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Big_Bird
Joined: 31 Jan 2003
Location: Sometimes here sometimes there...
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 Posted: Wed Sep 08, 2010 5:15 pm Post subject: The power of corporate finance is an amoral hazard |
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The power of corporate finance is an amoral hazard
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The eminent 300-year-old British Twinings is closing its factory in North Shields � with the added indignity that sacked workers have been asked to train their overseas replacements. It's the latest example of how dancing to the profit expectations of private finance costs the nation dearly. On a bigger scale, the bank crisis that resulted from indulging speculative finance cost Britain an estimated �129bn in lost economic activity, and left government departments planning cuts of up to 40%.
Twinings' fate highlights the quietly corrosive, long-term effect of the excessive privilege given to finance. Over decades its hypnotic hunger for unrealistic profit has corrupted or wrecked many other eminent corporations in Britain � often companies that, like Twinings, helped define our national identity.
The family members who created the Cadbury business empire, for example, were Quakers who opposed slavery, fought against pollution and child labour, and campaigned to set up hospitals and savings banks to help the poor. Even their focus on chocolate was part of a moral mission. John Cadbury used it to campaign against the adulteration of food � his version had less gunk in it � and it was sold as an alternative to alcohol. Their factories were described as "schools of morality and industry".
Several shares issues and mergers later, by the 1970s every office manager at Cadbury's stronghold of Bourneville was issued with a sign that said: "The name of the game is profit." Once down that road, it was only a matter of time before the ultimate irony: Cadbury's sale to its arch-rival, the US junk food giant Kraft. Worse, the deal was part-financed by the nationalised British bank RBS � so British taxpayers' own money was lent to a foreign competitor to help it buy out one of our own corporate crown jewels.
Marks & Spencer was also partly built around a moral vision. One of its early driving forces, Israel Sieff, believed that business should provide security for staff and suppliers based on long-term thinking and relationships. The company became the backbone of the British textile industry, and if costs needed cutting M&S would lower its own profit margins to support suppliers. Finance-driven globalisation changed all that. Short-term thinking and demands for higher returns kicked in. The relationship with suppliers reversed and the British textile industry died.
Even Barclays Bank had Quaker roots, yet as a key architect of the world of modern corporate finance it grew to exemplify the very opposite of business based on morality, with new boss Bob Diamond given �22m in shares when part of the banking group was sold, well over 400 times the group's average pay.
Glib dismissals that this is the way of the world, the inevitable outcome of otherwise efficient markets, ignore the fact that indulging the lords of finance has wrecked the productive economy, just as much as it bankrupted the public finances. We do it, perhaps, out of habit.Writing of his experience as a Barclays customer, author JM Barrie quipped: "All that is expected of you is to bow when they have completed a sentence."
The financial writer John Kay points out that the most profit-obsessed firms, such as the investment banks Lehman Brothers and Bear Stearns, which traded under signs which read "Let's make nothing but money," ended up losing more money than they ever made.
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I haven't even read the article yet, but I thought it would be fun to post it here.  |
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stilicho25
Joined: 05 Apr 2010
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| Posted: Wed Sep 08, 2010 5:24 pm Post subject: |
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| I don't care if they are out to make a buck, I just hate it when the government confiscates my money to help them do that. |
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The Happy Warrior
Joined: 10 Feb 2010
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| Posted: Wed Sep 08, 2010 5:29 pm Post subject: |
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| Look, its not really a problem when businesses fail. Its a problem when financial institutions fail. Regulate the latter (keep them small, or build an internal wall), let the former fail. |
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Hotwire
Joined: 29 Aug 2010
Location: Multiverse
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| Posted: Wed Sep 08, 2010 6:37 pm Post subject: |
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| unencumbered capitalism is not a substitute for social policy; that on its own, without a social compact, raw capitalism is destined to serve the few at the expense of the many. |
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Rothbard
Joined: 23 Aug 2010
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| Posted: Wed Sep 08, 2010 6:44 pm Post subject: |
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| Hotwire wrote: |
| unencumbered capitalism is not a substitute for social policy; that on its own, without a social compact, raw capitalism is destined to serve the few at the expense of the many. |
Nice platitude. |
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Hotwire
Joined: 29 Aug 2010
Location: Multiverse
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| Posted: Wed Sep 08, 2010 7:04 pm Post subject: |
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| Rothbard wrote: |
| Hotwire wrote: |
| unencumbered capitalism is not a substitute for social policy; that on its own, without a social compact, raw capitalism is destined to serve the few at the expense of the many. |
Nice platitude. |
It's a quote I lifted from the writer of 'The Wire' talking about Series 3 and the Stevedores. |
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Rothbard
Joined: 23 Aug 2010
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| Posted: Wed Sep 08, 2010 7:06 pm Post subject: |
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| Hotwire wrote: |
| Rothbard wrote: |
| Hotwire wrote: |
| unencumbered capitalism is not a substitute for social policy; that on its own, without a social compact, raw capitalism is destined to serve the few at the expense of the many. |
Nice platitude. |
It's a quote I lifted from the writer of 'The Wire' talking about Series 3 and the Stevedores. |
The stevedores had political operatives in the city council attempting to garner special privileges for themselves. How is that capitalism? |
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Hotwire
Joined: 29 Aug 2010
Location: Multiverse
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| Posted: Wed Sep 08, 2010 7:10 pm Post subject: |
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| Rothbard wrote: |
| Hotwire wrote: |
| Rothbard wrote: |
| Hotwire wrote: |
| unencumbered capitalism is not a substitute for social policy; that on its own, without a social compact, raw capitalism is destined to serve the few at the expense of the many. |
Nice platitude. |
It's a quote I lifted from the writer of 'The Wire' talking about Series 3 and the Stevedores. |
The stevedores had political operatives in the city council attempting to garner special privileges for themselves. How is that capitalism? |
If you knew the show well you'd know that Sabotka was driven to such corruption by the financial collapse of the ports and his desire to revitalise them. The collaps of the ports is a perfect example of corporatism killing off blue colllar jobs and industry.
Stop trying to twist things. Or maybe you're not, maybe you just are ill informed. Either way. |
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Rothbard
Joined: 23 Aug 2010
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| Posted: Wed Sep 08, 2010 7:14 pm Post subject: |
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| Hotwire wrote: |
| Rothbard wrote: |
| Hotwire wrote: |
| Rothbard wrote: |
| Hotwire wrote: |
| unencumbered capitalism is not a substitute for social policy; that on its own, without a social compact, raw capitalism is destined to serve the few at the expense of the many. |
Nice platitude. |
It's a quote I lifted from the writer of 'The Wire' talking about Series 3 and the Stevedores. |
The stevedores had political operatives in the city council attempting to garner special privileges for themselves. How is that capitalism? |
If you knew the show well you'd know that Sabotka was driven to such corruption by the financial collapse of the ports and his desire to revitalise them. The collaps of the ports is a perfect example of corporatism killing off blue colllar jobs and industry.
Stop trying to twist things. Or maybe you're not, maybe you just are ill informed. Either way. |
I'm very familiar with the show. I'm not sure what the reason for the ports closing was. Didn't a bigger, more efficient port open further up the coast? That is creative destruction, a very capitalist notion. The port workers were also opposed to mechanisation of the port, as it would mean less jobs. That is extremely tough for those workers. But, the rest of the economy benefited. That is capitalism.
Sabotka was the one engaging in corporatism. Everyone loses when it comes to corporatism (which isn't the same as capitalism). Except for special interests. |
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Hotwire
Joined: 29 Aug 2010
Location: Multiverse
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| Posted: Wed Sep 08, 2010 7:18 pm Post subject: |
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Exactly. Economy over community.
It's amoral (not immoral) and it sucks leaving behind broken blue collar communties and vapid wastelands in it's wake. |
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Rothbard
Joined: 23 Aug 2010
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| Posted: Wed Sep 08, 2010 7:28 pm Post subject: |
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| Hotwire wrote: |
Exactly. Economy over community.
It's amoral (not immoral) and it sucks leaving behind broken blue collar communties and vapid wastelands in it's wake. |
More platitudes.
What about the new communities that were created? You think we should forgo improvements in prosperity for what we can see now? If we decided to do that 200 years ago, we would still all be dirt farmers under a feudal lord.
You are looking at one small part of the puzzle, without bothering to look at the other pieces. Frank and his community were casualties (though, there is nothing stopping them moving or getting new jobs), but many other people directly benefited from the changes in Baltimore.
http://www.econlib.org/library/Bastiat/basEss1.html
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What Is Seen and What Is Not Seen**1
1.1
In the economic sphere an act, a habit, an institution, a law produces not only one effect, but a series of effects. Of these effects, the first alone is immediate; it appears simultaneously with its cause; it is seen. The other effects emerge only subsequently; they are not seen; we are fortunate if we foresee them.
1.2
There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.
1.3
Yet this difference is tremendous; for it almost always happens that when the immediate consequence is favorable, the later consequences are disastrous, and vice versa. Whence it follows that the bad economist pursues a small present good that will be followed by a great evil to come, while the good economist pursues a great good to come, at the risk of a small present evil. |
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The Happy Warrior
Joined: 10 Feb 2010
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| Posted: Wed Sep 08, 2010 8:30 pm Post subject: |
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| Hotwire wrote: |
| Rothbard wrote: |
| Hotwire wrote: |
| Rothbard wrote: |
| Hotwire wrote: |
| unencumbered capitalism is not a substitute for social policy; that on its own, without a social compact, raw capitalism is destined to serve the few at the expense of the many. |
Nice platitude. |
It's a quote I lifted from the writer of 'The Wire' talking about Series 3 and the Stevedores. |
The stevedores had political operatives in the city council attempting to garner special privileges for themselves. How is that capitalism? |
If you knew the show well you'd know that Sabotka was driven to such corruption by the financial collapse of the ports and his desire to revitalise them. The collaps of the ports is a perfect example of corporatism killing off blue colllar jobs and industry. |
If you knew the show well you'd know that was Season 2, not Series 3. |
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Hotwire
Joined: 29 Aug 2010
Location: Multiverse
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| Posted: Wed Sep 08, 2010 8:46 pm Post subject: |
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| Typo, obviously. |
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Sergio Stefanuto
Joined: 14 May 2009
Location: UK
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| Posted: Thu Sep 09, 2010 12:16 am Post subject: |
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Has it crossed anyone's mind that the reason Twinings is based in North Shields (poor northeast England) and not Surrey (rich southeast England) is lower wages?
If Twinings moves to Poland, I hope I'll get cheaper Lady Grey tea! 
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| On a bigger scale, the bank crisis that resulted from indulging speculative finance cost Britain an estimated �129bn in lost economic activity |
...which is very small in comparison to public sector net debt (65% gdp)
Nobody's more disgusted than I am that the government would bail out scum banks, but at the same time, conveniently blaming the banks, and only the banks, for the state we're in is daft.
Anyone who has applied for a student loan, completed a tax return or renewed a passport can tell you how thoroughly useless the government and its executive agencies are at providing services. These are the people who are bankrupting the nation. They seem even ghastlier when viewed from the towering heights of private sector accomplishment, where I can buy groceries at midnight from Tesco with one hand and book a flight to Timbuktu using my I-Phone with the other! |
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