The unowned public corporation

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Good column by Will Hutton on why the notion of “shareholder control” is a myth. Sample:

Banks have grown this large, complex and profitable because, like all plcs in our times, they are not owned by a mass of responsible, long-term shareholders who care for their purpose, sustainability of business model or wider economic obligations. Their overriding concern is high returns on equity. Long-term investors such as Standard Life, which voted against Barclays bonus hikes, are now a tiny minority. The majority of shareholders are hedge funds or multitrillion global asset management groups. They don’t own companies: they either trade them like casino chips or use them as temporary ports of call for their money. A bank CEO such as Antony Jenkins at Barclays has to tread a path between appeasing these non-owners and creating a bank that builds long-term value: if he falls, be sure Barclays will be under enormous pressure to replace him with another Bob Diamond, who will go all out for short-term profits and sky-high bonuses come what may.

The emergence of the ownerless corporation seeking to maximise short-term profits is now the key feature of modern capitalism. But “unowned” banks, unlike other PLCs, engage in the unique business of creating money and credit, knowing that governments must ultimately stand behind them if anything goes wrong. This guarantee always meant there would be a bias to increase credit as a share of GDP: between 1950 and 2000, it doubled in the major industrialised countries.

But between 2000 and 2010, as short-term profit maximising banks became the norm, credit doubled again in scale. By the time of the banking crisis, returns on equity had more than doubled as all this lending had been supported with ever less capital – bankers trading on the implicit government guarantee but delivering the returns their shareholders wanted. Moreover, much of this credit has been directed to lend to property in every country, rather than risky new investment.

Modern banking, as Adair Turner pointed out in an important lecture at the Cass Business School last month, has become an engine for credit, leverage and property price inflation. Britain, with its companies uniquely “unowned”, uniquely focused on the share price and its economy uniquely organised to favour finance over industry, was inevitably going to be the most acute example of the trend.

Q: Is Nigel Farage (a) a phoney or (b) a hypocrite?

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Answer: both — as Nick Cohen argues in a terrific column about the Ukip leader.

When considering Ukip, we should remember the advice of Lord Renwick, a Foreign Office mandarin and Labour peer. He told young diplomats from good families that their background made them suckers for “the Wykehamist fallacy”. When they went abroad, they were in danger of believing that foreign potentates merely struck blood-curdling poses for effect. For all the bombast, they would think that, underneath, these must be civilised men with an ironic sensibility who might have been educated at Winchester. “They haven’t,” said Renwick. “Actually, they’re a bunch of thugs.”

The same should be said of Ukip.

Yep. I’ve seen Farage in action in the flesh. Nick calls him “England’s greatest living hypocrite”, and that seems about right (though there is fierce competition for that title).

He courts popularity by warning that tens of millions from the dole queues of Europe are coming to take British jobs, while employing his German wife as his secretary. He denounces “the political class” for living like princes at the taxpayers’ expense while pocketing every taxpayer-funded allowance he can claim for himself, his wife and his colleagues.

He says he represents “ordinary people”. But he is a public school-educated former banker, whose policies will help him and his kind. He claims he is the voice of “common sense”, while allying with every variety of gay-hater, conspiracy crackpot, racist, chauvinist and pillock. The only sense he and his followers have in common is a fear of anyone who is not like them.

So the question is: why have Britain’s famously aggressive mass media not torn this phoney to shreds? Could it be that he voices many of their proprietors’ (and editors’) own views?

Inflection points and advanced robotics

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This morning’s Observer column.

Not often do you hear a Newsnight presenter using an arcane mathematical term, but last week was an exception. The culprit was David Grossman, who made an excellent film for Newsnight about the threat to employment from advanced robotics. In the course of this, he made the standard pilgrimage to MIT to interview Erik Brynjolfsson and Andrew McAfee, who have made much of the running in this area with a number of books, of which the most recent is The Second Machine Age. Their argument, said Grossman, was that our society has reached an “inflection point”, a concept beloved of those who studied differential calculus in their youth, but probably unfamiliar to the average viewer.

Still, that’s what Wikipedia is for. A point of inflection, it explains, is a point on a curve at which the curvature or concavity changes sign from plus to minus (or vice versa). Since this sounds like a smaller deal than the wholesale upheaval prophesied by Brynjolfsson and McAfee, Grossman might have got more mileage out of “tipping point”, which, though different to inflection, seems to me to get closer to the nub of the question.

Read on

Guess what? US ‘democracy’ won’t cure rising inequality

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Well, well. Hot on the heels of the English translation of Thomas Piketty’s magnum opus comes this report of a new study by Martin Gilens and Benjamin Page from Princeton. Excerpt:

Money buys power.

That’s the bottom line of a new study from Princeton University political scientist Martin Gilens, who looked at 1,779 U.S. government policy decisions between 1981 and 2002. Gilens found that the preferences of the median earner had no impact on whether policies are adopted — but that politicians march in lockstep with what the top earners wanted.

You may think you’ve heard that conclusion before, but Gilens’s approach is unique, and that makes his findings all the more important. Gilens didn’t take one theory of who has political influence and test it with data, as does almost all of the research on this topic. He tested the power of the rich, middle class, and interest groups simultaneously, allowing for any theory to win or lose. That is new.

And here’s the real danger of what Gilens finds: It means that the U.S. political system is set to transform the dramatic rise of income inequality into entrenched differences in political power — and there’s very little the middle class can do to stop it from happening.

There is, in other words, an inequality feedback loop built into the U.S. political system — and America may be spiraling into it. A policy that enriches what Gilens calls the “economic elite” will command its support. Their support, Gilens shows, means that the political system is likely to make it happen. And the ever wealthier become the ever-more powerful. Policies that undermine the elite become ever more difficult to pass as economic inequality buys political obedience.

Book Review: ‘The People’s Platform’

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My Observer review of Astra Taylor’s The People’s Platform: And Other Digital Delusions.

The launch of the Mosaic browser in 1993 transformed the internet into a mainstream medium and brought the corporate world online, so from then on the die was cast. What happened is that the two universes effectively merged, so we now live in a strange amalgam of meat- and cyberspace in which the elements of each run riot. A virtual space that once had no crime and no surveillance has become one with an abundance of each; and the “real” world has been destabilised by the astonishing power and properties of networks.

Yet public understanding of the implications of this convergence lags some way behind the emerging reality, which is why we need books like this. Astra Taylor is a talented documentary-maker who was dismayed by the way her work was appropriated and pirated online. But instead of fuming silently in her studio, she set out to seek an understanding of the paradoxical world that the merging of cyberspace and meatspace has produced. What she finds is a world which is, on the one hand, hooked on an evangelical narrative about the liberating, empowering, enlightening, democratising power of information technology while, on the other, being increasingly dominated and controlled by the corporations that have effectively captured the technology.

The big question about the net was always whether it would be as revolutionary as its early evangelists believed. Would it really lead to the overthrow of the old, established order? We are now beginning to see that the answer is: no. We were intoxicated by the exuberance of our own evangelism. “From a certain angle,” writes Taylor, “the emerging order looks suspiciously like the old one.” In fact, she concludes, “Wealth and power are shifting to those who control the platforms on which all of us create, consume and connect. The companies that provide these and related services are quickly becoming the Disneys of the digital world – monoliths hungry for quarterly profits, answerable to their shareholders not us, their users, and more influential, more ubiquitous, and more insinuated into the fabric of our everyday lives than Mickey Mouse ever was. As such they pose a whole new set of challenges to the health of our culture.”

Innocents abroad

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“An Ambassador”, says the old joke, “is an honest man sent abroad to lie for his country”. The only US Ambassador I’ve met was a Californian automobile salesman. (Well, he owned a whole string of dealerships, and I guessed owed his position not to mastery of statecraft but to the size of his campaign contributions.) It was during the Iraq war and he gave a public lecture which never once mentioned the war. And then I forgot all about him, until I came on this piece in Politico by James Bruno arguing that one reason the Kremlin is running rings round the US in Europe is the relative incompetence of American ambassadors compared to their Russian counterparts.

Bruno examines the diplomatic representation of the two countries in three critical European capitals: Berlin, Oslo and Budapest.

Berlin

The Russian ambassador to Germany, Vladimir Grinin, who joined the diplomatic service in 1971, has served in Germany in multiple tours totaling 17 years, in addition to four years in Austria as ambassador. He is fluent in German and English. He has held a variety of posts in the Russian Foreign Ministry concentrating on European affairs. Berlin is his fourth ambassadorship.

The U.S. ambassador to Germany, John B. Emerson, has seven months of diplomatic service (since his arrival in Berlin) and speaks no German. A business and entertainment lawyer, Emerson has campaigned for Democrats ranging from Gary Hart to Bill Clinton. He bundled $2,961,800 for Barack Obama’s campaigns.

Oslo

Vyacheslav Pavlovskiy has been Moscow’s envoy in Oslo since 2010. A MGIMO graduate and 36-year diplomatic veteran, he speaks three foreign languages.

President Obama’s nominee as ambassador to Norway, hotel magnate George Tsunis, bundled $988,550 for Obama’s 2012 campaign. He so botched his Senate Foreign Relations Committee hearing in February with displays of ignorance about the country to which he is to be posted that Norway’s media went ballistic and he became a laughingstock domestically. He is yet to be confirmed.

Budapest

Russian envoy Alexander Tolkach, a 39-year Foreign Ministry veteran and MGIMO alumnus, is on his second ambassadorship; he speaks three foreign languages.

Colleen Bell, a producer of a popular TV soap opera with no professional foreign affairs background, snagged the nomination of U.S. ambassador to Hungary with $2,191,835 in bundled donations to President Obama. She stumbled nearly as badly as Tsunis before her Senate hearing with her incoherent, rambling responses to basic questions on U.S.-Hungarian relations. She also awaits Senate confirmation.

The wit and wisdom of Vladimir Putin

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“There are three ways to influence people: blackmail, vodka, and the threat to kill.”

President Putin quoted in an article by the Russian muckraking journalist Artyom Borovik who died in 2000 in a still-unsolved Moscow plane accident days after producing a scathing article about an ascendant Russian politician, one Vladimir Putin, who was about to become president.

Source

How to Save Ukraine

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Keith Darden has really good piece in Foreign Affairs arguing that

inattention to Ukraine’s internal demons reflects a dangerous misreading of current events; the struggle between Russia and the West has been a catalyst, but not a cause. The protagonists in this conflict are subnational regions. The EU association process, and especially the protests, repression, and revolution that followed, activated very deep and long-standing divisions between them. Unless Kiev deals with its regions and installs a more legitimate, decentralized government, Ukraine will not be won by the East or the West. It will be torn apart. 

Since the problem is an internal Ukrainian problem (and remains so, despite Russia’s annexation of Crimea, the presence of tens of thousands of Russian troops on the country’s borders, and the seizure of city administrations throughout eastern Ukraine by pro-Russian groups), the solution will also be Ukrainian. The country might not be able to fix its centuries-old divides, but it must finally craft institutions to accommodate them. 

Later on in the piece he documents the extent to which regional rivalries threaten to wreck the country — and provide excuses for Russian intervention — unless they are addressed creatively by the regime in Kiev.

Why Facebook and Google are buying into drones

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This morning’s Observer column.

Back in the bad old days of the cold war, one of the most revered branches of the inexact sciences was Kremlinology. In the west, newspapers, thinktanks and governments retained specialists whose job was to scrutinise every scrap of evidence, gossip and rumour emanating from Moscow in the hope that it would provide some inkling of what the Soviet leadership was up to. Until recently, this particular specialism had apparently gone into terminal decline, but events in Ukraine have led to its urgent reinstatement.

The commercial equivalent of Kremlinology is Google- and Facebook-watching. Although superficially more open than the Putin regime, both organisations are pathologically secretive about their long-term aspirations and strategies. So those of us engaged in this strange spectator-sport are driven to reading stock-market analysts’ reports and other ephemera, which is the technological equivalent of consulting the entrails of recently beheaded chickens.

It’s grisly work but someone has to do it, so let us examine what little we know and see if we can make any sense of it…

LATER: Seb Schmoller, struck by my puzzlement about why Facebook had bought Oculus Rift, sent me a link to an interesting blog post by Donald Clark, who has experience of using Oculus kit.

I’ve played around with the Oculus for some time now – played games, roared around several roller-coasters, had my head chopped off by a guillotine, walked around on the floor of the ocean looking up at a whale and shark, floated around the International Space Station using my rocket pack.
Why do I think it matters? It’s possible, just possible, that this device, or one like it, will change the world we know forever. It will certainly revolutionise the world of entertainment. Flat screen TVs have got as big and sharp as they can get. It is clear that most people do want that big, panoramic experience but there’s a limit with 2D. Climb into that screen, which is what the Oculus allows you to do and you can look around, upwards, over your shoulder. You can them move around, do things and things can be done to you. It’s mind blowing.

The problem that Oculus has is getting to market quickly. Kickstarter was fine, for starting. Sony is right on their shoulder with project Morpheus. With this money they can accelerate R&D, have a massive marketing push and keep the price right…

His conclusion:

This is not only a ‘game’ changer, it’s an experience changer. It will change the way we spend our time, expand our experience and acquire skills. I’ve seen the effect it has with children, teenagers, adults and pensioners. It’s an experience, even at low resolution that can change your life, as you know, when you’ve tried it that it’s coming and when it comes it will be all-embracing. Facebook already has the world at its feet with 1.5 billion users, it now has the world on its head.

Translation: maybe the acquisition make more sense than I though.