Capitalism or Communism?

The polarisation of this question generally provides only the answer the particular protagonist wants and that is an absolute. Sadly this always masks several important points, one being that neither is actually 'perfect' for everyone or for every economy. Both have serious flaws in practice. So I was recently very pleased to see the following answer to an online debate.

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Eivind Kjørstad, 

Communism and Capitalism are abstract ideas. None of them can function in a hypothethical "pure" form, because both of them carry in them the seed to their own destruction: "pure" capitalism unhampered by restrictions or government oversight would lead to crises and excesses that makes the current financial crisis seem like peanuts; you'd have people starving on the streets, and a handful of people owning everything. We already live in a world where the wealthiest 85 people on the planet own more than the poorest 3.5 billion. A world where it instead was the wealithest 10 people on the planet owning 99% of everything would not be desirable. 

But pure communism is also unworkable: attempting to remove the profit-motive never works, and if it did, the result would be a catastrophic fall in productivity and a world of poverty as a result.

Real economies are a mixture of ideas from many different inspirations, including communism and capitalism. Good governance is not about finding the ONE TRUE ANSWER and then implement it in it's purest form. Good governance is about finding a reasonably good balance between the many competing priorities.

Enough capitalism to make people productive. Enough communism to avoid having people starve on the streets. Enough capitalism to make it worthwhile to start businesses, yet also enough of a social security-net that even if the business fails, you'll still not need fear for your basic nessecities.  

It's not always a conflict, sometimes there's synergies: A good social security-net makes it easier to start a business, because that's always going to be a risky thing to do (most businesses fail in their first 5 years), and knowing that you'll still be fed even if you fail, makes it easier to accept that risk. 

So the question should not be: What is better, capitalism or communism ? 

The question should be: What is the right balance of ideas ? What are the good parts of communism, and how can we incorporate them, while minimizing the downsides ? What are the good parts of capitalism, and how can we benefit from them while reducing the downsides as much as possible?

I find this writer has summed up my own feelings on this question perfectly, the only problem is that, at present, both the 'capitalist' and 'socialist' political party types are too close to, if not in thrall too, the absolutist proponents of both philosophies.

A Century of Change ...

This year we will mark the start of an event that changed the world in ways we are still coming to terms with. The question being raised by many taking a fresh look at the events of 1914, is could it have been avoided? If it had not happened, what sort of world would we now inhabit?

Growing up in an English speaking environment, the son of an ex-serviceman, and grandson of other ex-servicemen, I grew up with the 'British' version that it was all caused by the Kaiser. That it was his ambitions, his desire to rule the world, and his desire for conquest that caused it all. As ever, the truth is a lot more complex, and a whole lot more convoluted than that. Sure this is what the British and Empire press pushed in a frenzy of patriotic fervour, but we must also remember that certain strong elements of that same Press had been whipping up anti-German sentiments since around 1890 when the Kaisers first began building an oceanic navy to defend their interests in Africa and the Far East. It spurred a naval building arms race that more or less made a war against Germany inevitable.

Recently published letters and memoirs of the British Prime Minister reveal that the Cabinet was split, and that the small government majority in Parliament meant that he couldn't afford to lose a single seat. So the 'War Party' within the Cabinet were able to hold him to ransom. What is seldom taught in the lesson I have encountered on this period, is the fact that the Kaiser, perhaps seeing the danger more clearly than those who thought a war would be quick, dashing and commercially advantageous, desperately telegraphed all the potential protagonists urging restraint. He undertook to refrain from military support of Austria if everyone else stayed out of the squabble - which Austria unwisely tried to settle by attacking Serbia. Unfortunately, the Tsar ignored the offer and mobilised his army.

I have often wondered why the Germans, with a war on the Eastern border, attacked France in the West, invading through Belgium and Luxembourg (the latter was actually an independent Grand Duchy of the Kaiser's Empire) which gave the British 'War Party' the excuse they needed. I have now learned that the attack was triggered by the French mobilising and threatening an invasion of Germany's southern states. As the Germans knew the French cherished ambitions of 'avenging' the humiliation of the Franco-Prussian War of 1871, they couldn't afford to leave that unchallenged. Interestingly, and despite latter Britsih and French historians putting it about that the Germans had been amassing weaponry and preparing for the war for ages, Germany was actually very unprepared. There was sufficient ammunition available for only a six week conflict, and it took an almost superhuman effort on the part of their industries to meet the demand once that was expended. Even their navy had so little ammunition available at the outset that a single engagement could have depleted their stopcks disastrously.

As ever, when you take a look at the history from both sides there is a lot of information revealed that makes obvious that there were a number of 'eminence grise' in the background on all sides. Britain did not need to get involved, but there were powerful voices within government, and in commerce and industry that wanted a war. Why? Some for altruistic reasons, believing it would strengthen the Empire to stamp firmly on the 'upstarts' in Europe who dared to challenge the British hegemony, others who were losing trade to German industries and hoped a war would give them an advantage, and there was the anger at the fact that, in Africa, Germany had prevented the creation of a continuous British presence "from the Cape to Cairo" with their colonies in South West Africa and Tanganika.

There were those in France who wanted to bring down the power of Germany, and restore French dominance on the Continent, and others, who, like their British counterparts, wanted German industry  and trade restricted. And then there was Russia. The last despot in Europe, the last real Emperor responsible to no one. Unfortunately, also a man given to whims of the moment who failed to see the danger of the beast he unleashed.

We have always been taught, by the history written by the 'winners' that the whole conflict was caused by 'German ambitions' and 'German aggression', but, as I said in opening, this isn't the whole truth. The 'War Parties' on all sides expected a quick and mobile war, the slogan 'all over by Christmas' was popular, but sadly ill-informed and based more on propaganmda than reality. And like most propaganda, it led to tragedy on a massive scale. In June we will mark the assassination that triggered the whole sorry mess - and launched a century of war that has all but destroyed the world and the society the men who marched across Europe in 1914 thought they were fighting to preserve.

The only victors, as ever, seem to have been those 'dark figures' in the background who saw profit in a conflict, and who are still present, at least in spirit, in our world today. It is something we should reflect on deeply.

Rearranging Deckchairs ...

I have been watching with some amusement, the latest efforts by the Home Office to 'do something' about the 'flood' of immigrants they expect to get from Romania and Bulgaria. The Home Secretary has been making noises about 'capping' the number of immigrants from within the EU, which, as the Deputy PM has pointed out is illegal and discriminatory. It seems to have escaped the notice of the British Press however, that the Danish Interior Ministry, and the Danish EU Commissioner free movement of workers within the EU has nailed the flaw in Mrs May's arguments.

The problem is that Britain has become a magnet for those looking for handouts because it has the most generous 'benefit' system in Europe, the easiest to gain access to, and the easiest to defraud. As the Danish lady said - stop trying to restrict the numbers, and fix the system that draws them in!

That, unfortunately, isn't going to happen. I know there is a huge uproar at the moment about cuts to a wide range of benefits, but the reality is that, in real terms, it is the old pea under the cup trick. While some, often the most in need of help, are losing out, the money is simply being 'rearranged' and the cheats, the idle and the manipulative aren't losing out. The 'rights' lawyers are having a ball, and raking in cash left right and centre 'fighting' for the handouts to migrants from non-EU countries and 'vulnerable minorities' while the pensioners, disabled, and chronically sick who don't have the connections, bear the brunt of it.

Parliament can, in the meantime, award itself a pay rise, bigger pension benefits and expenses claims, but is afraid to tackle the root cause of much of the UK's financial woe - the out of control 'benefit' system. To pay for this the last government raided Pension Funds, destroying some, reducing others to near bankruptcy and accusing all pensioners of 'being a drain on the economy'. A bit rich from a bunch of professional parasites sitting on gold-plated pensions themselves, especially as 'Pensions' are not a 'Benefit'. Everyone in receipt of one has contributed toward it through their employer, through their tax and through direct contributions. In my own case an average throughout my working life of 5% of salary in direct contribution, an amount matched for most of that time by my employer. So called National Insurance is supposed to pay for 'Unemployment Benefit', pensions and, some think, the National Health Service. It currently runs at 11% of earnings, plus an employer's contribution, but most of it simply vanishes into the Whitehall Black Hole. It is not, and never has been, an 'insurance' in the same sense as a policy taken out with an insurance company, nor has a single penny of it been invested for the future.

So now we have the spectacle of politicians having set up systems to 'redistribute' wealth from some, to those they and their civil servant chums consider 'deserving' and blaming those who have paid toward pensions and security for their families, being blamed for it being unaffordable. So now they resort to fraud and deceit to find solutions. One is the move to change the Fire and Rescue Service Pension age to 60. There were, and still are, very sound medical grounds for the present maximum retirement age being 55. The Minister is being misinformed, or possibly disingenuous when he says that any fire fighter forced to leave the service before age 60 will still get a full pension. The fact is that they won't. In fact many may have to leave the service at 50 - and will lose 10 years value from it. This is in the 'Report' the relevant department cooked up - it actually admits that potentially 91% of fire fighters won't be able to meet the fitness standards at age 50 or lower!

The fire fighters are an easy target, they're high profile, and their pension scheme appears very generous, so it is easy to spread the lie it 'isn't earned'. I note the politicians aren't admitting that the fire fighters pay 11% of income into it over their 30 year careers - money that is not - again - invested, but spent by the Local Authority concerned to 'redistribute' wealth on pet projects. I was particularly angered to note on a forum I frequent, that a non-Fire fighting "Area Manager" (Old money equivalent of a Senior Divisional Officer/DO I) 'managing' that other great shibboleth "Human Resources" was arguing that fire fighters should accept that the service isn't a 'lifetime career' any longer, and the pension benefits were too generous. Rich, considering that she has parachuted into the service at the same pay as the fire fighter who used to manage that function, and is now likely to draw the pension she and others like her are trying to deny the 'resources' they are supposed to take care of.

As I said, the fire fighters, police, soldiers, ambulance workers and other 'service' personnel are easy targets. They are relatively small in numbers, so the politicians can afford to sacrifice their possible votes. Likewise the ill, the aged and the disabled. What they will NOT tackle is the massive handout culture they have created since 1909 when the 'universal pension' was first introduced. Since then we have seen 'benefit' after 'benefit' added to the list, and alongside of that we have seen the growth of industries to preserve them. So we have the 'human rights' lawyers, the Union Lobby, the Student lobby, the minorities lobby and so on - all of whom defend their particular interests with threats of disruption or mayhem if there is any attempt to address some of the imbalances that have arisen.

Pensioners are still painted as 'abusing' the system even though they have, in the main, paid for what they get. So do many of the younger folk now facing retiring (if they can) at 67, 69, 70 or later. The Danish Minister is right, Britain needs to tackle the culture of 'benefits' that are creating the unrealistic expectation of being able to live comfortably on these handouts for life without ever having to work. Only then will the 'migrancy' problem go away.

Unfortunately, that is the least likely course of action the present or any future government will take.

Economic Disaster Looming

Yesterday's video clip from MoneyWeek got me digging. What I have turned up (far from a complete picture I confess) has got me deeply concerned. There was some further fuel added late last night when I read a report that one of the largest circulation Chinese daily papers ran an editorial basically saying that China didn't need Britain, "a small and no longer significant nation that has impoverished itself and has nothing to offer China". Sadly, I suspect they may well be right on the money despite the Prime Minister's much vaunted 6 billion pound trade deals. I note he didn't say which way the 6 billion would be going - to Britain or to China.

We should all be deeply concerned by the fact that our National Debt has shot through the 'billions' and is now over 1.4 trillion Pounds. We need to be even more concerned over the fact that, despite the much vaunted 'cuts' in all manner of 'services' and 'benefits' the overall spending in Whitehall has actually increased. This is not a new phenomenon, Whitehall 'cuts' and 'savings' always seem to translate into increases in their overall budgets. All talk of 'value for money' almost invariably means a reduction in delivery and a massive hike in the cost of whatever it is. Th awful truth of our National Debt is that it is over 9x the National GDP. Put another way, the Demand on the "Money Supply" is 9 times greater than the Supply. This can't go on.

But the terrible truth is that neither Parliament (the prime source of the problem) nor Whitehall are capable of dealing with it. Even if they wanted to, the truth is that the either haven't a clue as to how to do so, or, they are afraid to.

So what will happen if the country runs out of money? Who will really suffer?

My studies of the late Roman Empire and its collapse revealed that the majority of Middle and Working Class folk were the first victims. The rich and powerful carved out little fiefdoms for themselves, hired soldiers and sat tight, the middle classes and the workers found themselves being squeezed for massive tax demands, then for 'protection' and finally surrendered their property and liberty just for food and shelter. The wealthy families survived, eventually becoming, through marriages, 'little' wars and adoption of the tactics of the barbarian invaders, the 'noble' families who ruled Europe until the wars of Revolution in the 18th and 19th Centuries.

I suspect something similar is about to happen in Britain.

Let's take a look at what will happen if the government can no longer service its debt and the money supply dries up. As in Greece, the first to be hit will be those who depend on the State for their income. Civil Servants, teachers, doctors, nurses, fire fighters, police, soldiers, sailors and airmen, pensioners, the disabled, students and the unemployed. Health services will be crippled, those with debts, mortgages, loans and so on will no longer be able to pay for them. Unemployment and homelessness will soar, so will the need for food depots, child protection and so on. Some communities, where there is a strong community support ethic (the Muslim groups come to mind) will survive by coming together and taking care of their own as they do in the Middle East and elsewhere, the richer members of families providing the basics for the less fortunate. For the rest, used to "The Government" providing everything, there will be a major problem as the Greeks have discovered. You can't feed a family out of grow bags on the balcony of a flat, you might if you have a greenhouse or an allotment, but both of those will become very vulnerable to the desperate hungry who don't have access to such facilities themselves.

There will be riots over the cessation of 'benefits' and certainly the likes of the National Union of Students will embark on campaigns of anarchy over their Student Grants and Loans being stopped. They will be joined by others dependent on the hand-out culture we have created, and both will simply make the situation ten times worse. We can be sure a number of expensive projects will cease. The new aircraft carriers being one, but others will include things like road maintenance, keeping the rail infrastructure up to date and so on. Health care will become basic - unless you can pay for it yourself - and we can expect fuel to become increasingly expensive and scarce. That will mean cold homes for many, which, coupled with minimal food supplies will mean a rise in deaths from disease and the cold.

While Whitehall will desperately target all the 'High Profile' projects and Services (Fire, Military, Student Grants and Loans, Pensioners and so on) they will be saving 'pennies' simply because they will not dare to tackle the real cause of the problem - the major slice of the money we overspend from the Treasury goes on the 'Welfare Benefit' handouts and the massive Whitehall machine that administers it. Defence, even including the new carriers, is under 2% of our GDP, less than most of Europe spends, half what the US spends (in equivalent terms) and less than a quarter of what many Middle Eastern and 'Developing' nations we currently give Aid to, spend. By contrast, according to some sources (it is difficult to make sense of some figures since the 'benefits' now handed out are spread across several Departments and not, as one would think, under one umbrella) our 'Welfare' bill accounts for around 50% of GDP!

So far all the 'austerity' measures have done little more than rearrange the deck chairs on this sinking ship. The HMRC (as a friend discovered this week) is so desperate to find extra money they are now 'auditing' pensioners in the hope of finding hidden billions in undeclared savings. As my friend reported, the pennies they do find are far outweighed in real terms by the cost of these 'teams' chasing them. Those who do have the sort of money the HMRC would love to tax have it where it can't be got at, or have used all the loopholes in the Tax book to protect it. The only option now for the Treasury is to 'nationalise' all the 'private wealth' such as savings and private (invested) pension funds as has been done in some of the Eastern European countries trying to get their debt under control.

It is obvious that this situation cannot continue. We're broke, living on the Credit Card and praying for a Lottery win. Parliament can't fix it, Whitehall won't. So, sooner or later, we're going to go bust. All most of us can do, at this stage, is hope and pray we can weather the catastrophe somehow, and make sure that the government can, in the end, be remodelled, its powers to give away what isn't theirs in the first place restricted and at least some of the best of our society and culture salvaged.

It isn't a good picture, and the troubling part is that it is very likely that those who caused it all will be the ones who survive with wealth and power intact.