it ourselves.

Rather than try to change the state let’s make it obsolete.

WE need to identify private solutions and publicise these. There are many existing services that replace the state systems that we complain about. And those services that don’t exist we need to create.

Let’s look at a few examples:

Health care.

One of the most common complaints about the NHS is getting to see a GP, especially in crowded urban areas. As the price of consulting a GP is currently zero, and supply is limited, there is always over-demand. This causes service rationing, demonstrated best by waiting lists.

However, there are alternatives:

  • Technology is making remote care possible over videoconferencing services. For example the US firm MeMD offers an instant consultation for $49.95.
  • There are many primary health care providers in the UK offering private consultations for as little as £70 for 15 minutes.
  • Most interesting however a new subscription method of medical care is emerging in the US called concierge medicine (aka ‘retainer medicine’ or ‘direct care’). Simon knows more about this topic than me, having written several articles on it, but a quick Google search and I found ‘My Healthcare Clinic’, based in south London. A £25 per month subscription provides you unlimited 20 minute appointments and an annual health examination.

The great thing about this service rationing is that charging for GP appointments is back on the political agenda. This will instantly make all the above services comparatively less expensive, thereby encouraging more people to go outside the NHS. There is already a large market in UK residents travelling to have surgery in cheaper countries, such as those in the former eastern bloc.

Welfare

  • Most insurers offer better schemes for serious illness and death than the state schemes, we should be encouraging people to investigate these more;
  • Friendly Societies still exist and as mutual societies provide all of their profits back to their members.
  • Many trade unions offer benevolent funds for hardship cases, as well as many other excellent member services. Some examples from Unite include free legal and financial advice, credit union facilities for the ‘financially disenfranchised’ and a tax refund service. (Unions suggesting their members utilise legal tax avoidance? Surely not!)

Pensions

There is one challenge in withering the state: how do we unwind the Ponzi scheme that is ‘national insurance’ and pensions within the ‘welfare state’? This will concern many who wrongly believe that they have paid into some fictional pension scheme. This isn’t easy to answer, but it’s an important answer if we are to progress. Interestingly, the coalition government has implemented legislation that requires all but the smallest employers to force all of their staff into contributory private pension schemes, albeit with low contributions initially. However, this could be seen as the first small step towards removing state pensions for all but the poorest.

Education

Whilst private education is still prohibitive (except for children of MPs, and prospective MPs, and MPs), there is an alternative that many parents have utilised: home education. This has become increasingly popular in general, but particularly with libertarians. Also, with the advent of the internet, there are now many primary, secondary and even tertiary education courses available for free online now.

There’s even a Facebook support group called The Libertarian Homeschooler.

Transport

  • Who will build the roads? Entrepreneurs will. You may have read about the private road in Kelston, near Bath – the local council closed a road causing a 14 mile diversion. This increased fuels bills and travel time for thousands of commuters; an entrepreneur (Mike Watts) has built a private road and charges £2 per journey.
  • Avoiding state licensing and monopolies of taxis has been recognised as beneficial to customers and Uber was founded with this in mind. However, some states are fighting back – it has recently been banned in Germany.

Currencies

States that issue their own currency can constantly devalue it; this is a hidden tax that most don’t recognise as such and never get to vote for or against.

As many of you know there has been an explosion of private or ‘cryptocurrencies’ in recent years as stable technological solutions become available: Bitcoin is but one example of these. Interestingly I was recently reading the European Central Bank’s October 2012 document entitled ‘Virtual Currency Schemes’ and was pleased to see the invention of Bitcoin credited to the concepts of the Austrian school. There was even a sidebar mentioning Mises and Hayek, a footnote mentioning Rothbard and a reference to Hayek’s 1976 publication ‘Denationalisation of Money’. HMRC has even recognised Bitcoin this year, albeit primarily to tax transactions.

So those are some easy areas; how about the really difficult areas where even the various strands of libertarianism frequently disagree, such as private policing and private courts?

Justice

There are already many private alternatives to courts, such as arbitration and mediation. For example, family law solicitors advise that you should first attempt private mediation to negotiate financial divorce settlements rather than go to court, as it’s faster and cheaper. In employment matters there are many arbitration services, including ACAS, that an employee, employer, customer or supplier can utilise. In fact The London Court of International Arbitration is one of the world’s leading international institutions for commercial dispute resolution and currently hears 300 commercial cases per year.

Policing

This is always a difficult area, as many imagine policing to just be limited to the uniformed thugs you occasionally see after a crime has been committed. But surely preventing crime is better than solving it afterwards?

The first of the nine principles of good policing, as defined by Sir Robert Peel in 1829, is crime prevention. Police judge their success by the number of arrests they make, whereas the public judge their success by the absence of crime; this is a fundamental difference.

So how do you deter crime?

My business office is fitted with an alarm that is connected to a manned security centre 24 x 7; it costs £230+VAT per year, whereas just to be issued by the police with a unique reference number for our alarm service costs £40.51+VAT. Did you know that there are 330,000 private security staff in the UK compared to around 132,000 police officers? Increasingly in recent years residents are clubbing together and procuring private security guards to patrol their streets. I found a company called 1st Class Protection which has many contracts for protecting residential streets in London. In one publicised example seventy residents across five streets in St. John’s Wood have clubbed together and pay £1,000 per annum each for a patrol service.

Summary

As you can see there are already many private alternatives available to state services. We need to encourage use of these services, as they contrast well against the state’s poor services. Its inability to provide the assistance that it uses to justify its existence will just make more people discontent with having taxes extracted from them. And where private alternatives don’t already exist then why don’t you invent them? Are there any gaps in the market that you can think of that can undermine the state? If so then why don’t you create a service to fill those gaps?

So why aren’t you helping? How can you help personally?

Most importantly, be an entrepreneur: they are the only ones that can create a society based on libertarian ideals. We need to out-deliver, out-manoeuvre and out-compete the state; only private business can do this. If you don’t feel you can effect this societal change personally, then at least investigate and use alternatives to state services. If you find that these services are good then publicise them widely. It all undermines the perception of the state as mankind’s saviour and provider.

Conclusion

My proposed strategy is threefold:

  • Firstly, educate people as to how consensual market solutions are better, and that the state can only adversely distort the market;
  • Secondly, undermine the public’s confidence in the state by exposing its corruption, violence and other failings;
  • Lastly, show them examples of how the market can and does provide better solutions than the state.

In his book Civil Disobedience Henry David Thoreau said:

“I heartily accept the motto,—“That government is best which governs least;” and I should like to see it acted up to more rapidly and systematically. Carried out, it finally amounts to this, which I also believe, —“That government is best which governs not at all;” and when men are prepared for it, that will be the kind of government which they will have. Government is at best but an expedient; but most governments are usually, and all governments are sometimes, inexpedient.”

So are we libertarians really prepared for that kind of government, the one that governs least?

2014 is the 70th anniversary of the publication of Hayek’s ‘The Road to Serfdom’. Instead of travelling along that road to serfdom we should start building the road to liberty.

Our liberty.

Who will build that road?

We will.

Conflict Time Photography: A Review

I recently attended an exhibition at the Tate Modern called Conflict Time Photography, which I think is worth a visit for any followers of this blog. It is an exhibition of photographs and artefacts from conflict, with a clever twist: they document the period following the conflict under discussion. As such they vary from photographs taken minutes after the atomic bomb exploded over Hiroshima, through to 99 years after World War I soldiers were executed in a field by their own compatriots. There are many haunting photographs, though few thankfully are particularly gruesome.

The exhibition is cleverly laid out. It starts in a room called ‘Moments Later’ which features photographs such as the haunting picture of a shell-shocked Marine, taken during the Vietnam war, as shown below. The photographs each feature a caption which explains the context.

Shell Shocked US Marine, The Battle of Hue 1968. © Don McCullin

Shell Shocked US Marine,
The Battle of Hue 1968.
© Don McCullin

As you progress around the exhibition you come further forward in time from the featured conflicts, until you end up in the last room, ’85-100 Years Later’. This room features four photographs taken in 2013 of the execution sites of deserting World War I soldiers.

There are many conflicts covered, including:

  • World War II, including the devastation of Dresden, Hiroshima, Nagasaki, the Normandy defences and the holocaust
  • The war in Lebanon
  • The Congo
  • The first and second Iraq wars
  • Afghanistan
  • Libya
  • Namibia
  • The Cold War, including the partition of Berlin
  • Crimea
  • The American Civil War
  • Armenia
  • The Spanish Civil War
  • Northern Ireland
  • Angola
  • Nicaragua
  • Vietnam
  • Bosnia

The exhibition documents the aftermath of the worst of human atrocities against fellow humans, from the use of indiscriminate bombing of civilians (Dresden, Hiroshima, Nagasaki, Aqa Ali-Khuja, etc.) through to targeted genocide in Bosnia.

This video here narrated by Dan Snow gives a brief tour of the exhibition, which is on until March 15th at the Tate Modern. It is a depressing experience, but I urge everyone to go to see it.

The only criticism I have of this exhibition is that it ignores the elephant in the room: the state. Violence by individuals or gangs cannot rival the state’s ability to wage war against local or foreign populations. This exhibition is really a testament to the violence that the state’s authority is built upon. This is demonstrated by the photograph below, which shows a devastated Dresden, where around 25,000 people perished in the bombing raid and subsequent firestorms.

Dresden After Allied Raids, Germany 1945  © SLUB Dresden / Deutsche Fotothek / Richard Peter, sen.

Dresden After Allied Raids, Germany 1945
© SLUB Dresden / Deutsche Fotothek / Richard Peter, sen.

As Kurt Vonnegut’s famous experience in the fire-bombing of Dresden is used early in this exhibition, as well as becoming the basis for his famous book Slaughterhouse Five, it is fitting to use the sign-off he used on texts and essays for the rest of his life:

PEACE.

Liberty League’s Freedom Forum 2014 – Day One

For the second year I’ve attended the Freedom Forum, Liberty League’s conference (aimed at students) based in London. On day one I attended three excellent panel debates:

  1. Technology – setting us free or hiding the chains: this was chaired by Marc Sidwell of City AM (THE libertarian newspaper – worth a read). Many technologies were discussed including encryption technologies, such as PGP, and Bitcoin. The key thought that I took away from this debate was that no matter what technologies we introduce to evade the state’s interference, it is but a temporary reprieve, for the state will simply outlaw or neutralise that technology (e.g. laws around encryption keys needing submitting to law enforcement agencies, closure of Silk Road, etc.). I have some thoughts on this, which may become a future article (or even a start-up!)
  2. The Welfare Debate – should libertarians support a welfare state? This was an excellent, if somewhat fractious, debate. It comprised speakers from across the libertarian spectrum, ranging from the bleeding heart libertarian approach to the hardcore objectivist. The viewpoints ranged from the Citizen’s Basic Income to a return to voluntary and contributory methods, such as friendly societies, trade unions, etc. While I am sympathetic to the pragmatic aims of the CBI advocates I have yet to be convinced that this approach won’t simply distort the market and create new moral hazards (and ultimately it still requires taxation of some description, whether a sales tax or Land Value Tax).
  3. The lifestyle freedoms debate: should victimless crimes be punished: This was a lively debate chaired by Chris Snowdon and comprising a panel of a former-Chief Constable, a porn star and a ‘radfem’ (Julie Bindel). The cases for drug legalisation, pornography and prostitution were put forward by the first two panelists, and then Julie Bindel spoke against prostitution. Sadly her contribution to the debate was the usual Marxist-style rhetoric, complaining that “prostitution is like any other capitalist exploitative industry”. Her case appeared to be that although she “didn’t want to ban anything” she did want to remove the choice of sex work for those from lower socio-economic groups or anybody that may have been abused in the past.

I look forward to today’s sessions. Look out for tweets with the hash tag #LLFF14.

Ed Miliband: A Case Study Of Rhetoric Over Facts

On an almost daily basis Ed Miliband, Leader of the opposition Labour Party, announces his latest attack on the ancient regime of ‘capitalists’. No matter how specious his argument he is rarely challenged on facts by the other ineffective politicians he criticises, often being left to set the political agenda du jour; only his minions are challenged by more astute journalists on Today or Newsnight. The government’s collection of idiots is left running to catch up, often implementing policies worse than Miliband is prescribing.

This has repeatedly happened with much of his recent agenda-setting such as the ‘cost of living crisis’, where he focused on energy prices, the largest rise in the last 20 years being overseen by him when in government. His outpourings have cause energy companies to increase prices to lock-in profits ahead of any 2015 Labour majority, and to cause the shares of the banks wrongly nationalised under his and Balls watch to crash, reducing value to the shareholders (i.e. us, mainly).

In his FT article entitled ‘Our toxic blend of capitalism and short-termism‘ Miliband calls for a discussion on “how we can build a better, more responsible and productive form of capitalism” and blames a crisis “caused by inadequately regulated financial activity” and “rules that encourage wealth creation focused on short-term returns, fail to reward productive behaviour and skew distribution towards the top”. Yet again, these accusations all fly in the face of evidence: the banks are more heavily regulated than at any time in the past and he calls for many unproductive and anti-re-distributive policies (e.g. 50% tax). In the same piece he says: “short-termism seems hard wired (sic) in to our economy, with small companies unable to access the capital they need” not recognising that the high corporation tax that he advocates encourages businesses and their owners to make short-term decisions.

Miliband, in his speech to the Labour Party conference in September 2011, asked “are you on the side of the wealth creators or the asset strippers?” The Director General of the CBI responded that “I don’t recognise this idea that there are large numbers of companies in this  ‘predatory asset stripper’ class. This is just very black and white and it  doesn’t reflect the world as I see it”. Perhaps Miliband had recently watched Michael Douglas in Wall Street, imagining it to be a documentary? Digby Jones, former CBI Director-General and Labour government Minister for Trade and Investment, said Miliband’s comments were “divisive and a kick in the teeth for the only sector that generates wealth that pays the tax and creates the jobs this country needs.”

The view that Hedge Fund managers are evil capitalists just trying to put people out of work is quite stupid; like all of us in life they are trying to make a profit. All of us, in business or our personal lives, want to make a profit. Socialists may deny that fact, but quickly accept that spending more than you earn is a bad thing and leads to poverty; they expect the state, i.e. taxpayers, to make the poorest families ‘profitable’, yet denounce those very taxpayers (individuals and businesses) that attempt to do so.

Hedge Fund activists are simply trying to make a profit too. Their chosen method is no different to any other business – they buy something which is of lower value than they consider it should be, attempt to make some change to the underlying product and then sell at a profit, often several years later. And yet Miliband calls these people “irresponsible capitalists“.

Miliband recognises that “some [takeovers] might have been crucial to turning a failing company around” but fails to identify his data in this area.

An excellent Economist Blog on Corporate Governance published tomorrow (!) entitled ‘Anything you can do, Icahn do better‘ states that critics of Hedge Fund, such as Miliband, are wrong: “empirical proof that activists exacerbate short-termism is strangely elusive” (thanks to @johnycassidy for tweeting this). As usual Miliband’s calls for action are driven by his socialist view that the market (i.e. us citizens making voluntary transactional decisions) is wrong, and that he and his political clique are right.

The Economist Blog refers to an excellent paper recently published by Harvard Law School, entitled ‘The Long-Term Effects of Hedge-Fund Activism‘. This paper concludes thus:

“This paper has investigated empirically the claim that interventions by activist hedge funds have an adverse effect on the long-term interests of companies and their shareholders. While this claim has been regularly invoked and has had considerable influence, its supporters have thus far failed to back it up with evidence or even to subject it to an empirical test. This paper provides a comprehensive investigation of this claim and finds that it is not supported by the data.

[…]

We find no evidence that interventions are followed by declines in operating performance in the long term; to the contrary, activist intervention are followed by improved operating performance during the five-year period following the intervention.”

As usual Miliband believes his dogma is correct despite evidence to the contrary. He rabble-rouses his natural electorate against the productive in society who fund his privileged position, his pension fund, expenses-based lifestyle, and all of his beloved socialist infrastructure that the state controls.

He is an evidence-free zone; a snake-oil salesman of socialist rhetoric.

Taxes and Subsidies: Incentives and Disincentives

Like it or not the world is driven by economic activity. Nothing happens unless people buy something, be that a product, service or employees. These economic activities vary in importance to those procuring and supplying them, with the balance point between supply and demand coming when the price for that product, service or employee is agreed between producer and purchaser. However governments have their own idea of how much of each product, service or employee should be procured and they attempt to control this via a number of mechanisms:

  • Banning that activity completely (e.g. selling of drugs that it determines only it should have the monopoly on);
  • Banning that activity as best it can (e.g. sex work);
  • Setting the price for that product, service or employee. This is very dangerous as it moves the economic equilibrium point and always has adverse and unintended consequences (e.g. national minimum wage, energy prices, train fares, etc.);
  • Taxing and subsidising.

When the state doesn’t want an activity to happen, but recognises it cannot successfully ban that activity, then it taxes it. Examples are the ‘sin’ taxes on tobacco and alcohol (the latter I’ve blogged about here). When it does want an activity to happen, but recognises it cannot do that itself, then it subsidises that activity. An example is agriculture.

However, although it is widely recognised that if you tax an activity then you create a disincentive to undertake that activity, the government then taxes anything that it sees happening in sufficient quantity for it to become a useful revenue stream if taxed. The unintended consequence of this is that less of that activity happens (or less of it happens legitimately). Similarly the government identifies activities that people cannot afford to do by themselves (usually due to their excessively high tax burden) and creates subsidies (called grants, tax credits, benefits, etc.) to assist those people.

So let’s take a look at what the government taxes, that is what it is (often unintentionally disincentivising):

  • Employment: Employer’s National Insurance is a tax on employing people, thereby creating disincentives for businesses to employ people until they really have to. Rates vary from 0% to 13.8%;
  • Work: Income Tax and Employee’s National Insurance are taxes on employees, making it costly to work (legitimately). Income Tax rates vary from 0% to 45% (recently reduced from 50%) and National Insurance rates vary from 0% to 12% – maximum of both is now 47% (45% Income Tax + 2% NIC);
  • Spending: VAT is a tax on spending. Spending is the way that we purchase items we need (or just want) which drives the economy and employs people in profitable activity. We are taxed on virtually everything we buy, except a small subset of items that the government deems as essential, such as some food, books and children’s clothing, but not gas, electricity, petrol, diesel, women’s sanitary protection products, incontinence pants, etc. (rates vary from 5% to 20%);
  • Insurance: Insurance Premium Tax is levied on all insurance premiums (6% or 20%);
  • Travel: Air Passenger Duty is levied on each segment that you fly from the UK (ranges from £13 to £188 per flight);
  • Profitable business: Corporation tax punishes the profitable business and creates incentives for companies to employee accounting schemes to minimise their corporation tax burden. Rates vary from 20% to 25%;
  • Earnings from a profitable business: Dividends are taxed with rates from 10% to 37.5%;
  • Digging oil out of the ground: Oil production companies are subject to several separate tax regimes to punish them for their ‘super-profits’. These taxes include Petroleum Revenue Tax (50% on value of oil extracted), Ring Fence Corporation Tax (disallows offsetting losses made elsewhere, unlike for all other companies) and the Supplementary Charge (75%);
  • Pensions: saving for your retirement is free of tax in certain closely-prescribed circumstances – step outside of those criteria and face tax rates from 20% to 55%;
  • Moving house: Stamp duty is levied on buying houses (!) with rates varying from 1% to 7%;
  • Death: Inheritance Tax is levied on dying. So if you haven’t managed to spend the lot before you expire then they take another swipe at whatever you’ve built up for your family (rate is 40%). Obviously government cannot disincentivise dying, but instead creates a market for exploiting loopholes that mainly the rich alone can afford to utilise.

Conversely (and often perversely) government creates schemes that subsidise many activities, again this may be unintentional:

  • Unemployment: I have written on this extensively elsewhere, but even Beveridge, the architect of the modern welfare state, warned against excessive or lengthy unemployment ‘benefits’;
  • Farming: the idiocy of the Common Agricultural Policy is well-documented by many already;
  • Under-performing or failing businesses: the history of nationalising or subsidising failing businesses, in the vain attempt to somehow turn them around by managing them with civil servants, has proven that this approach simply destroys more value than it creates;
  • Marriage: the latest moronic social engineering plan from the Conservatives. ‘Nuff said;
  • Children: while Child Benefit in itself probably isn’t enough to incentivise anyone to have children, the plethora of services provided to parents does create a system which taxes those who chose not to have children more and subsidises those who do have children. More social engineering.

As can be seen from the few examples above the UK has created a taxation system that creates some unfortunate economic incentives and disincentives. These all distort the market, whether they intend to or not. That we discourage employment and encourage unemployment alone should make us question the sanity of this system; and surely the continually high level of unemployment is evidence of this. Similarly taxing successful businesses and subsidising unsuccessful ones can only encourage the wrong behaviour (witness the legal use of tax avoidance to minimise corporation tax and the subsequent idiotic moral outrage at this natural consequence).

While we let government distort the market in the way it thinks benefits its electorate* then the economy will never operate freely, employing all, feeding all, benefiting all. We will forever be slaves to these idiots, few of which have ever run a successful business.

*note use of word ‘electorate’ – the fools who vote them into power – not citizens, the poor schmucks who pay for them and their ideas.