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December 15, 2013

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Brian P Woods

" ... the question of which forms of ownership are best for which businesses ..."

Ownership of a business is an easy matter to settle. However, HOW a business is operated; for what purpose and for whose benefit, might not be in the 'control' of the owner/s, but rather with the senior executives of the company. And - just maybe, these critters have a different outcome in mind.

"Incentives, dear chap, incentives!"

Blissex

«The banks were nationalized with the intention of restoring them to profitability quickly; in this sense, RBS and Lloyds were doing just what the government wanted.»

That statement makes the conclusion completely ridiculous:

«But Lloyds and RBS's behaviour shows that public ownership is not sufficient to make businesses act in the public interest either. This suggests that - for some businesses at least, neither form of ownership is, in itself, adequate.»

From the previous statement is looks as if ownership by the Coalition government was extremely effective in driving RBS to achieve the public interest as defined by the Coalition government.

And since the Coalition government is democratically elected and endorsed by the voters, the public interest as defined by them is the public interest as much as it can be defined.

Unless our blogger believes that he is the Philosopher-King and that the public interest is better defined by him than by the voters.

Put another way, a majority of voters define the public interest as massive tax-free capital gains and low taxes for themselves, and low wages and and low social insurance for everybody else; it is just the ever popular politics of "F*CK YOU! I'am allright" from the middle aged, female, retired, widowed, divorced swing voters of the South East who decide elections.

Bailing out (second) mortgage providers and then driving them to profitability quickly was a way to both minimize the chances of a continued fall in asset prices and of minimizing the taxes that asset owners pay. Double win for the public interest! :-)

Ralph Musgrave

There are two questions to settle. First, what set of rules should banks operate under, regardless of whether they are privately or publicly owned. Examples of those rules are: what incentives should senior bank staff be given, or should banking be fractional reserve or full reserve.

Second, having decided on the best set of rules, are private banks inherently more efficient than publicly owned ones (as would seem to be the case with construction firms). Or does the opposite obtain, as seems to be the case with the UK’s NHS versus the US privatised health care system.

Luis Enrique

there's also a short-run, long-run thing. A firm thinking about long-run reputation effects may have done neither of those things, but one obsessed with short-run profit growth would.

FromArseToElbow

Given limited liability, the regulatory arbitrage of multinationals, the implicit state bailout for banks, and the success of corporations in avoiding responsibility for externalities, the question is surely whether private "ownership" in any form is adequate from the perspective of society?

Blissex

«A firm thinking about long-run reputation effects may have done neither of those things, but one obsessed with short-run profit growth would.»

The usual Greenspan-style misdirection here: "A firm" cannot be "thinking", because it is a fiction.

It is the top management clique who do the "thinking" and they will be tempted by self-dealing.

Even more amusingly, they can straight-facedly claim that maximizing their own take is what "A firm" wants of them given that their compensation package is carefully designed by "A firm" :-) to maximize the alignment of their incentives with the interests of the company.

Frances Coppola

There's a sort of weirdly reversed principal/agent problem here. Chris, if you are right then the expectations of the democratically-elected owner of both businesses encouraged senior management to place unreasonable demands on staff and turn a blind eye to the bad behaviour that arose from staff attempting to meet those demands. The people who will be held accountable for this are the senior management (at least I hope so). But what accountability does the owner have? If management placing those unreasonable demands on staff means the owner meets his own personal objective (of being seen to turn these companies round so that they can be returned to the private sector), then the owner carries no accountability whatsoever, since he will claim success in his election strategy while blaming the management for the bad behaviour that helped him achieve it.

Luis Enrique

Blissex,

if you are setting out to look like an over intellectualizing idiot, you have succeeded.

Blissex

«the owner carries no accountability whatsoever, since he will claim success in his election strategy while blaming the management for the bad behaviour that helped him achieve it.»

If the owner is "George", member of a democratically elected government, it is up to the voters to exercise vigilance to avoid been fooled by their representatives and their paper-thin excuses.

John Curran, Wendell Philipps, Andrew Jackson all expressed the idea that the price of liberty is eternal vigilance.

Democracy's main effect, if not its aim, is not to achieve good government, otherwise rule by Philosopher-Kings like Brad deLong seems to constantly advocate would be better.

Democracy exists to make *voters* accountable: if they make bad choices in those they vote for, out of disinterest or knavery, they pay the price in the awesome pain of being badly governed.

I belong to the small group of people who think that when elective ruling class are corrupt it is because their voters are corrupt.

See how (mostly South East) voters have endorsed every knavish policy of the past 30 years, fully buying in to the aspiration to a plantation economy (centred on London).

Deviation From The Mean

"And since the Coalition government is democratically elected and endorsed by the voters, the public interest as defined by them is the public interest as much as it can be defined."

The coalition government were not democratically elected, they have less of a mandate than the Ukrainian government! They were formed as an emergency measure, their language. The Lib Dems put ministerial seats before the policies laid out in their manifesto. They have implemented the most radical, destructive policies in generations without any mandate whatsoever. This was a coup, this was Britain as banana republic.

You would think in a rational society production would be organised with the direct goal of addressing people's needs, not ripping them off at every opportunity! We can but dream!

ajay

And since the Coalition government is democratically elected and endorsed by the voters, the public interest as defined by them is the public interest as much as it can be defined.
Unless our blogger believes that he is the Philosopher-King and that the public interest is better defined by him than by the voters.

It's interesting that you use the phrase "philosopher-king" because what you have come up with there is very similar to the famous (and very silly) argument in the Republic about why a ruler can never act unjustly.(Book I, Socrates-Thrasymakhos)

Yes, if you define "the public interest" as "whatever the government wants to do at the time", then no government can ever act against the public interest.

rogerh

TBH I don't think it matters much whether Cameron or Capitalists or Communists own the business, sooner or later things will be arranged to the disadvantage of one group in favour of another. Unless of course the business is run by a computer programmed to act utterly evenhandedly (most inconvenient).

The problem is human nature and the effect of 'efficiency', 'push for growth' or just plain hard times, all of which tend to put pressure on such honesty and altruistic notions as the workers may have. Perhaps all regulators must have as the first heading in their charter 'there will be cheating and lying - find it out or else!'.

Sardo Numpsa

rogerh's post strikes a chord with me.

From what I have read of Anarchist Spain, the Syndicates who took over the factories didn't exactly run them for the good of the community and expecting them to do so is naive in the extreme.

Not sure who scares me more tbh.

Deviation From The Mean

We shouldn't be too quick to accept as gospel truth the utterances of our holy rogerh. To put it mildy David Icke makes more sense.

In Mondragon cooperatives the firms are run in the interests of all the workers, they have a democratic organisation with rules to ensure this happens. And workers there get 'gold plated' pensions to a man. They are a very successful and large collective of various enterprise and in their entire history they have never sacked anyone! Also the ratio between highest and lowest paid is 6:1.

Seems human nature doesn't apply there!

In fact human nature doesn't even apply in most capitalist big enterprises, as they are built on co-operation of the workforce. And are heavily into forward planning, usually assisted heavily by computer programmes!

Humans seem intent on not following their 'nature', as laid down by the apologists of hierarchy and absolutism!

Of course, businesses are really run by the workforce. But in capitalist firms those who run and those who own the business tends to be the difference.

Sardon

@dftm that's a fair point, Mondragon is a good example.

I am just concerned you want to throw out the baby with the bath water, not all capitalist organisations are multinational, faceless, rent seeking monopolies.

I work for a small software firm, the guys who started it saw a gap in the market, did their research, borrowed the startup capital and worked impossible hours to start this company which ended up being extremely successful in defiance of the odds. They now employ around 20 people, we are all well payed and well treated.

I feel they are entitled to enjoy the rewards accruing to them. I come in and do the same job every day, anybody with average intelligence and willing to work hard could do my job, and I get paid without fail every month, I've got it easy. I dont think any of my fellow employes feel they could have done what these guys did, or would be motivated to get off our asses to put the work in or risk bankruptcy.

If you are suggesting we stop all private ownership I would suggest we rather allow private firms and cooperatives to compete in a market economy and may the best model win (of course the state should stop giving corporations special favours). Or even, let people who want to work in democratic firms where nobody ever gets fired do so, and anybody who has no problem being "exploited for their labour" do so too. Reading blogs like these I consider myself increasingly centrist but still worry how many leftist feel they know what's good for everybody and are going to give it to them whether they want it or not.

I am all for cooperatives by the way, the current system is crocked and if it comes to a choice between cooperatives and a centrally planned economy I am all for the former.

rogerh

Thanks DftM for the pointer to Mondragon, a very interesting case.

To Sardon, glad to see all working well, but watch out for the lifecycle effect. When the original owners want to cash in or go public there is usually a push for profit. Quality and the collegiate atmosphere will suffer, tough-guy managers hired to sweat assets and you find you're no longer mates with the owners.

To be clear, I don't think all humans are hopelessly bad. No one person openly says 'lets rip off the C2s' for example, but the effect of some policies or actions is to do just that and very few indeed blow the whistle - least of all the regulators. Think 'just why did the CQC not act or blow its own whistle?', there was no one guarding the guardians, for good political/economic reasons.

Sardo Numpsa aka Sardon

@ rogerh it's not really about me, it's about innovation and risk taking which could very well be lacking in this cooperative Utopia.

As for me, I will take my chances.

Sardo Numpsa aka Sardon

Southampton FC is another good example of a cooperative.

Sardo Numpsa aka Sardon

Sorry, Portsmouth FC

finley

Really cool article, highly helpful and creatively-written..Good Career

Deviation From The Mean

“I work for a small software firm, the guys who started it saw a gap in the market, did their research, borrowed the startup capital and worked impossible hours to start this company which ended up being extremely successful in defiance of the odds. They now employ around 20 people, we are all well payed and well treated.”

I don’t think innovation and technological progress and how it is best achieved is a different issue. But suffice to say I believe human ingenuity is based on the eureka moment but is a combination of process and accumulation. Knowledge is never abstracted from society, a jungle tribe were never going to invent the personal computer. Bill Gates was in the right place at the right time, and if it hadn’t been him it would have been someone else, and indeed it was! And suffice to say I believe cooperation is a better way to fast innovation than competition. Computer software is my profession, I work for a company delivering ‘business solutions’. The internet has revolutionised the way this is done. The internet is now a huge resource for developers, if I have a problem with some SQL coding I simply type the problem into the net and get the answer for free! Equally I post advice also and everyone is a winner, to coin a phrase. What we don’t know we learn from others and vice versa, the old world of elites keeping all the knowledge to themselves is a less efficient system, spreading the knowledge will help everyone. The old ideas of investing in the geniuses and letting everyone else serve their needs in holding society back from realising it’s great potential.

Do I think your employers deserve a better life than anyone else? No, I fundamentally oppose this idea. I believe it is this mindset which ties down humanity and halts real progress.

Deviation From The Mean

Sorry the first line of the above should read:

I think innovation and technological progress and how it is best achieved is a different issue. But suffice to say I don't believe human ingenuity is based on the eureka moment but is a combination of process and accumulation.

I got the don'ts in the wrong place!

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