Enough talk – five concrete ideas for a more responsible capitalism


10:30 am - January 31st 2012

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contribution by Mike Morgan-Giles

A key political battleground now exists around the issue of creating a fairer system of capitalism. Ed Miliband initiated this agenda and now both David Cameron and Nick Clegg have said they want a move away from ‘crony capitalism’ to ‘responsible capitalism’.

However, at the first opportunity – on boardroom pay – the Government failed to take the required action (introduce worker representation at board level). What we need some strong ideas to make capitalism fairer – and here are five that can achieve this:

1) Equality in educational opportunity
Capitalists often pride themselves on their belief in ‘equality of opportunity’. Yet from almost birth, many children are at a huge advantage – through education at private schools. To put this into perspective, 32% of teenagers at private schools gained three A/A*s at A Level last year, compared to just 8% in the public sector.

There should be an immediate end to the current system of tax breaks worth £88m per year and tax-deductible donations to independent schools.

Further down the line, a review should be held looking into the viability of preventing schools from charging fees and selecting pupils. Instead, a lottery style application process for places could be considered as an alternative approach.

2) Fairness over worker pay
Workers currently face a squeeze on their incomes; whilst those at the top have seen their salaries rise at a much quicker rate. The Spirit Level, by Wilkinson and Pickett, showed that countries with the most unequal pay ratios – are also the ones with the most societal problems, such as poorer health and lower educational attainment.

To change this, consideration should be given to the idea of having an earnings structure in companies which ensures the lowest paid earn as a minimum a certain percentage of the highest – perhaps 10 per cent. So theoretically, if the highest earner took home £200,000 per year, the lowest paid would have to receive a minimum of £20,000.

3) Taxation on wealth
The hoarding of private property is perhaps the most historic example of ‘crony capitalism’. It is reported that just 0.6 per cent of the population own 50 per cent of all rural land. Indeed, a core of just 1,200 ‘aristocrats’ own 20 million acres of the land in Britain (out of a total of just 60 million).

In order to change this, the Mansion Tax should be immediately implemented, whilst a Royal Commission should be introduced to consider the viability of a land-value-tax. Andy Burnham spoke frequently of the latter during his Labour leadership campaign and the tax has already existed in Taiwan, Hong Kong, Estonia and Russia.

4) An end to monopolies
The existence of monopolies is an example of market failure, and indeed, is economically inefficient and socially undesirable. Capitalists should be in favour of strong competition policy to correct the imperfections of the market; unless of course they support the crude dog-eat-dog, free-for-all of an unregulated system.

The maximum fine for being guilty of illegal anti-competitive acts should be increased to subsume a substantial percentage of the worldwide revenues of offending firms. Freedom of Information rules should also be extended to private organisations that provide public services, to ensure that their practices uphold the same high standards expected of the public sector.

5) Greater employee ownership
Co-operatives and mutuals have a social conscience, their workers are usually happier, productivity is often better than in private companies and there is greater equality in the proceeds of success. John Lewis is a prime example of this and indeed the Government has indicated that a Co-operatives Bill will be introduced in the next Queens Speech.

However, it is vital that co-operatives increase as a percentage of the private sector, rather than being used by the Government, as some suspect, as a mechanism for yet more privatisation of public services. In addition to tax breaks for new co-operatives, consideration should be given to the idea of making large companies reserve a percentage of their shares for the average worker.

Just tinkering around the edges won’t alter our existing system that maintains the status quo in which the wealthy few hold all the aces. Instead we need radical change that will put power and control in the hands of working people, resulting in capitalism for the many.

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Reader comments


Interesting, though their ‘concreteness’ is debateable, given that the political reality is pretty set against these.

The UK appears to me to be comparatively unique in the fact that the ‘capitalists’ seem to be closely associated with the archaic world of the old gentry. Crony capitalism is very apparent everywhere – I always notice the strange similarity of accents among senior management figures whenever I go to a business networking get-together. Then again, it seems that the left is also pretty dominated by posh public-school types.

I have a bit of a soft spot for providing fairer educational opportunity actually but putting the cost of an elite education beyond those who sacrifice everything to send their children there is not as simple a matter of justice as you think. Furthermore, in that these people are already unjustly paying for everyone else’s children to be educated at schools they do not use I think” Tax break” will get a horse laugh. Then there is the sheer Stalinist inhumanity of saying to people, you can be a success but you can’t help your children. Should the state really be cutting across that most vital affection ? In places where it has , bad things have happened .

Anyway what evidence is there that private schools provide any advantage aside form the social advantages the children had anyway . The left are always quick to say that allowing for input Grammars are not especially good ( not that anyone believes it )

So while it is tempting to ban Public schools , you will quickly find that you simply have more selection by wealthy post code of a type the Milliband`s used rather than just using Public school like Dianne Abbot

No the answer is more mundane , we have to start getting out moneys worth from the appalling system New Labour left the coalition .They increased spending by an adjusted 50% and made absolutely no progress( says the OECD). I think free school is the way to go , there have been some stunning successes , in Hackney for example , and if there were mores chools like that then its Labour MP might even have sent her own children to the schools she supports for everyone else

Lack of funds is not the problem .,useless teachers are the problem and if you what that to improve you have to break National pay scales beak up the NUT and spread best practice .

3. Chaise Guevara

@ 2

“Then there is the sheer Stalinist inhumanity of saying to people, you can be a success but you can’t help your children. ”

Please. Given that we’re talking about *equality of access* here, this is a classic case of ignoring half of the argument to come to absurd conclusions. Here’s how it actually plays out:

System A) “You can be a success, but you can’t use that to give your child an unfair advantage at the expense of others.”

System B) “If you’re not a success, your child will have limited opportunities even if they are academically brilliant, because the best resources are being used to help the rich kids.”

System B suddenly doesn’t look so inhuman, does it? If you don’t care about giving the children of poor families a fair chance, just grow a pair and say so instead of whining about the “Stalinist inhumanity” of equal opportunities.

“Just tinkering around the edges won’t alter our existing system”
We’ve been tinkering with capitalism now for over a century, it simply does not work, how many plasters and life-support machines does it take to conclude that the patient is dead?

5. Facey Romford

Here we are, with the whole model of free-market, Thatcherite/Reaganite/Friedmanite late capitalism dramatically dead at our feet, and people on the left are, incredibly, standing around wondering how best to reanimate the corpse. Never mind wittering on about how best to find the chimaera of cuddly capitalism: now is the time to argue for an alternative to capitalism; now is the time to argue for Socialism. People all over the world are ready for it.

Many good ideas here. I think Labour should be seizing the ‘mutualist’ agenda with both hands – the Co-operative Party is their sister party, after all, and Ed Balls is a Co-operative MP. Cameron should rue the day he ever started talking about mutualism; it will make it much easier for Labour to push in that direction. (‘He talks the talk on mutualism, so will he back our policy of…’; ‘We’re simply pursuing reforms begun under the last government…’ – this is all powerful stuff.)

Owen Jones has some interesting ideas in this area; I think he’s suggested a mutual model for the railways, with a board consisting of 1/3 workers. 1/3 passengers and 1/3 government responsible for running them. That can’t be characterised as a ‘backwards step’ to old-fashioned nationalisation; a Tory PM who says he’s all in favour of mutualism is in a pretty awkward position when it comes to opposing such a proposal. I’d like to see more work in this area, maybe on the energy companies and post office too.

Just on point 2: I still don’t see how ideas based around pay ratios within a company can work. Why is the CEO of a company whose lowest-paid employee is a cleaner on 12k only allowed to earn half as much as the CEO of a company whose lowest-paid employee is a junior graphic designer on 24k? Doesn’t that just create a perverse incentive to sack your cleaner and take on an agency cleaner (who might be lower paid and have poorer terms and conditions)?

And why is the CEO of a company with 10,000 employees (lowest earner on 20k) not allowed to earn more than the CEO of a company with 1,000 employees (lowest earner on 20k)? Indeed, what CEO is going to bother growing a company from 1,000 employees to 10,000 employees if his earnings are capped at their current level?

I’d love to think there was some way to make this work – I don’t doubt that tackling inequality should be a priority of the next Labour government – but I just don’t see how it can.

if you like the idea of number 2, you must tie it to the national median wage, or some other macro indicator, and not wages within firms. Otherwise firms will simply reorganise themselves – i.e. an investment bank will separate out all the highly paid bankers into a self-contained firm, and outsource everything else. If firm A outsources to firm B, you can’t tie wages in firm A to wages in B, because the definitions are too fuzzy – if they buy sandwiches, are they outsourcing catering to the sandwich makers?

unfortunately 2 is too hard to do. I don’t think we will ever be able to stop people paying themselves what they like if they are self-employed, so firms will just reorganize as partnerships or whatever to circumvent legislation.

What would do it? A nationwide marginal tax rate of 100% for earnings above a certain level, regardless of what form income takes? I’m sure people could dodge that too.

Allow me to restate your ideas in the proper fashion.

1) State run education is crap so we must hobble the private system that makes State education look crap.

2) What I pay the people who work for me, what I am paid by the people I work for, is a matter between us. Sod all to do with you or the government. It’s one of these things that comes under the banner of “liberty”. You know, the freedom to do as one wishes?

3) “The hoarding of private property”….oh, quite, just terrible that people can actually own things personally, isn’t it?

4) “The existence of monopolies is an example of market failure” No, it isn’t. Go and look up “natual monopolies” and even “network effects”.

“The maximum fine for being guilty of illegal anti-competitive acts should be increased to subsume a substantial percentage of the worldwide revenues of offending firms.”

It is already 10% of annual revenue under EU law for unlawful operation of a monopoly or conspiracy to operate an oligopoly.

And if we’re to do away with moinopolies then what about the likes of the NHS and Network Rail? We breaking them up too? Beause, you know, monopolies are economically inefficient and socially undesirable?

5) “productivity is often better than in private companies” This cannot actually be true. If it were then cooperatives and mutuals would have out competed private companies and there wouldn’t be any private companies left.

“unfortunately 2 is too hard to do”

I wouldn’t try to micromanage wage levels within firms. I’d simply use the tax system to deter high wages through a punitive rate (for example, 85% tax on income above 250k) even though the laffer curve predicts it wouldn’t raise money.

Obviously making this work would have to involve treating income from capital gains, dividends, inheritance etc alongside salary, so if you earned 100k from wages but earned half a million from dividends and capital gains, then 350k of that would get an 85% tax. You’d also have to have vigourous enforcement to tackle evasion and avoision, and a way of preventing the 1% simply becoming non-doms. So I can see why it would be a political non-starter.

#9 “You’d also have to have vigourous enforcement to tackle evasion and avoision, and a way of preventing the 1% simply becoming non-doms. So I can see why it would be a political non-starter.”

There is a simple solution to this problem.

In U.S. income tax is calculated on worldwide income. So U.S. citizens are subject to income tax regardless of where regardless of where they are living.

U.S. expats are also subject to the same income tax return filing requirements that apply to U.S. citizens or residents living in the United States.

In 1924 the Supreme Court ruled that taxation of the foreign-source income of non-resident citizens is legal.
Of course the obvious way to avoid this tax is to renounce US citizenship.
In recent years several thousand Americans have choose to take this course
However, in comparison to the number of US citizens who live abroad (between 3 to 6 million) they are a tiny minority.

Apart from the risks of difficulties that might arise if they needed to return home, they would not be entirely free from tax obligations.
In 1966 a law was enacted that applied a 10-year tax on U.S.-source income of individuals whose main motive for expatriation was tax avoidance.
In 2008 this was replaced with an exit tax based on the applicant’s worldwide income and assets.

As things stand it may be a non-starter but, as you say, this is to do with the balance of political forces: In practical terms it is perfectly ‘doable’.

George Hallam,

If you want to limit a country’s exposure to the world, the best way is to ensure anyone from that country working abroad is taxed twice (in the foreign country and the home country).

Good for tax revenues. Bloody awful for getting anyone to actually open their mind to the rest of the world. But then again, this is to be expected – tax is a disincentive to do things after all.

From the original post:

However, it is vital that co-operatives increase as a percentage of the private sector, rather than being used by the Government, as some suspect, as a mechanism for yet more privatisation of public services.

Somewhat mystifying, in that cooperatives are, according to the author, more efficient than private companies (not sure how that works myself – co-operatives are private companies owned by the workers, not some mystical third way), and would therefore be the most efficient way to run a public service, at least in the author’s eyes (unless you seriously want to claim that government control is in fact more effective than co-operatives). So more responsible capitalism starts out with the assumption that the most efficient and responsible form of capitalism is not suitable to offer services? Odd idea of capitalism really – sounds more like statism pretending to be something else.

#11. “If you want to limit a country’s exposure to the world, the best way is to ensure anyone from that country working abroad is taxed twice (in the foreign country and the home country).”

If one really wanted to limit a country’s exposure to the world, then I would say that the best way of achieving this would be to take away peoples’ passports. But this is by the way.

U.S. experience suggests that taxing citizens on their total world-wide income has not limited that country’s “exposure to the world”.

The practice was introduced to tax avoidance.
Given the comparatively small numbers of US expats who renounce US citizenship it seems to be effective in doing just that.

This is probably because US citizens living in high-tax countries are not asked to pay federal income tax. The only really onerous thing that expats find about the US rules is that they must complete the dreaded IRS income tax return form.

It is only expats who live under low-tax regimes who get billed.

@2 – Phrase “Stalinist inhumanity” is unfair. You can help your kids in many ways- doesn’t have to involve buying a private education for them

@4 and @5 – Understand your points, but you need to remain realistic

@6 and @7 – Interesting points on pay, clearly a complex issue. Needs more than 100 words!

@12 – Private industry is the concern and needs addressing

1) So because state schools in Britain are bad, you have to ban private education, because it makes it visible how bad state schools are? Crazy. Where I live, the state (actually, municipal) schools are good, and there is no need to ban private education. It exists but is negligible. The biggest problem in state schools is white flight from areas that are settled by 3rd world immigration, but that phenomenon is only in an early phase here.

2) That is not possible to implement effectively without going to an economic model more resembling North Korea. If you have anything that resembles free economy, the companies (or mutuals or whatever) will route their money around it by reorganising, splitting, merging and divesting. You need much more than a Stasi to implement this.

3) You can have tax on wealth, to destroy wealth, but to collect revenue, that is pointless. This will only hurt the poor.

4) Does this cover also public sector monopolies? In my experience, they are the worst kind, because you cannot do anything about them. Other than that, we already have EU-wide competitive legislation, which I agree should be improved (but I’m not hopeful, rather to the contrary, because the increasingly statist tendencies in EU mean more monopolies and more restrictions.)

5) Sure, you are free to try it. Just don’t do it by forcing others.

I shall this again: rent controls. Since many cannot now afford to buy, people are corralled into a monopoly: the private Rented Sector. Again, nobody cares or talks about housing and property.

17. George Hallam

“nobody cares or talks about housing and property.”

For anyone who is interested, here are some concrete policies that will work.

1.Empty property –
Channel4 estimate that there are 1 million empty homes of which 350,000 have been empty long term. The charity the Empty Homes Agency claim there are 30,000 vacant dwellings in London alone.

These could either be:
a) taxed to ‘nudge’ private landlords into renting/selling them.
b) commandeered/compulsorily purchased by councils and turned into council houses.

2. Build council houses.
There is a great deal of building going on in Lewisham, but most of it is at the ‘luxury’ end of the market and out of the price range of local people; so much so that one developer has opened offices in Hong Kong and Singapore to sell the flats.

3. Halt the drift South
I don’t know exactly how many million people live with a 50 mile radius of London but its a significant proportion of the population of the UK. If industry were re-established in the North, Midlands, Scotland, Wales etc. Property in those areas could be used.
Of course this requires an industrial policy.

If we’re exploring what we hope for rather than what’s likely, I have this idea in my head on fairness in wages that keeps nagging at me. How can any company be considered viable if, in the long term, it depends on staff who are paid less than a meaningful, living wage? I would define that as a wage that does not have to be topped up by benefits, tax credits and so on.

In this situation, the ‘market rate’ for those staff is clearly built on a false premise and the company is subsidised by the government.

The minimum wage doesn’t go far enough, by some measure.

ah well, back to reality…

@ (17) Rent controls. Landlord controls/training. Letting agent controls/training. And yes, yes to more council houses/social housing (NB Housing Associations are far from benevolent angels of mercy though. And their own rents are quite hight now.) Housing now take sup about half of income, instead of 25% as it did in the good old days.

20. George Hallam

“NB Housing Associations are far from benevolent angels of mercy though.”

How true.

This is not entirely their fault though.

As they now stand, the regulations make the finances of housing associations extremely precarious.

@17 George Hallam: “I don’t know exactly how many million people live with a 50 mile radius of London but its a significant proportion of the population of the UK. If industry were re-established in the North, Midlands, Scotland, Wales etc. Property in those areas could be used. Of course this requires an industrial policy.”

There’s wide agreement that Britain’s economy needs rebalancing to reduce dependence on financial services but not much on how that is to be achieved through “industrial policy”, which often appears to be little more than a ritual rain dance than anything substantive. Reportedly, the government is still in the business of providing financial assistance for expansions of manufacturing in designated assisted areas but the initiative remains with companies – the government seems not to be doing anything which can be properly regarded as proactive:

The car maker Jaguar Land Rover [now owned by Tata, an Indian multinational company, which has overtaken BAE Systems to become Britain’s largest manufacuring company] is poised to confirm this week that it will build a £400m engine plant in the Midlands that will create up to 2,000 jobs, it has been reported. [18 September 2011]

The company could announce the engine plant as early as Monday with the blessing of Vince Cable, the business secretary, after securing financial support from the government, according to the Sunday Telegraph.
http://www.guardian.co.uk/business/2011/sep/18/jaguar-factory-west-midlands-jobs

The populations of London and South East regions together comprise about 26 pc of Britain’s population.

We might as well go back to human sacrifice and worshipping trees. None of the ideas will work, for the same reasons that they didn’t work all the other times they’ve been trundled out by well-meaning, although economically-illiterate advocates.

Must try harder.

#21 thank you

There’s wide agreement that Britain’s economy needs rebalancing to reduce dependence on financial services but not much on how that is to be achieved through “industrial policy”, which often appears to be little more than a ritual rain dance than anything substantive. Reportedly, the government is still in the business of providing financial assistance for expansions of manufacturing in designated assisted areas but the initiative remains with companies – the government seems not to be doing anything which can be properly regarded as proactive:”

I agree.

What successive governments have done is pay lip service to the idea of redistributing industry across the UK. In practice there is a clash of interests between finance (aka “The City”) and industry. Over the last half century, or more, every government has favoured finance and so connived at the destruction of British manufacturing.

To make it happen we need to
1. Reduce the value of the pound.

In the Eighties it was oil exports that inflated its value. Manufacturing industry both light and heavy was crushed.

More recently thr pound has been propped up by the sale of assets and foreign direct investment (currently running at 4 percent of GDP).

The recent fall (post 2008) has helped manufacturing industry to export but our industry has been so run down that there was not the spare capacity to allow this advantage to be fully exploited. Consequently, the impact on employment has been minimal. We need a further, permanent, fall to create the conditions for the reconstruction of British industry.

This is not about a massive export led boom. A cheaper pound would allow import substitution – making goods ourselves instead of importing them.

2. Investment. Given the current state of business in Britain this is not going to happen all by itself. The state is going to have to make it happen.

3. There are various mechanisms for doing this. Here is one for recycling. There needs to be a Recycling-materials Marketing Board, similar to the old Milk Marketing Board. This would buy all recyclable waste at guaranteed price (fixed year by year). The Board would then organise their reprocessing into usable raw materials that would be sold to industry, at a loss. This would encourage the use of recycled materials. Over time the scale would increase thus improving efficiency. At some point the growing shortage of original raw materials would force up their price until recycled materials became truly cheaper. At this point the subsidy would be removed.

4. Of course, lowering the value of the pound would not be popular with the City… There may be trouble ahead.
Changing this situation will not be simple or easy. We cannot just vote for change as all the major political parties are subservient to financial interests. This is not just a matter of ideas. The Conservatives, for example, receive half of their income from banks and other financial institutions. Since the recession the Labour Party receive far less, but it is still an important source of income. Building a political movement from scratch, as we are doing with Lewisham People Before Profit, is hard, slow work. Some people are prepared to do it because the alternative is to give up and accept what might be called “the inevitable spiral into social disintegration”.

@23 George Hallam:

Industrial policy and how to do it is a huge subject. Sadly, in Britain, we don’t have an encouraging history of achievement despite the best of patriotic intentions – for example, nuclear power, where we backed the wrong technology with taxpayers’ money, and ICL, which was going to be Britain’s answer to IBM. Whatever happened to Silicon Glen?

Arguably, the most encouraging examples are: (a) the decision of Heath’s Conservative government to nationalise Rolls Royce in 1971 to save the company from collapse, turn the company around and then privatise it in 1988 for the company to go on to become a global leader in the design and manufacture of innovative jet engines for airliners; (b) getting the three largest Japanese car companies – Nissan (Sunderland), Honda (Swindon) and Toyota (Derby) – to set up manufacturing plants here; (c) possibly pharmaceuticals with GSK and Astrazeneca; (d) Silicon Fen around Cambridge, a triumph of hi-tech innovation by SMEs.

With substantive reasons, the French can claim to have been much more successful at a more-or-less continuous, non-partisan national industrial policy – but with the glaring exception of the losses chalked up by Credit Lyonnais, which was at one time France’s largest and state-owned bank.

The exchange rate of the Pound is determined by the market – neither the government nor the BoE have policies to target the exchange rate of the Pound, rightly so IMO. What policy instruments could be used to target the Pound when interest rates are set to target the inflation rate?

Historically, Britain has long been a leading global financial centre – we were earlier than other industrialised countries except, perhaps, the Netherlands, in establishing a central bank and London’s lead in financial services was pushed or pulled along by Britain’s pioneering industrial revolution.

It’s challenging to look into how Germany has managed to maintain a relatively large manufacturing sector, still contributing about 18 pc to Germany’s national GDP, when manufacturing only contributes about 12 pc to Britain’s GDP.

25. So Much For Subtlety

3. Chaise Guevara

Here’s how it actually plays out:

System A) “You can be a success, but you can’t use that to give your child an unfair advantage at the expense of others.”

No it doesn’t. It means you can’t use that success to obviously give your child an advantage. How do you stop a rich person hiring a private tutor? You don’t. How do you stop them having holidays in France with the subsequent help for little Jacinta’s French language A Level? How do you stop them buying a hell of a lot of books? They just can’t organise and do it publicly.

System B) “If you’re not a success, your child will have limited opportunities even if they are academically brilliant, because the best resources are being used to help the rich kids.”

System B suddenly doesn’t look so inhuman, does it? If you don’t care about giving the children of poor families a fair chance, just grow a pair and say so instead of whining about the “Stalinist inhumanity” of equal opportunities.

But System B is a fantasy. That is not how the system works. The best resources are not going to the rich children. Some inner city London schools spend as much per head as Eton does – for negligible results. System B is that the State cannot run schools, does not want to educate children and merely pays off the Teachers’ Unions. So the state run schools are rubbish. The solution to that is not to ban the alternatives. Poor families do not have a chance because the State is doing a poor job. Grammars would be the best solution. Failing that, I am not sure what – closing down the entire State sector probably.

26. George Hallam

“The exchange rate of the Pound is determined by the market ”

It’s not a subject for polite conversation these days, by the fact is we have a chronic balance of payments deficit.

The market is not working in a good way. Therefore the state must intervene before our economy is destroyed.

To add something I didn’t mention in the article: One reason the UK might be even more dependent on sustaining G is that (X-M) is negative in the UK, whereas Japan always had a trade surplus with net exports – until this year, in fact.

In terms of policy, I think reigning in consumer credit should be at the top of any ‘shopping list’ of reforms. This means credit cards and mortgages.

Reducing bank lending to consumers would free up capital to lend to the public sector to finance investment, while still sustaining credit availability for business. You’d also tighten up the balance of trade because consumer credit cards have a very high propensity to buy imports – widescreen TVs, computers, consumer electronics, etc.

Instead of directly massively regulating mortgages it might be more suitable to use the money we have to spend to close the output gap to build a huge number of council houses. Increasing the supply would drive house prices down, which would reduce the volume of money being lent to consumers for their mortgages, and also naturally reduce access to consumer credit off the back of falling asset prices. It would also drive down housing benefit costs by reducing private rents but also by increasing public rents. And in the long run rents would provide a stream of future income for local authorities. And obviously, it would meet huge demand and create jobs and make up the output gap.

(wrong comments thread)

@26: “It’s not a subject for polite conversation these days, by the fact is we have a chronic balance of payments deficit. The market is not working in a good way. Therefore the state must intervene before our economy is destroyed.”

Britain has a substantial, although diminishing, Current Balance of Payments deficit offset by a surplus on Capital account from inward business investment inflows and the demand for Pounds to hold for any of all sorts of reasons. Exchange rate movements reflect the prevailing balance between demand for, and supply of Pounds in the foreign exchange market.

State intervention to weaken the exchange rate of the national currency is a highly contentious issue in international affairs. China is regularly accused of artificially maintaining an undervalued currency and the effect of the Euro has been to strengthen the competitive position of Germany as the weaker EZ economies have depressed the exchange rate of the Euro: Germany outside the EZ with its own national currency restored and floating would be much less competitive.

The one sure way for Britain to depreciate the Pound in the foreign exchange markets is to continue to inflate the currency but that would also reduce the real value of personal savings deposited in savings accounts in banks, building societies and the like. I suspect that few would want to go along with that option.

30. So Much For Subtlety

26. George Hallam

It’s not a subject for polite conversation these days, by the fact is we have a chronic balance of payments deficit.

The market is not working in a good way. Therefore the state must intervene before our economy is destroyed.

We have a chronic balance of payments deficit – and have done for over the past 100 years – because of inward investment. Britain is a good place for other people to park their money.

Thus it would seem you think the government has to step in because the economy is too successful. Weird.

31. George Hallam

#30 “We have a chronic balance of payments deficit – and have done for over the past 100 years – because of inward investment.”

because of inward investment over the past 100 years?

Please check your economic history.

Predictably, SMFS has screwed up on his history again.

Britain has had a Balance of (visible or merchandise) Trade Deficit for a 100+ years but that has often been offset by a surplus on (so-called invisible) trade in services producing a near balance in Britain’s Current Balance of Payments.

Deficits in the Current Balance have usually been met through drawing on reserves and/or by borrowing short or long term – for example, London has the largest global market in foreign exchange by a margin so banks and companies maintain balances in Pounds in London to finance their regular foreign exchange transactions .

“The worldwide volume of foreign exchange trading is enormous, and it has ballooned in recent years. In April 1989 the average total value of foreign exchange trading was close to $600 billion per day, of which $184 billion were traded in London, $115 billion in New York, and $111 billion in Tokyo. Twenty-one years later, in April 2010, the daily global value of foreign exchange trading had jumped to around $4.0 trillion, of which $1.85 trillion was traded daily in London, $904 billion in New York, and $312 billion in Tokyo.”
Krugman and Obstfeld: International Economics (Financial Times 9th ed.) p.355

Britain has usually been both a major source of outward business investment (famously, the railways in north and south America in the 19th century) and the recipient of inward business investment. Through the last several decades, Britain has typically been the largest or second largest recipient of Foreign Direct Investment (FDI) after America and is usually ahead of other European countries in attracting FDI, although France occasionally comes ahead of Britain.

“19th century trade was accompanied by massive international capital movements, which were much larger relative to the size of the world economy than anything seen since WWI: in a typical year in the late 19th century, Britain invested about 40 per cent of its savings overseas.”
Source: Nobel laureate Paul Krugman: Peddling Prosperity” (Norton, 1994) p.258

The OECD was a regular data source of a league table for inward and outward FDI flows for the affluent OECD countries but I’m having trouble finding subscription free links – these days, the OECD is very keen to sell its data sources usually at steep prices.

Try this link for OECD stats for recent years on inward and outward investment flows by country:
http://www.oecd.org/document/8/0,3746,en_2649_34529562_40930184_1_1_1_34529562,00&&en-USS_01DBC.html


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