The Greek crisis exposes how the European Union has taken a wrong direction.

OXI

The European Union was founded on principles of social democracy.  Rooted in the Christian principles of “Rerum Novarum” the European experiment used to sit comfortably between the extreme worlds of US Capitalism and Russian Communism.  It offered a particular type of bargain, with protections for those at the bottom of society, and controls on rampant exploitation of people and workers.

In any politically led economic system we find politicians struggling to make sense of the complex interplay of economic factors.  A populist politician is unlikely to have a PhD in economics.  When politicians run into a capability gap they rely on specialist advisers.

Ideally these advisers should be free of vested interests, and should give dispassionate counsel.  At the most senior levels of the EU, and the respective national governments, we are seeing a different dynamic at play.

In the USA the nickname for the Treasury Dept in the Whitehouse is Government Sachs or the “Goldman Sachs” dept, referring to the large number of treasury secretaries from that investment house.  If you recruit stockbrokers to run government they create policies that favour the interests of big finance.  They push for lower corporate taxes, they cut welfare, government spending and reduce government regulation of industry.

These are exactly the forces we are seeing now in the European Union.  The post 2007 austerity programme was a philosophy designed by bankers for bankers.  For the average European the austerity programme has been a failure.   For bankers it has been an unqualified success.  The banking sector has recovered from near collapse, and the recovery has been paid for by ordinary citizens.

At last the Greeks have called time on the troika of the IMF, ECB and the European Commission.  Syriza was elected into power in Greece on an anti-austerity ticket.  That should have been a warning signal to the troika.  Instead of heeding the warning they blithely drove forward with their programme to steamroll the Greeks into paying banks back for bad loans.

The troika have tried and tried again to bully Tsipiras and his party into submission.  In response the Greek premier pulled out the most potent weapon in his arsenal “Democracy”.  He is resorting to the will of the people to gauge their support for his non-cooperation with the austerity agenda.

This does not sit at all well with the “Goldman Sachs” style banking & stockbroking mandarins who currently drive EU economic policy.  They are not accustomed to having their policies questioned even by politicians.  The concept of populist support is anathema to them.  They have no time for debt forgiveness or for wishy-washy neo-Keynesian economic policies.

The democratic prerogative should be no stranger to the politicians in the European Commission, the Council of Europe and the European Parliament. These are the people we have elected and appointed to guard the interests of the ordinary people of Europe.  These are the people who are failing.  They have given over too much power to the vested interests.

A thin understanding of economics is no excuse for the abrogation of responsibility that we see in the politicians in Europe.  The Greeks will speak on Sunday.  I expect them to come back with a resounding no, OXI!

Then we need to understand how we can help the economy at the bottom of our EU society.  This is Europe, not the USA.  This is about unification and inclusion, not about punishment and exclusion.

It is time to fix the EU model.

If you fancy an addition good read on this subject check out this link:  The Austerity Delusion

The modern company model is broken

The capitalist publicly quoted company model is not fit for purpose. We need to find a better way and here is why.

1. The tyranny of short-term thinking

Publicly quoted companies are driven by share price. Every quarter your company is assessed by some spotty MBA in the back room of a large finance house. S/He does not care about your long term future plans for expansion. S/He does not care about how you treat your people. S/He only looks at how your sales and profit figures performed in the last three months. On the basis of this assessment your share price will rise or fall or stabilise. CEOs in public companies live and die on quarterly reports. As a result they are always focused on the quarter, then the year, and in a very distant third place is the three year plan.

Great companies are not built on three month plans. Great companies are built on dreams that take decades to realise. If you want to build a great company you can’t float it on the stock exchange. Short term investor decisions will prevent you from making long term decisions for the future of the company.

2. Tragedy of the commons

Back when we were all ape men and hunted mammoths nobody owned anything. Everything was “commons”. People did not own land, and did not own animals. If you killed a mammoth then your tribe survived and your neighbours might starve. Darwinian selection determined that the tribes with the sustainable advantages survived. If you invented better spears then you out-hunted the other tribes. But one day there were no mammoths left and mankind had to invent farming.

Public companies treat the resources of the planet the way ape men treated mammoths. They imagine an everlasting supply. When you are focused on quarterly performance you don’t invest in a 20 year plan to eliminate oil consumption in your company. You just buy the cheapest available fuel until it runs out. You use up the resources that should be carefully shepherded for the future benefit of mankind.

3. Care of people
Many traditional limited companies were built up on the British Model as an extension of the concept of the feudal estate. Back in the old days the landed gentry had large estates. The peasants worked on the estates and got a living from the estate. When you were too old to work the lord would make sure that you had a little cottage and a bit of food. If you had no family then the ladies of the parish would call in and make sure you were cared for.  OK, sometimes this model did not work, but much of the time it did. The concept was that you would be “looked after” for your years of faithful service.
When companies were established this duty of care was reflected in the provision of a pension fund. Many of these old established companies had fantastic pension funds, planned out in the long term, to make sure workers were cared for.
Then, in the 1970’s a group of financial sharks arrived on the scene in London. They were called the Mayfair Set. They saw that some of these old companies had built up huge and valuable assets and pension funds, but were not particularly efficient at generating current earnings. They swooped on these companies, bought up a majority of shares, turfed out the management, broke up and sold off the valuable parts of the companies. The Mayfair Set got rich. The workers were left with worthless pensions. The concept of “Duty of Care” was broken.
Margaret Thatcher recruited the Mayfair Set to determine British Industrial Policy in the 1980’s. They introduced a dog-eat-dog form of capitalism that has driven markets ever since. It is not a pretty thing.
At the same time Ronald Regan was doing the same in the USA, and in Japan the feudal loyalty system represented by the “salaryman” also broke down.
I now frequently hear senior company managers use the line “the company does not owe these people a living”. I beg to differ. If you want staff commitment, effort, devotion and all those “company values” you harp on about then yes, you owe them a living. Quid pro quo!

4. War Chest
The Mayfair Set also targeted companies with a large cash or asset reserve that they could use to fund long term investment. The “modern” company abhors redundant assets, it focuses on “just in time” delivery and inventory reduction. This carries into concepts such as planned obsolescence.
The modern company does not save up the money it needs to embark on a new enterprise. That would be far too prudent and safe. The modern company uses gearing and leverage to borrow money on financial markets to fund activities. The more successful you are in gearing your operations the more attractive you make yourself as an accountant. The best accountants in the world figured out a whole new way to fund a company called Enron. Remember Enron?
Well, when Enron went bust, those accountants went to work in other companies. They geared the hell out of companies and borrowed mega-stacks to fund new ventures. If you want to look at the roots of the 2008 recession you need to backtrack to Enron accounting systems, and to Mortgage Securitization by Goldman Sachs as far back as the 1980’s.
The US treasury is now jokingly referred to as the “Goldman Sachs Dept” due to the number of secretaries of the treasury who have come from finance houses. We are running our countries in the same way we are running our public companies. All thinking is short term. Everything focused on the next quarter, the next 100 days, the next election.
At the global level we are creating an unjust, unequal society which is in a race to consume the limited resources of our planet. This thinking is coming from the way we operate businesses on a day to day basis. We need to change the model.