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90% of Parents are worried about….

There’s a “report” doing the rounds of the media this morning from The Chartered Institute of Marketing. The press association report is here, and given the utter failure of anyone in the mainstream media to apply anything approaching critical thought, I thought I’d give it a go.

Most parents remain concerned about the commercialisation and sexualisation of childhood a year after an independent review of the pressures on children growing up, a study finds.

Nine in 10 parents (90%) still think there are problems with the way some companies advertise to children…

I’d want to know how the question was asked. “Do you think sexualised advertising should be targeted at young Children” followed by “are you concerned about this?” which is clearly leading. Of course no newspaper or TV channel asks these (to me) obvious questions; this is why the Main Stream Media news is a dead-industry-walking. It’s clear, though to anyone capable of abstract thought the pollsters are probably looking for the answer they’ve already picked.

…and 85% are unaware of the dedicated complaints and advice website ParentPort, according to a poll for the Chartered Institute of Marketing (CIM)

Did ParentPort have any input into this “report”? I think we should be told.

The survey comes a year after the report by Mothers’ Union chief executive Reg Bailey, entitled Letting Children Be Children, which called on businesses and broadcasters to play their part in protecting young people from the “increasingly sexualised wallpaper surrounding them”.

Parents remain most concerned about sexually explicit outdoor advertising, marketing during children’s TV programmes and inappropriate products for children, such as padded bras, the poll says.

Of course if Padded bras for young children didn’t sell, then companies wouldn’t make them. You do, of course have the right to NOT BUY PADDED BRAS FOR YOUR TODDLER, or complain to the manager of the store where they’re sold. And why is the Chief Executive of the Mothers’ Union called ‘Reg’?

Of course, little girls love shiny things and bright clothing. They like dressing up like adults and playing with mummy’s makeup (usually with messy results – lipstick’s a bastard to get out of a carpet) The “sexualisation” of kids is more about adult’s view of kids than kids’ views of sex. Recently, when I was swimming in a public pool, a 3-year old stripped off, squealing with delight as she was chased round the pool by a red-faced father carrying a swimsuit. This isn’t sexual behaviour, she was just enjoying a game of chase. She doesn’t have a view of sex, yet. It doesn’t stop society seeing her as a sexual object. This is the downside of the paedo scare, and probably more harmful to childrens’ development than a Rihanna video.

Targeting children on Facebook and in stores are other significant concerns.

Children should be 13 years old before they have a facebook account. This is unenforceable, but it really is up to parents to monitor what kids do online.

The CIM is calling on the Government to work directly with the marketing industry to “deal with these pressing issues once and for all”.

Anyone calling on the Government to “work with them” is a demand for money, power or both.

David Thorp, director of CIM research, said: “It’s clear that parents still have very real concerns about the way some companies try to sell to children. The marketing profession needs to address these concerns but we also want a dialogue between parents, the Government and industry bodies to ensure that our solutions are lasting and effective.

Newspeak for GIVE ME FUNDING and STATUTORY POWER.

The advertising that parents see and worry about is only the visible tip of the iceberg. Marketing runs much deeper and touches on every part of product development, buying and placement. Our research shows parents trust and respect the Advertising Standards Authority (ASA) as a regulatory body but the ASA is only able to tackle part of the problem. By looking at the often-invisible marketing decisions which lead to the creation of products like padded bras for children, we can treat the cause of the problem, not just the symptoms.

The cause of the market for padded bras for children, who have no money of their own, is poor parenting by people who buy padded bras for children. But seeing as girls are developing breasts as young as eight or nine, are we talking about “padded bras” or “foam cups”? If your girl is developing breasts, you need to buy her a bra. This too need not be a sexualised event. That it is, says more about the adult than the little girl.

“We need to ensure that every decision that companies take about marketing to children is responsible and appropriate. Parents should never have to react to inappropriate marketing. The Chartered Institute of Marketing wants to sit down with the Government to provide clarity and leadership for the marketing profession.”

“We” Who’s ‘we’?. Who decides what appropriate marketing? Ah… I see, the Chartered institute of marketing sees the secure funding of the Advertising Standards Authority, and wants some of that love.

The ASA said: “The work that regulators, including the ASA, continue to undertake in responding positively to the recommendations in the Bailey review (Letting Children Be Children) has been welcomed by government as well as family and parenting groups.”

A bunch of nanny state ninnies have asked for more laws. A professional association has seen an opportunity to become a regulator.

A non-story. If you don’t like a product, don’t buy it for your daughter. If you’re offended, complain to the store, or launch a boycott. Please don’t ask for more unenforceable law or give a professional association statutory powers they don’t deserve. Multiply the regulatory approach across an economy and you regulate innovation away, resulting in stagnation. Make parents take responsibility for their offspring, don’t make me pay for the ad-men in tax as well as prices.

The current scare about ‘Sexting’ is likewise ridiculous. Kids aren’t allowed out, mainly because of the paedo-scare. Behaviour, Dr’s & Nurses; Show me yours, I’ll show you mine; early-teen sexual fumbling and so on used occur behind the bike shed. It now happens over mobile and social networks. It happens earlier because the surge of hormones leading to feelings about the opposite sex happens earlier. This isn’t a major danger. Some sad old men get hold of some of the pictures and masturbate. Meh. They’re miles away. If you’re desperately worried, don’t give your kid a data tarriff on their mobile phone, and MONITOR WHAT THEY’RE DOING ONLINE. It’s called parenting. It’s not easy, but it’s not the state’s job either.

Harsh, I know. But the state is almost never the answer to this sort of thing.

What to do with your Euros…

So. You’re a moderately wealthy Greek person. Do you keep your money in a Greek bank, in Greece or do you make sure all your Euro notes are printed in Germany, where your bank account is and open an offshore £/$ account?

The Euro, a poor idea, badly implemented.

That’s right, you get your money as far away from Greece (and the risk of being told one day “you’re now holding Drachma”) as you can.

Now imagine you’re Spanish, Portuguese, Irish or Italian. You have a bit more time, but the result is the same – any money you have gets out of the country if you’ve any sense.

No bail-out can replace the money flooding out of these countries. The people have lost faith in the Euro project, and as confidence is the only thing underpinning a fiat currency, the Euro has already failed its first test. Even strong German GDP numbers are evidence of the flood of money from the periphery to the core not the underlying strength of the German economic model. Germany rigged the system in its favour, and is now parasitically sucking money out of its empire, an Empire even the German people never wanted.

Is there anyone NOT shorting the Euro right now? I don’t think even the most pessimistic Eurosceptic expected to be this right, this soon.

Now my standard prediciton is that political will can see the Euro hold together at great cost to the wealth and living standards of the people, particularly in the periphery. I am becomming less confident they can pull this off by the day and the rise of the Anti-Austerity left means even the Iron political belief in the project of “ever closer union” is waning.

So, to hedge the Euro’s demise, buy* banknote printer De La Rue.. It’s going to be a bumpy ride.

*Doesn’t constitute financial advice, this may not be suitable for your circumstances. Past performance is not a guide to future performance. Stocks and the income from them can go down as well as up, seek advice from a professional advisor, yadayadayada.

Game Group & What it means for Retail

Another (less than iconic this time) retailer has gone bust. Game group sold console games to chavs and had two brands, GAME and Gamestation which cannibalised each other’s sales. The problem is that even the most enormous, PC-challenging game can easily be delivered over the Internet, and there is no tactile element which demands you have to feel the merchandise before you take delivery. So there is no reason to own a shop to sell games. A website can be run with a small call-centre, and half a dozen software engineers. There is simply no need for a vast estate of shops with staff, managers, cleaning contractors, rent, rates and theft, the cost of which must be built into the price of the product, meaning you can NEVER compete with online.

Just as Manufacturing jobs are vanishing while productivity is going up, the same is true of retail. This is how an economy grows: all those people employed doing one thing – in this case, shop assistants and managers, are freed to do something else, sell coffee for example. You can argue retail is a leisure activity, but it’s an expensive one, and so people mooch around shops, then go home and buy it, whatever it is, cheaper online. If you’re selling a product of interest mainly to spotty boys who wear hooded tops, they will take the opportunity to nick the merchandise. Retailers will simply not regard providing a shop window and somewhere for youths to hang out as a viable business model, and will close.

High-streets must therefore shrink. We simply don’t need as many shops as we used to, just as we don’t need as many factory workers or farm-labourers.

If you’re going to invest in the business, invest in those with the scale to dominate their product area, and the logistic nous to get objects to people’s homes in less than 24 hours. Tesco, for example was the first business to make money out of online Grocery in the world. E-bay, Amazon and Wiggle are all big players in their niche. And there is a real opportunity in a privatised Royal Mail, which is going to be responsible for all those “fulfillments” in the “last mile”.

The future of e-fulfillment

Online takes 10% of the UK retail spend and it’s growing fast. Everyone will laugh, but your humble postie is the key to making online retail work, and the packages will render the domestic mail network as profitable as the business one (perhaps more so, as most “business” mail is advertising junk). If there is an IPO of the Royal Mail, depending on the price, I will be investing.

Over-regulation.

The Economist this week deals with the regulatory labyrinth of the Dodd-Frank act. It put me in mind of the regulation of my dusty corner of the financial services industry. We stockbrokers, managing money and advising clients on stocks, shares, unit-trusts, investment trusts, bonds, managing money in ISAs, Pensions, for Charities, trusts, companies, relying on long-term advisory relationships with clients. This is not an industry with a track-record of mis-selling products. Nor was it one, unlike the superficially similar IFA sphere, replete with cowboys. There were not many complaints from customers, even during the crash, because it would be a short lived career if I made promises I couldn’t keep. Hoary old brokers had seen it all before, and advised the young-guns to hold the line, stick ’em in Gilts and wait. An advisory relationship is one where the broker gives his opinion, and the client is free to take it or leave it, but I am not selling a trade, I am building a business. I want my clients to be happy with my advice in 30 years time.

Nevertheless, “deregulation” was blamed for the financial crisis. We were unregulated and so that couldn’t be tolerated. Something must be done, regulating blameless stokbrokers is “something” so the FSA will do it. There were brokers without qualifications, many of whom had been running money with great success since before “big bang“. Stockbrokers were advising people, without keeping detailed records of every phone-call, which offended the horrid little bri-nylon Gauleiters of the FSA. The idea that a client might just want you to give advice on a pot of money, for a particular purpose – inheritance, or school-fees for example, without knowing the clients income, expenditure, mortgage, inside-leg measurement and so on just did not compute with the FSA.

So the new round of regulation, the RDR sees every broker have to take more exams, much of the content of which is entirely irrelevant or obsolete in one tax year. As most “wealth managers”, as the FSA seems intent on rather grubbily calling Stockbrokers are self-employed, we will have to find the money for these exams out of income. This extra focus from the FSA doesn’t come cheap. My FSA and FOS fees, which I pay every month, have tripled in the last couple of years.

I don’t see how my clients benefit from the vast amount of extra information on them we are obliged to store about them on our computer systems. Indeed, much of it, if I am doing my job correctly, I already know. But this won’t wash, I have to be able to prove that I’ve asked my client about his health. The client cannot opt out, or keep his mortgage balance private from his stockbroker. For my clients, this will simply be a question of a detailed fact-find to satisfy the regulator, and hopefully their service will continue.

But for much of the industry, the clients will end up being the ones paying for this regulatory focus. Those FSA and FOS fees will be passed on to clients. Clients who’ve dealt occasionally will be subjected to an intrusive fact find or lose any opportunity to ask for any advice at all, ever. Long-term clients whose fees are currently low will find their existing arrangement “tidied up” as they’re “re-papered”. Their fees are extremely unlikely to go down.

It gets worse. The first firm I worked for was the now long-defunct Gerrards, now subsumed into Barclays wealth management. Gerrards, itself a merger of Capel Cure Meyers and Albert E Sharp’s was a large, but otherwise old-school private client stockbrokers. The senior management, for whom I (then a wet-back, just out of the Army) was a bag-carrier, decided that the brokers out in the branches, doing their thing was a risk which it couldn’t afford in the new N2 world. Instead, an “investment process” would be created. An Asset Allocation committee would set the appropriate split between cash, Gilts, bonds and equity for clients, who would be put into 3 “risk” categories. An investment committee would then decide which individual equities or bonds would form the “core holdings” within these asset classes.

Brokers who had up till this point been owners of their own businesses, and who gave as much or as little advice as their clients felt they needed to navigate the financial markets, were reduced to salesmen, actively ringing up clients who neither desired nor needed the advice to switch long-term holdings on the say so of a team of analysts (Which by this stage, I had joined). Analysts were encouraged to advise switches and congratulated on the basis of the commission generated. Brokers were thus encouraged to churn their client’s accounts. Portfolios were monitored for compliance (not straying from the “recommended” list). People who had enjoyed playing the markets with a trusted broker, were now forced into what amounted to an expensive index-tracker. Don’t like Vodafone? Tough, it’s 20% of the index (in 2000) so it’s a “risk” (regulatory “risk”, to the broker, not financial risk to the client) to be out of that stock.

The old school brokers out in the branches revolted, and so I watched a perfectly strong business, which had long served its clients perfectly well for decades, utterly destroyed in a matter of a few years. I jumped ship to Lazard and whole branches left to join partnerships and firms which would leave them alone to get on with servicing their clients.

The FSA, which does not understand Private Client stockbroking, and therefore does not like this is at serious risk of harming clients by hammering the brokers with often inappropriate demands for record-keeping, and fact-finding. The ultimate effect is to deny decent advice to people without serious amounts of money to invest. If it ain’t worth my while spending 3 hours or more finding out your inside-leg measurement and medical history (the former is flippant, the latter is not), I will not be able to advise you about the best way to save for your retirement. You’re on your own, or at the mercy of cowboys. Maybe you’ve inherited a pot of money and you’d like to stick it somewhere for a few years, before buying a house. Maybe you’ve downsized and would like to supplement your pension with a bit of income from the capital. Few brokers will touch you if it’s less than £100k.

Most ordinary people are therefore left at the mercy of IFAs and Banks who won’t advise you about investments. They will sell you a product. Big finance is almost entirely parasitic in this regard. I typically charge less than 1% for advice. Most funds charge 1.5% or more. You will get no more contact, except when a salesman rings you up to “advise” you to switch into a different fund, using a script. The salesman gets commission, but unlike an old-school broker, he’s not responsible for performance, a faceless and distant fund-manager is. There will be no ongoing relationship, because the salesman who will have given you his card when you went into the bank’s branch will have been promoted or fired by the time your circumstances change.

Inappropriate over-regulation is killing the old school advisory business, just as it killed old-school relationship banking where long-term relationships have long provided decent advice to people for a reasonable cost. The only people to benefit are the big banks who have access to more captive customers for their fee-larded “products” sold according to a process, and the regulation sausage factory of the FSA.

I am going to get little sympathy. Though I am just a guy earning a crust by helping clients decide which stocks to invest in to achieve their aims, in the popular imagination I may as well be a “banker”. But this nonsense is going on in every industry, not just finance. I am not saying all new regulation is wrong. Much of the new regime is merely formalising what a decent broker should be doing anyway. But to imagine this is without cost is naive. And the cost is borne by customers, who lose choice and privacy as well as paying higher fees. Regulation ultimately benefits government, which gains power over people, and big business, which can absorb the cost, pass it on, and put the insurgent or innovative smaller player out of business.

Ultimately the cost is borne by the nation who have to employ a caste of nose-poker-inners in every industry to check “compliance” with regulations. The only businesses who can influence the regulations are the big, powerful, politically connected ones, and you can bet they’re gaming the process to their benefit, and against the interests of the entrepreneur, sole-trader and independent small firm. This crony-capitalist cartel is the real beneficiary of over-regulation. The compliance department, or indeed the PAYE administrator, or the H&S officer may be nominally employed in the private sector, but they’re every bit as parasitic as the mandarins of Whitehall, as they are not serving the person who’s forced to be paying them.

Worse, innovation may well be beneficial to customers, but the compliance risk means much innovation is not allowed or otherwise stifled because regulators who by their nature are conservative and risk-averse don’t like that which they don’t understand. Ultimately As we’re at the technological frontier, without innovation, we’ve no growth. And what does the UK desperately need now?

Be Prepared…

Independent trader, Alesio Ratsani caused quite a stir last night with this interview. In his view, there’s going to be a crash, and everyone should get prepared. Well, I hope he was short when he said it, because the market’s up 2% off the open the day after this interview.

His rather juvenile “Goldman Sachs rule the world” comment is typical of traders who are in awe of that company. Goldmans doesn’t even rule the markets, they’ve just made a couple of decent calls recently (and more than a few bad ones). In saying this, and the deliberately provocative “I dream of a recession”, Mr Ratsani has pandered to the fear of every lefty on the planet. I am sure he had fun. I certainly enjoyed the look of disgusted incredulity on the BBC Bird’s face.

So disturbing did Prodicus find this, he e-mailed me. My good friend, NorthBriton45 also fell into the trap, concluding.

“…it confirmed like nothing else why the notion of a free market is in reality anything but and would strip power away from so many completely innocent people.”

The depths of confusion that comment reveals! Mr Ratsani and people like him don’t control the markets. Nor do they strip power away from innocent people. Quite the opposite, in fact. There’s no moral component to the market going up, or the market going down, and everyone has the opportunity to profit both ways

If you’re convinced mr Ratsani is right, ring me and ask to buy the Deutshe bank Short FTSE100 ETF or ‘XUKS’ for short. I can have you short the market in 5 minutes. If you’re extra sure mr. Ratsani is right, try a geared short ETF*. That’s before you start writing options, spread-betting, or trading CFDs all of which you can do just by picking up the phone. Condemning the trader for making money on the short side, is like blaming the surfer for the wave. Markets don’t cause recessions, whatever traders dream of at night. They respond to the likelihood of one.

I used to work on a trading desk. I’ve seen people like Mr Ratsani, extremely pleased with themselves as they ride the trend. As their overconfidence in their own genius becomes pathological as their winning streak lengthens, they take bigger positions. I once saw an independent trader lose a years’ income in 20 minutes. He then went on to lose his trading capital. And his house. It took an hour, before he started destroying things around him and was escorted off the floor. We never saw him again.

The markets have been stuck in a bear market since the peak in 2000 at which time the share-price divided by the earnings per share (the PE ratio, a key measure of whether the market is cheap or expensive) was 42. That is each share was worth 42 times the profit to which it was entitled. That figure is now 9 times. The last time the market was that cheap was in 1979/80, at the foot of a 20-year bull market. In the short-term, I don’t know what is going to happen. But if your view is years, the market is cheap, and paying a decent yield NOW. When the bond bubble and gold bubbles burst (they will, some time) there will be a wall of money flooding into shares.

Mr Ratsani may well be right. There may well be one final capitulatory crash but each and every time austerity has been attempted as a response to recession, it’s worked. To my mind the Plan to allow a 50% haircut on Greek bonds while gearing up the stability fund and buying Italian and Spanish debt with it, looks credible. And in any case; bankrupt governments? Meh. They’re not necessarily bad for business, indeed their retreat from activity will encourage growth.

I have not seen everyone so universally bearish, which means we’re near the point of maximum fear. Which means we’re near the bottom. Like mr. Ratsani, I’m prepared for the crash: I’m waiting to buy.

*N.B. Do your own research, this does not constitute investment advice, yada yada…

Here’s the Daily Mash on the subject.
Update 1: It appears mr Ratsani may indeed be a spoof: is he one of the Yes men?
Update 2: It appears Mr Ratsani is NOT one of the Yes Men. Forbes have spoken to him.

QE3 won’t work, the cuts will.

The Bank of England has indicated that it is considering another bout of Quantitative easing. This presupposes that the problem in the world economy is insufficient demand, to which a solution is printing more money. If insufficient demand WAS the problem, the incredibly low interest rates would have encouraged investment and spending. The first two bouts of quantitative easing would have seen demand pick up.

They didn’t. We barely scraped out of recession.

What quantitative easing did do was push up the prices of Gold – a hedge against inflation. Up too went the price of Oil, of Commodities such as copper, and therefore share-prices. Much of the money went into banks, so their balance sheets were artificially boosted. The FTSE100, being mostly miners and banks did very well, for a time. Other commodities, such as food also rose as more money chased a short-term fixed supply. House prices in the UK have been artificially maintained at their inflated level. Most of all, Quantitative easing, a policy of buying bonds has contributed to a bond bubble, where the sovereign debt of the USA, UK, Germany, Switzerland and (for a long, long time now) Japan are paying nothing in real terms.

The cost of this policy is borne mainly by the poor. Inflation has been explicitly blamed on Oil price rises and rises in the cost of , especially in food hurts the poor. While the main beneficiaries are people with assets – the rich. Labour’s left however is clamouring for MORE intervention in the economy, but this isn’t a Keynesian recession caused by aggregate demand. Therefore Keynesian solutions such as fiscal stimulus (spending money, or cutting tax) won’t work any more than monetary ones, at least until the Government books are nearly balanced. So Labour’s solution – to keep spending until we’re Greece won’t work.

So if it isn’t demand, what is causing the problem? First there is a lack of investment opportunities. Whether this is a cause of or caused by the excess bond issuance crowding out other investments is moot. What’s certain is the low interest rates and negative real yields are shielding governments from the effects of their two decades of profligacy. Germany, the USA, Italy and Japan all have enormous stocks of debt. Thanks to Labour’s 10% deficit, the UK is still catching up fast. Most of the debt is internal, to pension funds and citizens of the states involved. The External debt, especially the USAs is mainly bought by China.

This has the effect of keeping the Chinese currency down and the Dollar artificially strong. What this does is boost exports from China at the expense of domestic demand. This is, in effect keeping Chinese poor to allow the Chinese Government to sit on an enormous pile of Dollars. At some point, this has to end. The Chinese will have to allow their people to buy French handbags & Wine, Italian Clothes, German Cars and English Shoes at the cost of devaluing their Dollar reserves. A fall off in demand for Western government securities will force (or allow) Governments to cut spending even as real interest rates rise. As bond prices fall, and the bubble bursts, money will flood out of treasuries and look for more productive investments.

So, can cutting Government spending faster, closing the deficit and restricting the issuance of Government debt help without the Chinese releasing their reserves? A restricted supply of Gilts would lead to the real interest rate falling, helping with deficit reduction. This doesn’t really help prick the bond-bubble, but restricting the supply of Gilts will drive more money into the productive economy. Furthermore the means by which spending will be cut faster – firing and not hiring people in the public sector will re-weight the economy faster towards the private sector. In the Last Quarter, the public sector lost 111,000 jobs, but the private sector gained 41,000. Year to date, the figures are 149,000 fewer public sector workers and 159,000 more private. The cuts are beginning to do their work, and the private sector, against the stark warnings of the left, is taking on the task of picking up the slack. Since public sector employment started falling in the first quarter of 2010, the Private sector has increased employment in every quarter. That’s 617,000 jobs created for 290,000 lost in the public sector. Each of those public sector jobs lost is one fewer wage bill. Each of those extra private sector jobs is one extra tax-payer. This helps reduce the deficit.

But it’s more than the reduced deficit. Most public sector workers aren’t the Nurses, teachers, firemen and doctors which represent the public sector in the fevered imagination of the Left. It’s bureaucrats, so there’s another benefit of having 290,000 fewer of them: They’re not sticking their clip-boards in the way of business hiring and investing. These bureaucrats aren’t unemployable either. For a decade, business has been crying out for literate, competent people who are capable of turning up to work in the morning. In many parts of the country, these people have been working for the state, which has effectively crowded out private sector employment. With that option no longer open, the Private sector is now able to find the people to provide the investment opportunities for capital which have been so lacking since 2005. The fact is this recession, like all recessions is down to malinvestment. In this one we’ve over invested in public sector prod-noses and under invested in the productive private sector.

This has been multiplied across the entire western world, and added to imprudently low interest rates as Governments have pumped money into the economy in a desperate and futile attempt to keep the party going. This monetary and fiscal “stimulus” has had the same effect as moving off beer and onto vodka. Quantitative easing is like offering round the cocaine in an attempt to keep inebriated guests dancing at 4am. The conversation’s still nonsense, but the hangover will be much, much worse as a result.

If the Chinese government can do a bit for us and allow their domestic demand to rise with their currency too, we (and the Chinese people) will be thankful. Chris Dillow argues against the usual reason for stimulus not working (as per this paper, often cited by Tim Worstall & Others including me on discussiong about “stimulus”) keeping suggesting that it raises the currency, harming exports. In this recession, that might not be the case, AUSTERITY in the west may weaken our currencies relative to China’s by slowing the flow of treasuries & gilts which are being purchased by the Chinese in order to keep western currencies artificially high.

The “double-dip” is a misnomer. We’re witnessing the last gasp of an asset and credit bubble which started to burst in 2000 and it ain’t going to be pretty. In truth, we’ve barely left the recession which started in 2007. Unless we free up resources – people, capital from the public sector, we will not get growth. BRING ON THE CUTS. More & faster, please.

Is “Employment” the problem?

By far the most important economic metric, as far as politicians around the world are concerned, is “Unemployment”. If this rises – particularly amongst the middle-class, who can be relied upon to vote – governments tend to fall. This is as true in the democratic nations as in tyrannies. Youth unemployment of over 45% in many Arab nations may have changed the micro-economic risk-reward pay-off of protest. If there are no jobs with which to bribe/blackmail the young, there’s less to lose by being part of a demonstration.

When you take on a job, you take on severe constraints upon your time. Usually you’re expected to present yourself at a time and place 5 days a week and subject yourself to monitoring and surveillance which would be unacceptable in any other circumstance and a gross invasion of privacy. In return your employer pays you a regular wage, whether or not you’ve earned it. The employer is also expected to pay significant levels of taxation as a result of each job, and incurs other burdens such as contractual redundancy pay, insurance and so-on.

The result of this is an economic conflict. It’s in the employees interest to do as little as possible to earn his pay without getting fired. Every office has shirkers who are carried by the rest of the business, or people who exploit management systems’ loopholes to engage in rent-seeking behaviour. On the other hand, it is in the employers’ interest to sweat the labour and earn as much as possible from each employee. This is not to suggest that there aren’t good employers in some sectors where it is both possible and practical to remunerate according to delivery, and see it in their interests to look after their employees. There are, however, employers who exploit the weak bargaining position of their employees to improve productivity through coercive means, and employees who exploit employers (to death: this is why there are few unionised workers in the private sector). The public sector, without real cash constraints, is easily bullied by organised Labour & rent-seeking professionals.

Let’s put some numbers on this. For a private-sector employee to achieve £30k in his bank account at the end of the year (once taxes are taken into account) s/he needs to generate at least £100k of top-line value. If this employee is in a “cost centre” instead of a “revenue-centre”, HR, for example as opposed to sales or the shop-floor, his/her remuneration comes from the excess profit of the productive work-force.

As a result of the sheer cost of guaranteeing a wage month to month, the temptation is to seek revenue from employment which doesn’t add to customers’ utility. The most egregious example of this is perhaps the financial services industry, which sells “products” larded with hidden fees, or insurance to people who don’t need it or who could almost never claim on it. A legislation-protected cartel operates to keep bank deposit interest low and lending rates high. Branches no longer serve their customers, whom they know only from computer records, but instead serve sales targets for corporate markets. Evidence: people don’t change banks because they’re all the same.

Another examples of this “crapitalism” is the McDonalds happy-meal toy, whose negative externalities in the inevitable disposal, manufacture, transport and packaging vastly outweigh the utility gained by the customer. It is a product whose only purpose is pester-power-marketing. You can think of any number of other examples. The disgusting excesses of some of our consumer culture are partially as a result of the drive to manipulate people into purchases they don’t need at any cost. Does anyone think ‘planned obsolescence’ is good for the consumer? Are the people selling this crap, in call-centres, shops; or indeed those making crap in factories around the world really happy with their lot serving this avaricious machine? Should this almost feudal relationship between employer and employee, which could be at the root of it, really be the dominant economic relationship in a supposedly free society?

The crucial thing, above and beyond the crap needlessly produced, is the self-actualisation of the people making and selling it. It is this crucial happiness-delivering facet of the human experience which is missing from much employment in service of crapitalism. Would it not be better if people were able to choose to how much to work, the margins at which they work and their working hours and conditions, and deliver a product or service of which they were proud? I’ll declare an interest: I’m self-employed. The freedom to have more, or indeed less than state-mandated holiday allowances and working hours as necessary, is a huge bonus. As is the sense that no-one is looking over my shoulder, telling me I should be working. My time, even in the office, is my own. I am, in a huge number of senses, free. Even if I didn’t take a holiday for four years, when starting my practice, and building my client-base, the sense I was building something for ME was hugely motivating.

Many of my clients are likewise self-employed: plumbers, builders, property-developers & businessmen. It is risky and certainly tough at the outset for all people who slip the bonds of formal employment, but because the products of your labour aren’t shared with an employer, you get nearer the full benefit of our labour. If more people were self-employed, there would be less work of negative utility: HR, Accounts, Compliance, Health & Safety officers, who serve to enforce legislation which exists only in the EMPLOYED market place would wither. More self-employment would then free these people from their parasitic jobs to do something productive. An ancillary benefit is the state would lose an enormous class of people in the private sector from its control.

But it’s also about more than productivity. The self-actualisation and self-reliance that self-employment engenders are benefits in themselves. The fact that the self-employed have to hand their income tax over in a cheque every six months means they actually think about the dead-weight cost of taxation each and every time they do so. (I’ve never met a self-employed Labour voter…)

At the moment, society, politics and the economy is structured around formal employment, and the resulting drive to squeeze ‘human resources’ (I call them ‘people’) at whatever cost. Employees feel the temptation to rent-seek. Neither of these are good: though these activities may help GDP, they aren’t productive. Perhaps an economy shaken up by de-industrialisation is an ideal opportunity to have another look at the structures of the job market and consider if legislation unfairly supports one form of labour-market organisation. Self-employment works for me. I am not suggesting it works for everyone, but merely asking the question: Isn’t it better to work for yourself, rather than allowing someone to be your boss?

I started this post with the Arab Spring, at the root of which is unemployment. The Tunisian revolution which saw dictator Ben Ali flee to Saudi Arabia started when an unemployed man called Mohammed Bouazizi started selling vegetables in the street without a permit, and the subsequent harassment (he wasn’t making enough to bribe the police) led him to self-immolate. Such is the effect of denying people the right to earn what they can. Whilst a secure job may be preferable in many economies, for many people the guaranteed wage just costs too much. For many marginally productive workers, Spain, for example, has youth unemployment comparable to Tunisia’s, they just aren’t productive enough. What prevents Spain from imploding, apart from the pressure valve of democracy, is a black economy which allows the poor to subsist in the manner attempted by Mr Bouazizi – without the interference of a rent-seeking police force.

Instead of harassing the black economy Western governments also suppress it using an over-generous welfare state, at vast dead-weight cost: people paid to do NOTHING. There’s no need to scrape a living: the state will take from the rich and give it to you, gratis. Is this just? Maybe. But it also comes at a cost; the self-reliance, independence and integrity of the recipients of the tax-payers’ largess, who lose any habit of independence and will never work as a result of their handouts. Would it not be better to deal with our welfare rolls by cutting the hand-out (a CBI could ensure everyone’s basic needs were met), and encouraging people to find something, anything, they can do for other people for whatever they can earn?

An employment market which rewarded self-employment, independent trading, if allied to a tax and benefits system which didn’t act as a massive barrier to entry to marginally productive workers, would cut welfare rolls and could eventually end the concept of unemployment. Perhaps we could also reduce much of the nonsense economy of crapitalism? After all, self-employed people don’t eat unless their product or service is actually valued, instead of being ‘bundled’ with something that is. (Would you pay for the happy-meal toy or the mobile phone insurance which comes with your bank account, unless it were”free”?) Above all, freeing people from employment they know to be useless would improve people’s sense of self-worth. By removing the totalitarian oversight of the feudal lord – your employer – you achieve freedom.

So far, so Marxist. He wasn’t all bad, you know. The temptation in current politics is to play the masters – state & business off against each other. The electorate’s choice is their proxies: Labour & Tories. We libertarians marginally favour the latter, but regard both, or indeed any master, as abhorrent.

British Manufacturing – It is about the Bike.

I’ve just finished reading Rob Penn’s It’s all about the Bike, about one man’s perfect bicycle, based around a hand-built British Frame. In doing so the book reveals the history of the Bicycle, and how the bicycle was the invention which built the modern world. Indeed the car would not have been possible without inventions which sprung from the Bike: Pneumatic tyres on wire spoked wheels, driven by chains. Nor would cars have been able to navigate pre-bicycle roads. Cyclists have long been agitators for smooth roads. Most of the early car makers sprung out of Bicycle makers: Pugeuot, Hillman and so on. Bicycles generated a corps of people skilled with metal & machinery which enabled the early unreliable cars to survive a journey. Even aviation owes its early days to the bicycle: Orville & Wilbur Wright were bicycle mechanics, and based the principles of stable flight on the self-centring mechanism a bike uses to stay upright.

Because I am in the market for a new Bicycle, I have been researching of the custom frame-builders. For the same reason I buy Tailored suits (I can highly recommend GD Golding of St. Albans) I would like a custom bicycle to replace my aging Condor (whose bikes are made in Italy). There are plenty of guys out there who can build bikes & make a living from it. Rob Penn went to Bob Jackson in Leeds, but there are others: Woodrup, also in Leeds, Wilson cycles in Sheffield, Mercian cycles in Derby, Roberts in Croyden, Villiers in Kent. Burls‘ steel frames are UK made, but their Titanium frames are Russian (the same company which used to make Soviet submarines). Only Enigma makes Titanium frames in the UK.

By far the most popular frame tubing for high-end bikes is made by a British company, Reynolds, who make their tubing in Birmingham, and remain along with Brooks, who make saddles, as the few remaining remnants of the once mighty West-Midlands bicycle industry.

So British manufacturing may have declined, but it ain’t dead, and what’s left is amongst the best in the world. Most volume bicycle production has moved to China & Taiwan, even Raleigh, and as a result, you can get a lot of bike for £500. However some companies have managed to maintain British volume manufacture, albeit in clearly defined niches, Pashley and Brompton are two, and have done so using design and commitment to quality and have developed a loyal following. I am a proud Bromptoneer, for example. But even in the list of fine companies listed above is perhaps the reason we, as a nation, by and large don’t make things any more.

Have a look at the websites of the companies listed above. They are catalogues, not a shop window. They are utilitarian ways of saying “if you want it, this is how much you pay”. The bespoke frame-builders have waiting lists and see little point, it seems, in SELLING. Compare the British frame-builder‘s shop-window with his Italian or American equivalent, whose websites ooze “lifestyle” and desirability. Mercian, Condor and Enigma at least make an effort, but they’re still lacking in imagination. Roberts cycles may make beautiful bikes, but you’d hardly know it from the website, which does not linger on the details like the welds and lugwork which set them apart as objects of desire. It’s not just frames, it’s true of components too. Hub manufacturer, Royce whose beautifully machined wide-flange hubs come with a track & racing pedigree in excess of that of Chris King (whose hubs, by the way freeze in cold weather unless you use the right grease) could be a global components business, if he could get out of his machine shop comfort-zone and SELL with half the alacrity with which he MAKES. If you didn’t know about Royce hubs through word of mouth, or reading Robert Penn’s book, you’d quickly end up with Campagnolo, Chris King or SRAM. The British craftsman presumably thinks that ‘selling thing’ vulgar, and maybe he’s right. Perhaps the British Frame-builder is happiest brazing tubes together, not creating an image.

But…

Business is, in part, creating the image. It’s about creating desire for your product. If a British Frame Builder could make an image and sell a brand, he could sell 100,000 frames a year with his brand on (even if they’re made in Taiwan) as Gary Fisher did and then he could charge even more for a frame hand-built by the MAN HIMSELF. Ralph Lauren doesn’t tailor all his own suits. He does however still cut SOME for his most important clients. As a result of failing to invest in the most basic of marketing such as SEO, the guys with the real skills are missing out on business which is being taken by hipsters making for hipsters, and worse, people making the cheap mountain bike whose sole purpose is to put people off cycling. Try googling “British Frame Builder” First up is Wilson Cycles halfway down the page, whose informative but dated-looking site inspires beard-growth through talk of headset angles, rather than desire with high resolution picutres of his handiwork. The bicycle is coming back, whatever my co-blogger thinks. It’s a British invention and we’re bloody good at making it, but because there’s little magic dust being sprinkled, the industry nearly died.

This is what went wrong with the British car industry. Who, really, honestly wanted a rover? Vauxhall is not an object of desire. This is more a problem of marketing than engineering. And where the craftsmen operate – really good engineers in TVR, Hillman, Marcos, Lotus they lacked the marketing & business skills to make their businesses really work. It’s not about the product selling itself. It’s not, unfortunately, about what you want to sell. The best businesses create their own desire, and make their customers feel a bit special. Ferarri do this. TVR didn’t. Cielo does, Woodrup – well you wouldn’t know, unless you walked into their Leeds shop.

The mountain-bike revolution was apparently led by a bunch of pot-smoking bums in Marin county California who enjoyed racing old balloon-tyred cruisers down a hill called Repack. Despite this background, Gary Fisher built a successful mass-production business, though eventually sold the bike busiess he started to Trek, who subsequently killed the brand, but Ritchie, the original MTB frame builder’s business still lives on as do Orange, Specialized, Marin are all names from the early days of the MTB revolution, a revolution which changed the bike industry for good. Why are so few British craftsmen able to create a brand? Chris Boardman has made a brand, but on Bikes made in China – it’s more an endorsement than a business. Now, with single-speed bikes fashionable, Oil pricey and exercise difficult to fit into the day, Car design crippled by environmental and safety legislation, the moment for the bike has arrived. It just needs a bit of thought from a few people to make a British hand-built bike as much an object of global desire as a British handmade suit or British hand made luggage. Or shoes. Or Cars.

I want to go to these British frame-builders and shake them for their spelling mistakes on their sites, for their cluttered and ugly web-pages. If they took half the care over their Internet shop-window as they did over their lug-work, the best guys could charge twice as much, and in doing so, there would be more people seeking the work, and so more choice for someone wanting a bike. Hand-build bikes needn’t be a luxury out of reach. Bike shops across the land would not be selling on auto-pilot mass produced stuff from Taiwan, instead they would be selling beautiful objects which could be fixed, not thrown away. More frame-builders would create more demand. Carbon fibre may be great for the racer, but it’s to brittle for everyday life – it’s not the best you can buy. Tailoring your frame to your dimensions & riding style (like my first Condor – how I miss that bike, damned BMW) means comfort and stability. And you get a bike which lasts, and which no-one else has.

It’s not just bikes, but the whole of British industry needs to have the self confidence to sell. ‘Made in Britain’ should be about quality and is, if the naturally diffident British craftsmen & engineers can be persuaded to shout about what they do so well.

Anyway. Seeing as you’ve read this far, and in the unlikely event that you’re interested in my dream bike, here’s what I’m going to go for, as and when I can afford it: Either an Enigma Ti or Mercian in reynolds 953 audax frame. British Racing Green as the main colour & Yellow details. Campagnolo 10 or 11-speed (depending on budget). Bottom bracket by Royce, Chris King or Campagnolo. I will go for a traditional Quill stem, unless someone can suggest a reason to not go for one. I already have a brooks saddle, but I might put that on the Brompton & splash out on a Green Ti Swift. Speedplay frog pedals. Wheels with Royce hubs, DT swiss spokes, Mavic rims with 2-cross front, crow’s foot rear lacing and I’ll build ’em myself. There’s a “donate” button to the right if you want to help me get my dream bike sooner…

Do you like Adverts? If not, don’t buy Facebook.

Microsoft paid $8bn for skype, a business which competes directly with MSN messenger and generates substantially no revenue per user (though may do so in time if the computer replaces the ‘phone). And it probably helps Microsoft get into the smart-phone market where they are currently getting their arses kicked by Google’s Android and RIM’s blackberry and that other one, “fruit” or something… you know, the phone your coke-dealer’s girlfriend has. Microsoft paid with money they sort-of had lying around and couldn’t do anything with for tax-reasons, and by removing a competitor, the deal makes sense -but only to Microsoft in a perverted “not-directly financial return” way.

LinkedIn’s doing an IPO now and is prospectively valued at $3.3bn or something like $33,000 per user, but at least they’re selling something people might actually want to buy – jobs, networking and sales. Though I’m on LinkedIn, I have not really worked out what it is FOR. So perhaps it’s not worth that much. As there is a paid subscription service, I can see revenues, but If and only If it really becomes a peer-to-peer business resource, it may be worth money. But perhaps not that much.

Facebook – average (mostly advert-generated) revenue per user $2.57, with the company being valued at $50 billion or $200 per user, the assumption is that 1) that the number of facebook users will expand to around 7 times the world’s population, 2) everyone will start paying to use facebook or 3) Companies’ adverts will be targeted and therefore valuable (this contains the sub-assumption that users won’t find this annoying or creepy and won’t find ways around it or leave). Of course I prefer 4) This is a fucking bubble and if facebook ever comes to market at anything like Goldman Sachs’ investment price it’s only worthwhile as a stag, but If anyone offers me shares in facebook, I will tell them to bugger off.

With valuations an order of magnitude or two out, this is the most obvious bubble since the last one. The founders of these businesses get mightily rich at the investors’ expense. Users continue to get their service for free in return for being subjected to adverts. Until, of course those adverts become too intrusive and users, the high-value ones first, leave to another “exclusive” network. Anyone ever go to MySpace any more – their best users left for facebook, which initially was a graduate thing. Then the grockles started throwing sheep, and polluting one’s wall with illiterate gibberish. How long before the educated abandon facebook for something new and exclusive?

History may not repeat itself, but it certainly rhymes. Goldman Sachs may well find a bigger fool to shift their facebook stock onto before it’s shares collapse to its real value of a few tens of millions, but it won’t be me. The money in the web is in the businesses selling the picks and shovels – data storage/archiving/and search, back office e-commerce software and cloud server space to those business taking part in the social networking gold rush. These businesses have profits & dividends and so can be valued. It’s boring. Like all good investments.

The Dude talks to UK Uncut on Twitter.

are @ disonest or stupid? Barclays this time. which didn’t need a bail-out and which pays a lot of tax.

the entire banking system would have collapsed if it wan’t for the bail. And no they don’t pay a lot of tax.

Question: does the laffer curve mean anything to you. Is there a point at which you stop regarding “business” as a piggy bank?

2007/2008 Financial sector collapse knocked 6% out of GDP, caused a 1 trillion black hole which we are paying the price

Barclays didn’t take the Bail-out. It went to shareholders. Are you dishonest or ignorant?

I didn’t say they did, I said the entire banking industry exists because of the tax payer.

all business exist “because of the tax-payer” because he’s also a consumer. Barclays didn’t take bail-out, so why picket them?

just shows how concentrated wealth is in this country. not right that we should be so dependent on a tiny groups of people

Question: Do you pay more tax than you legally owe? if not you’re a rancid hypocrite.
waaaa! someone has more than me! waaaaaa! You’re a child.

No i pay the tax that is taken out of my pay. I don’t employ a small army of accountants to try and get me out of it.
So you think that Barclays, a major international retail & investment bank should just PAYE without using accountants?
I think Barclays should not have an entire division in their HQ coming up with elaborate means to pay less and less tax

You do agree businesses which make a loss should be able to set that loss against future year’s tax on profits don’t you?

I think the law can be changed to stop the Banks avoiding tax, especially as they have a debt to the public sector
they’re not “avoiding tax”. Barclays is carrying forward losses, something ALL grown-up tax regimes allow.

no this should be changed for the banks. They have a debt to society, they do avoid tax, they have an entire division to do it, with hundreds of subsidiaries in tax havens.

You really are ignorant, aren’t you. How is retrospective taxation different from theft?

because the entire banking industry is being support with 1 trillion of our money and I want it back

with plans to start selling off the RBS stake, you will, soon.

you fail to remember in 2009 that secret papers we leaked to the press showing Barclays secret division.

You mean a big international bank seeks to minimise taxes, and you’re expecting me to be 1) surprised & 2) outraged? Meh…
well we are, you arn’t. We have differing concerns. Which is why this conversation is utterly pointless.
You didn’t answer the question: Do you think business should be allowed to bring forward losses. If not, why not?

I did, you didn’t read it. No the banks should not be able to because they have a 1 trillion debt to society

The Government BOUGHT a stake + loans, which will be paid back on (ha!) Privatisation of Lloyds & RBS (which you support? No?)

but other banks like Barclays benefited through that bail-out so need to pay up too. We will never agree!

Yes. There is a bankers’ put. Which needs to be adressed by regulation, but confiscatory, retrospective taxation is not the answer. Do you even know what ‘Bankers’ put’ means?

there is just no point arguing with those who misunderstand the basics. Sorry.