Pages

Welcome, 77 artists, 40 different points of Attica welcomes you by singing Erotokritos an epic romance written at 1713 by Vitsentzos Kornaros

Tuesday, January 15, 2013

Towards a fairer capitalism: let's burst the 1% bubble | Mariana Mazzucato

Talk of a more moral capitalism is just hot air unless we rehabilitate and reward the idea of value creation

At the end of the 19th century, Big Bill Haywood, one of the founders of the US's first industrial union, made a succinct point about the paradoxes of the labour market: "The barbarous gold barons do not find the gold, they do not mine the gold, they do not mill the gold, but by some weird alchemy all the gold belongs to them." More than a hundred years on, the modern equivalent of the gold barons are still getting away with it. Evidence of this alchemy is everywhere.

In order to boost share prices – and the stock-based pay of executives and other large shareholders – Fortune 500 companies have spent $3 trillion in the last decade on buying back their stock. Such value extraction has funnelled money away from areas that can increase long-term growth – for example research and staff development – to areas that only increase the inequality between the 1% (whose rewards are linked to stock price movements) and the 99% (whose rewards are linked to investments in the productive economy). Value extraction is rewarded over value creation.

Such activities are justified in the name of "shareholder value" – an idea that even Jack Welch, ex-CEO of General Electric, has recently called "a dumb idea".

Profits from "financial innovations" based on trading existing assets – largely responsible for the financial crisis – are also on the rise. A recent New York Times report showed that hedge funds – one of the "innovations" that helped produce the crisis – are making record profits from Greek debt, speculating on the difference between debt price and value, so reducing the government's ability to invest in areas that help the recovery.

Private equity firms continue to justify their profits, calling their value-stripping exercises "wealth creation". Last year the failure of solar power company Solyndra saw $535m in state guarantees go down the drain when venture capital prematurely pulled out, yet the private equity vultures who immediately flew in made massive profits.

What can politicians do about all this? There is today much talk about making capitalism more "moral", "fair" or "responsible". But restraining the power of value extraction requires a theory of value – an area once hotly discussed in economics, but no longer. This is because a century ago the notion that labour creates value (central to the work of "classical" economists like David Ricardo and Karl Marx, and measured by objective factors like productivity) was replaced by the "neoclassical", subjective notion that satisfaction and "preferences" create value. What is important here is not to defend any one theory, but to understand the implications of going from one that emphasises production (value creation) to one that emphasises consumption (value extraction).

The neoclassical theory has served ideological ends, more concerned with justifying capitalism than analysing it. It became mainstream with Paul Samuelson's famous Economics textbook in 1948, which portrays the supply of labour and wages as primarily dependent on companies maximising their profits, and workers their preference for working versus leisure, in free markets.

It is a theory that disregards what was happening in the economy at the time, and what is happening today: in the 1930s US unemployment never fell below 15%, reaching 25% in 1933; then the second world war pulled the US out of depression, and later government spending for the cold war and the welfare state kept the US from plunging back into depression. The most productive and best-paying jobs in this period were in large corporations, many highly dependent on government spending. A theory of wages as functions of preferences and profit maximisation was out of touch then, and still is.

This is where today's politicians on both left and right should begin the debate. There is a need for a theory that identifies those factors that contribute to value creation versus those that are focused on value extraction. Or put another way, is it really possible to pursue a "pre-distribution" strategy, or a "fairer" capitalism, without first questioning the underlying model of what determines wages? Indeed, the battle against the excesses of the financial sector will remain lost without a theory able to clearly distinguish when profits move from being a result of value creation, to what is known as "rents" – a result of value extraction.

Value creation is about reinvesting profits into areas that create new goods and services, and allow existing goods to be produced with higher quality and lower cost. Investments in human capital, skills, infrastructure, and research and development create value. If we don't get this right, we will go from one bubble to the next, talking about "morality" and "responsibility" while challenging little that threatens value extraction and the inequality it generates.


guardian.co.uk © 2013 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds




READ THE ORIGINAL POST AT www.guardian.co.uk

Greek opposition warns bail outs are a 'bottomless pit'


Telegraph.co.uk

Greek opposition warns bail outs are a 'bottomless pit'
Telegraph.co.uk
He warned German taxpayers they were pouring money into a “bottomless pit” by propping up Greece, saying: “I really want the German people to know that the Greek debts are not sustainable.” His comments came alongside the clearest evidence yet of the ...
Greek leftist tells German minister reforms have failedReuters UK
Germany, Greek opposition clash on austerityHuffington Post
Greek SYRIZA leader meets with German finance ministerWorld Socialist Web Site
People's Daily Online -Fox News
all 285 news articles »

READ THE ORIGINAL POST AT www.telegraph.co.uk

Greece Women 0-3 Wales Women


BBC Sport

Greece Women 0-3 Wales Women
BBC Sport
Captain Jessica Fishlock scored twice as Wales Women beat Greece Women in a friendly international. Fishlock opened the scoring on the stroke of half-time and wrapped up a comfortable victory three minutes before the final whistle. Helen Ward scored ...


READ THE ORIGINAL POST AT www.bbc.co.uk

Global Playlist: Greece


Clash Magazine

Global Playlist: Greece
Clash Magazine
One of the oldest countries in Europe, Greece has dominated the headlines across the past 12 months. Sadly, it's been for all the wrong reasons. Financial strife and political turmoil have become linked to the nation, with a generation of young Greek ...


READ THE ORIGINAL POST AT www.clashmusic.com

Becky: Painful to see hardship in Greece


Becky: Painful to see hardship in Greece
CNN (blog)
I first came to Greece when I was 18 and I've been back regularly over the years. Why? Because Greek hospitality is second to none. I've been invited into Greek homes, shared stories over supper with families after lazy days in the sun on some of the ...


READ THE ORIGINAL POST AT connecttheworld.blogs.cnn.com

Greek shops desperate for sales boost


euronews

Greek shops desperate for sales boost
euronews
The Greek shop owners who are still in business – amid a sea of austerity and unemployment – are hoping that the start of the January sales will bring more customers through their doors. Shoppers who are suffering their sixth year of recession were ...


READ THE ORIGINAL POST AT www.euronews.com

Greek leftist tells German minister reforms have failed


Business Recorder

Greek leftist tells German minister reforms have failed
Reuters UK
BERLIN (Reuters) - Greek leftist firebrand Alexis Tsipras told German Finance Minister Wolfgang Schaeuble in brief talks on Monday that Berlin-backed reforms being pursued by the Greek government had been a total failure, pushing up unemployment and ...
Germany, Greek opposition clash on austerityHuffington Post
Greek SYRIZA leader meets with German finance ministerWorld Socialist Web Site
German FinMin urges Greek opposition to back reformsPeople's Daily Online
Fox News -Fox Business
all 285 news articles »

READ THE ORIGINAL POST AT uk.reuters.com

Archdiocese Of America Blesses New Greek Orthodox Church Cultural Center


Archdiocese Of America Blesses New Greek Orthodox Church Cultural Center
27east.com
On Sunday morning, which was perhaps as warm as a spring day, members of the Greek Orthodox Church of the Hamptons gathered outside their church for a ribbon-cutting ceremony, celebrating the opening of the Johnides Family Cultural Center.


READ THE ORIGINAL POST AT www.27east.com

Tsipras in Berlin


The Economist (blog)

Tsipras in Berlin
The Economist (blog)
ALEXIS TSIPRAS (pictured above), Greece's radical leftwing leader, has taken a bold step. Since his Syriza party became the official parliamentary opposition at last June's election, the 38-year-old political firebrand has sounded a touch less critical ...
Germany, Greek opposition clash on austerityHuffington Post
Greek SYRIZA leader meets with German finance ministerWorld Socialist Web Site
UPDATE 2-Greek leftist tells German minister reforms have failedReuters
People's Daily Online -Fox News
all 283 news articles »

READ THE ORIGINAL POST AT www.economist.com

More wasteful spending from Greece


More wasteful spending from Greece
ForexLive (blog)
i will never understand how greece got so bad, it's so small!!! like cyprus what happened there now, it's an island with 1.2 million people……there is something wrong in that area….maybe the food???? nikosm on January 15th, 2013 14:20 GMT. just 7 ...

and more »

READ THE ORIGINAL POST AT www.forexlive.com

Greek economic mood climbs to two-year high in December


Kathimerini

Greek economic mood climbs to two-year high in December
Reuters
Economic sentiment index at highest level in 2 yrs * Improved readings in services, retail trade ATHENS, Jan 15 (Reuters) - Greek consumers grew more optimistic about their economy in December as foreign lenders agreed to keep financial aid flowing to ...
Greek economic sentiment climbs to highest in two yearsKathimerini

all 4 news articles »

READ THE ORIGINAL POST AT www.reuters.com

Gunmen spray the offices of Greece's governing party


BBC News

Gunmen spray the offices of Greece's governing party
The Age
UNIDENTIFIED gunmen sprayed bullets into the headquarters of Greece's governing New Democracy Party in central Athens before dawn on Monday, adding to a wave of politically motivated violence as Greece struggles with its worst economic crisis in a ...
Greece: Shots fired at ruling party headquartersUSA TODAY
Shots fired at Greece ruling party HQ in AthensBBC News
Op-Ed: US government condemns violence in GreeceDigitalJournal.com
euronews -Fox News
all 530 news articles »

READ THE ORIGINAL POST AT www.theage.com.au

Germany's export model faces reality check

Life has been a lot tougher in 2012 for selling German manufactured goods overseas

Like Britain, Germany needs to rebalance its economy. But whereas the UK tends to live beyond its means, consuming and importing too much, Germany has the opposite problem. The sharp slowdown in 2012 growth shows just how vulnerable Europe's biggest economy is to events in the rest of the world.

After posting strong growth of 4.2% in 2010 and 3% in 2011, Germany came down to earth with a bump last year. National output expanded by 0.7%, and although Berlin has yet to publish data for the final three months of 2012 the government is pencilling in a fall in gross domestic product of around 0.5%.

Two key factors lie behind the current slowdown. Firstly, life has been a lot tougher in 2012 for German exports. The impressive recovery in 2010 was largely due to global demand for Germany's precision manufacturing goods, particularly the machine tools needed by the bigger developing countries for their industrialisation programmes. That demand cooled in 2012, with the uncertainty caused by the US fiscal cliff row further affecting export sales.

Secondly, the euro finally took its toll both of exports and investment. The sharp contraction in Greece, Spain and Portugal, together with budget cut backs and slower growth in other eurozone member states has not only fed through into weaker order books for German firms; it has also made them more cautious about spending money on new plant and machinery.

Take away exports and investment and there is not a lot to sustain German growth. The price of making German industry ultra-competitive in world markets has been a prolonged period of low wage settlements, keeping a firm lid on consumer spending. Reforms to the labour market and to the welfare state have also ensured that little of the gain from Germany's productivity improvements over the past decade have trickled down to the workers in the form of higher living standards. Unemployment, on the other hand, has come down.

So what happens next? In the short term, the deep slump across much of southern Europe means Germany is at risk of a double-dip recession. For 2013 as a whole, growth is unlikely to be much above 1% and could be lower if the euro crisis persists and the haggling over the budget in Washington continues to cast a shadow over the global economy.

In the longer term, the old challenges remain. Clearly, Germany will be the first European economy to benefit from a pick-up in global demand, as and when that happens. But it would be preferable – for German citizens, for the eurozone and for the rest of the world – if consumer spending and domestic investment constituted a bigger slug of that growth. For that to happen, though, there would need to be a change in the way Germany thinks about economics and its role in the world, and that looks some way off.


guardian.co.uk © 2013 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds


READ THE ORIGINAL POST AT www.guardian.co.uk

Greek economic sentiment climbs to highest in two years


Kathimerini

Greek economic sentiment climbs to highest in two years
Kathimerini
Greek economic sentiment rose to the highest in more than two years in December as euro-area nations and the International Monetary Fund approved the payment of bailout funds for Greece, ending months of uncertainty. An index measuring short-term ...

and more »

READ THE ORIGINAL POST AT www.ekathimerini.com

Greek borrowing costs dip in new T-bill sale


Greek borrowing costs dip in new T-bill sale
Huffington Post
ATHENS, Greece — Greece's borrowing costs are continuing to fall following the latest successful auction of short-term debt that raised (EURO)1.62 billion ($2.16 billion). The country's debt management agency says the yield on new 13-week treasury ...


READ THE ORIGINAL POST AT www.huffingtonpost.com

Protesters blockade tax offices around Greece


Kathimerini

Protesters blockade tax offices around Greece
Kathimerini
Nine tax offices around Greece were blockaded on Tuesday by members of the public -- as well as local authority officials in some cases -- in protest at Finance Ministry plans to merge tax offices in order to bring down their operational costs and ...


READ THE ORIGINAL POST AT www.ekathimerini.com

Greece sells 1.625 bln eur of 3-month T-bills, yield eases


Greece sells 1.625 bln eur of 3-month T-bills, yield eases
Reuters
ATHENS Jan 15 (Reuters) - Greece sold 1.625 billion euros ($2.17 billion) of three-month Treasury bills on Tuesday, with the yield easing from a previous auction in December, debt agency PDMA said. The sale's bid-cover ratio was 1.75, up from 1.73 in ...
Greek marker ends downCapital.gr (press release)

all 3 news articles »

READ THE ORIGINAL POST AT www.reuters.com

Greece says assured January aid tranche to be paid


Boston Globe

Greece says assured January aid tranche to be paid
Reuters UK
ATHENS (Reuters) - Greece has been assured that a 9.2 billion euro (7.6 billion pounds) aid tranche due from European lenders this month is set to be disbursed after Athens approved a series of tax hikes and other reforms, its finance minister said.
Greek bill appeasing bailout lenders is approvedBoston Globe
Greece all but secures next trancheKathimerini
Greece Approves Steps Creditors DemandedWall Street Journal
ForexReportDaily.com
all 87 news articles »

READ THE ORIGINAL POST AT uk.reuters.com

Greek hazing issues baffle campus community


Greek hazing issues baffle campus community
The Poly Post
As reported in last week's issue of the Poly Post, there have been six Greek organizations suspended for hazing since 2009. With the Delta Sigma Theta sorority being suspended in December, administrators and students alike are questioning why Greek ...


READ THE ORIGINAL POST AT www.thepolypost.com