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May 22, 2015

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Luis Enrique

don't large firms tend to offer higher wages and better conditions than small firms? also I think as far as growth goes, young versus old more relevant than small versus large

e

You are absolutely right, and it’s so depressing

From Arse To Elbow

Encouraging smaller businesses will, ceteris paribus, depress aggregate productivity. Also, bear in mind that most unskilled migrant labour is employed by small firms, not by large ones.

What we need are more large worker-controlled businesses, but that would require a degree of market intervention that is well outside the Overton Window.

If Blair's triangulation sought to reconcile big capital and labour, the current mood (essentially manoeuvring ahead of the EU referendum) appears to be focused on reconciling big and small capital. I think Kendall reflects this zeitgeist, rather than any misundertanding of Blair's record.

Dan

OK - here's a suggestion: capital gains tax and inheritance tax exemption for businesses-owners transferring ownership of a business to the employees (with anti-avoidance to prevent obvious abuses).

Neil Wilson

It's very important to note that large businesses get any productivity effects largely from oligopolistic practices.

Internally they are all frighteningly inefficient and politically riven in a way that is remarkably similar to the public sector.

It's not a matter of large vs. small business, but young vs. old. Old businesses generally suffer very badly from entropy.

So what you want is very effective competition and an environment that encourages people to pick them selves up, dust themselves down and have another go.

In other words you want Bold Knights rather than Old Knights, because of course you can't generally have Old Bold Knights.

Ben

Blair was an idiot because he and Brown thought they could have unfettered financialisation and then use that to have progressive taxation.

Guess what - if you enable mass fraud of people speculating on zero sum games by making ordinary people pay three times more for the same house you don't make people richer.

This fatal flaw at the heart of Blair/Brown-ism means that *nothing* they did was left-wing. Nothing.

Blair is some kind of horrible chameleon. He is without ideology, hence is latter-day "conversion".

Hugo Evans

'There are old climbers and bold climbers, but no old and bold climbers', (old rock climbers maxim)

Blissex

«He succeeded in fitting left-wing policies into rightist sentiments; that's what triangulation, at its best, meant.»

But triangulation as it actually happens is quite the opposite: right-wing policies camouflaged by leftist sentiment.

The 1997-2010 Labour governments had some leftist policies like EITC but they were almost all inspired by Brown and were sort of kept understated to avoid scaring the reactionary middle classes that Blair was busy giving free money via enormous rightist policies like ever higher property prices.

From “Events, Dear Boy, Events: A political diary of Britain 1921 to 2010″ a quote from Lance Price’s diary "The Spin Doctor's Diary" from the 1999-10-19 entry:

«Philip Gould analysed our problem very clearly. We don’t know what we are. Gordon wants us to be a radical progressive, movement, but wants us to keep our heads down on Europe. Peter [Mandelson] thinks that we are a quasi-Conservative Party but that we should stick our necks out on Europe. Philip didn’t say this, but I think TB either can’t make up his mind or wants to be both at the same time.»

Note that was as early as 1999. Probably over time Blair himself got much closer to the Mandelson point of view.

Blissex

As to right-wing vs left-wing policies
Damian McBride in "Power trip" reports some episodes in which Blair and his entourage were pushing rightist policies and Brown and his entourage were pushing back, for example over VAT:

«As time went on, they became less interested in the options for VAT cuts, and more in Option 4(iii) – the one which raised the maximum £10 billion, with minimal additions of new reduced rates, the standard rate raised to 20 per cent, and new housing taxed for the first time at 10 per cent. They pored over the distributional charts, and seemed remarkably phlegmatic about how terrible the figures looked for low-income families and pensioners. [ ... ]

But Ed Balls told me years later: ‘You will never know how important your work was. Blair was absolutely insistent we had to raise the money through VAT not NICs, but we saw him off, and it was all your distributional analysis that did it.’»

Also:

«That was why Gordon and Alistair Darling decided VAT should be reduced to 15 per cent for a year in 2009. However, Alistair was urged by the Treasury to recommend a quid pro quo, whereby – when the temporary cut came to an end – the standard rate would go to 20 per cent, not back to 17.5 per cent. [ ... ] Gordon dismissed the idea out of hand, not least because of the analysis I’d done back in 2001, [ ... ] Gordon would never have allowed VAT to rise – it was total anathema to him, and always had been. [ ... ] Ed Balls and Ed Miliband felt exactly the same. How could they ever go along with a move that they’d ruled out in 2002 precisely because it was so regressive?»

Blissex

«if you enable mass fraud of people speculating»

You win elections, because that's how democracy works: most voters in the South East want that.

«on zero sum games by making ordinary people pay three times more for the same house you don't make people richer.»

Those zero sum games work well because the people whom you make much richer in marginal seats in the South East are more important than the people you make poorer in safe-Labour seats in the North.

From Arse To Elbow

@Neil Wilson, "large businesses get any productivity effects largely from oligopolistic practices".

Oligopolistic (or monopolistic) practices can boost profits, and this can be misinterpreted as an increase in productivity, however this tends to be a one-off (you maximise your gains early) and can thus be distinguished from steady productivity growth. You're also implying a narrow measure of productivity - i.e. profit rather than turnover.

On average, larger firms have higher rates of productivity growth than smaller firms because of higher levels of capital utilisation, more skilled workers and economies of scale. Yes, they suffer from bureaucracy and other structural inefficiencies, but this is outweighed by the advantages of size.

Old firms can suffer from entropy, but they can also take advantage of deep tacit knowledge, established market relationships and employee loyalty. There are pluses and minuses. Most young firms fail because of incompetence - i.e. they're not sufficiently good at what they do to supplant incumbents.

What you want is a mixed economy in terms of firm size and age, as much as a mix in terms of sector and skillset, as this provides the greatest aggregate resilience and flexibility. The imbalance of the UK economy today is not just about London or financial services, or productive vs distributive, but the growing share of small, inefficient and unprofitable firms. Our creative destruction is insufficiently creative.

Keith

Off course it is all relative. You can off set the increase in indirect tax like VAT by more generous welfare benefits and targeted transfers not called welfare such as grants or training allowances for apprentices/ students. Pension supplements etc

Social democracy also involves more investment and less consumption. If you have ruled out higher income tax you need another way to reduce consumption. I can see how that boxes you into a corner. It is the conundrum posed by Nye bevan just before his death, how do you increase social investment for the public good in a capitalist society addicted to private consumption? Blair's' answer higher VAT. PFI too; to increase capacity while appeasing the wealthy with bribes. Is he a Tory or just a new Machiavelli?

Blissex

«Off course it is all relative. You can off set the increase in indirect tax like VAT by more generous welfare benefits»

That could have been a strategy, but I suspect simpler political motives: higher NICs show up prominently in the pay slip, VAT increases are harder to notice and at the time it could be expected that they would be made less visible by falls in the price of imports from China.

«PFI too; to increase capacity while appeasing the wealthy with bribes.»

Interesting point! But the core story with PFI is simply one of accounting shysterism: if the government borrows £100m (plus interest) for 20 years to build something then the accounting rules says that is government debt, if the government promises to pay someone £130m (plus interest reclassified as "fees") over 20 years for "operating expenses" if the someone builds the same something then the accounting rules say that is not government debt.

The government debt-to-GDP ratio apparently is important enough that various governments have also "estimated up" GDP by various means.

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