Quote of the Day

I keep wondering about this too.

Termite capitalism: the menace of private equity

Terrific essay in open Democracy on one of the most pernicious manifestations of capitalism.

The problem is that the private equity model of takeover and ownership is akin to inviting termites into your house. The basic model is as follows: private equity acquires a company using loans, usually from banks but also increasingly from pension funds, insurance companies, sovereign wealth funds etc. The old management is replaced, the workforce cut, and assets such as land and buildings are sold, often to an entity registered in an offshore tax haven. The new company must pay interest on the debt, repay the debt over time, pay rent for the premises, management fees to the private equity owners.

Costs will also include payment to linked third-party suppliers, at prices which are not arm’s length. The taxable capacity of the new company is thereby reduced, and tax liabilities are shifted towards capital gains tax away from corporation tax. The company can only be financially viable in a booming market or where revenue streams continue to rise.

In general, private equity does not actually create anything – it engages instead in extracting resources from previously existing assets. Eventually, by excessive extraction of revenue flows, the companies are bound to fail. The termites eat away at the foundations until the house falls down.

If ever one wanted a demonstration of the extent to which neoliberal ideology is suffused through our ruling elites, then tolerance of private equity provides it. The argument that it’s really a way of ensuring the survival of the fittest in corporate life is specious — at least in its present manifestations.

The Long Shadow Of The Future

Yesterday was the 100th anniversary of the death of Max Weber, the patron saint of the administrative state. Wolfgang Drechsler has a nice essay to mark the occasion.

“Weberian public administration in the wider sense”, he writes,

has been, and is, much maligned; bureaucracy is an easy target, and whining about it is a steady feature of complex human societies which always need and automatically generate it. And Weberian public administration has its systemic faults — slowness, process-orientation, a slippery slope to authoritarian, mindless hierarchization and shirking. However, this bureaucracy is in its optimal form ethics-based, high-capacity, and motivation-driven. It is meant to be both responsible — to a state that is above and beyond particular interests — as well as responsive — to groups and citizens, but not at the cost of the commonweal.

However we decide to manage the transition to a CO2-neutral world — via Green Growth or Post-Growth — that process will have to be implemented by competent, motivated, and yes, Weberian civil servants.

Yep. And the problem was that neoliberal ideology never believed that this kind of civil service was valuable. (One of its more fanatical American devotees used to say that his ambition was “to shrink the state until it was small enough to be drowned in a bathtub”.) So its devotees (including Margaret Thatcher) imported economic principles and management theories into the administrative state without recognizing the crucial, fundamental differences between public and private, not least as regards value creation.

As a result, writes Drechsler, “We still stand in front of the smoldering ruins of a capable, responsible state … and we are still paying a high price for it.”

And how! The pandemic has vividly demonstrated this — especially in the cases of the US and the UK. We have discovered that these states lacked the capacity to deal with the crisis because, over preceding decades, that capacity had been eroded or (in the case of the US) actively destroyed, especially during the Trump presidency — as Michael Lewis described in his sobering book, The Fifth Risk.

Which brings us to a remarkable long essay by Nils Gilman and Steven Weber on how different kinds of states have responded to the challenge of the virus. They focus particularly on Taiwan (which did well) but draw some really interesting general conclusions from their survey.

Poor policy reactions to the COVID-19 pandemic aren’t the result of a failure of imagination; the pandemic was not a black swan event, and it was not unpredictable. It was entirely foreseeable — and foreseen — by a wide variety of government, business, medical and other foresight professionals. For years, the World Economic Forum hosted pandemic preparedness planning events. Even if we didn’t know when and precisely how, we knew something like COVID-19 was coming.

The real challenge is not foresight itself but how to turn foresight into action — specifically, into operational readiness supported by competent operators. The inability to contain the COVID-19 outbreak signals a failure to take seriously the outputs of our own foresight models by acting to create contingency arrangements, manage risks and secure back-up plans in advance, in a sustained manner and without a precise target date or endpoint.

This failure has taken place in Italy, Iran, Spain, England, Sweden, the U.S. and elsewhere; authoritarian, conservative and social democratic governments alike have been overwhelmed. And because we live in a time of rapid and intensive global flows of people and products, multiple national failures compound inexorably into a global failure. In the words of President Eisenhower: “Plans are worthless, but planning is everything.”

And why have a small number of countries, like Taiwan, been able to manage the crisis better than others?

Nils and Weber identify a “distinctive mix of governance attributes” —

at once vigorously participatory, highly trustworthy, competent and with careful plans. In 2004, the year after the SARS epidemic, which was widely seen to have been mishandled, the Taiwanese government established the National Health Command Center as “a disaster management center that focuses on large-outbreak response and acts as the operational command point for direct communications among central, regional and local authorities.” Five years later, Taiwanese health officials staged simulated drills as a capability exercise. Simulations revealed the tensions and miscommunications between different levels of government and agencies during a crisis, allowing officials to develop heuristics for overcoming such problems in advance.

One of the most intriguing ideas in this marvellous essay is the way it highlights the difference between ideas and delivery. “One of the less-positive effects of digital social media over the last decade”, they write,

has been to contribute to a set of mythologies about the special value of ideas. Ideas are of course powerful and ultimately the source of innovation and social change, but the pandemic is revealing a sharp difference between power and value. In a landscape where there are plenty of ideas — good and bad and mixed in terms of quality, and often hard to distinguish — value tends to migrate toward what is relatively scarce. And what’s been shown to be relatively scarce right now is competent operational expertise.

Put simply, ideas are cheap and easy to create and distribute — never more so than on social media platforms. But really knowing how to get things done effectively requires a set of capabilities that are difficult to create, expensive to maintain and improve, and not something you describe in 280 characters. Pandemics and other mass emergencies and mobilizations like wars demonstrate the difference in sharp relief. The ability to execute becomes visibly more important than the ability to ideate. What’s more, the best ideas are rarely discovered in isolation from practical implementation. Improvement depends on concrete feedback from what happens when ideas are put into practice in the world. What works and what doesn’t reveals itself to operators before (and often more clearly than) it reveals itself to idea generators.

Wow! This summary has just scratched the surface of an extraordinary essay. Which is why it’s worth reading in full.

29-hour reading of Ulysses to air on RTÉ radio tomorrow!

If you’re an admirer of James Joyce (like me), tomorrow — June 16 (Bloomsday) — is the most important day of the year.

For over 20 years I’ve hosted a lunch to celebrate the writer and his wonderful novel. We gather, drink burgundy and eat gorgonzola sandwiches — just as Leopold Bloom did in Davy Byrne’s pub — at lunchtime in the novel. And read from the book.

Sadly, this year the virus has put paid to that event. I had pondered trying to do a virtual Bloomsday lunch over Zoom, but decided it was too ridiculous and depressing to contemplate.

But — here’s some good news. RTE, the Irish national broadcasting station, is going to broadcast a marathon reading of the novel, starting at 8am tomorrow, the moment when the novel opens in the Martello Tower in Sandycove, south of Dublin.

Here’s the link. Use it wisely. Hope you enjoy the day.

Quarantine diary — Day 86

Link

This blog is also available as a daily email. If you think this might suit you better, why not subscribe? One email a day, delivered to your inbox at 7am UK time. It’s free, and there’s a one-click unsubscribe if your decide that your inbox is full enough already!