On Brexit, A Scenario

I was talking over lunch with the finance director of one of our
larger companies about Brexit. He ought to have more idea on this than
I do.
What happens next? One scenario: May finally capitulates to pressure
from Tory Outers, say next January, and triggers Article 50, or
whatever you do with the wretched thing.
So come January 2019 the UK is no longer in the EU. It is
inconceivable that the necessary trade deals with EU members can be concluded by then.
I am a manufacturer who wants to ship my goods to my regular customers
in Germany. Does the German state impose tariffs? Not in their
interest, if it risks similar action by UK Govt. They still want to
sell us Mercedes.
If I were manufacturing in Norway, outside the EU, no problem because
the necessary trade deal is in place, as I understand it. But come January 2019 there will
be no UK-Germany trading pact.
Another complication: a huge chunk of our “trade” with the EU is
actually goods shipped to Rottedam and then sent elsewhere, to places
where we presumably have trade deals. Is that affected?
My point is that no one knows the answer to any of this. Neither me, nor
my lunch companion. It would be an utterly irresponsible act by UK Govt to
trigger Article 50 until we do, given  such huge uncertainty
So here is another scenario. We send those charged with bringing about Brexit with finding out the answers to those questions. That should keep them busy. We stagger on in this Heisenbergian state, in but potentially out, for three years and then both parties go to the election with a commitment to staying within the EU, given those uncertainties. Which is what most of the country actually wants. Boris could change his mind again.

The Tory right erupts, but none are going to vote Labour. Ukip is a busted  flush. The Daily Mail has an aneurysm. The next (Tory) government carries on with the UK in the EU. The last four years look like a bad dream. Bobby Ewing waking in the shower.

(Is that right? My grasp on some parts of popular culture is a bit vague.)

 

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On Catching Up

I don’t tend to follow the news much on holiday. Anyway, while I was away and since I got back to the UK, various things have happened.
To take a few. The Bank of England has cut base rates from almost nothing to a bit
less. This means our pensions, which were unaffordable, are now
slightly more unaffordable.
The Government has this summer decided, as a consequence of a vote the
result of which the majority of the country now regrets, that any
attempt to bring the country’s finances into balance is no longer
worth attempting. See the above, re pensions.
A hospital in Grantham is no longer offering a 24 hour A&E service. Not, not enough money, but not enough doctors, however much we are prepared to pay them.
Spending on the NHS is rising by 1 per cent a year. The amount that
needs to be spent, because of our ageing population and our refusal to
stop eating ourselves to death, is rising by 3 per cent plus. This is
going to end how?
A review of the banking system which has run for several years has
come to the conclusion that there is nothing much wrong with the banking
system. The man responsible was on R4 Today defending this conclusion.
Not terribly well.
Nothing that has happened over the past decade would lead one to the
conclusion that there is anything wrong with the banking system,
would it?
The Government has decided to delay the decision to build new
electricity capacity that will be desperately needed in half a decade because it
is always easier to delay a decision than to take one. As it happens,
I think that new Hinkley Point plant is the wrong solution to that
problem. But to solve it, we have to decide to do something. Not
nothing.
This means the lights will start to go out about when the country runs
out of money and the pensions of people now nearing retirement prove to be inadequate. That will make for an interesting couple of months, won’t it?
Oh, and staff on Eurostar are going on strike over the Bank Holiday, thereby
screwing up any number of people’s summer holidays. Their reason? With no sense of discernible irony, they are unhappy about their work/life balance.
Welcome home.

On The Purpose Of Money

“The man who dies rich, dies disgraced.” Andrew Carnegie, US robber baron and philanthropist.

“Oh my friend, why do you… care so much about laying up the greatest amount of money and honour and reputation, and so little about wisdom and truth and the greatest improvement of the soul, which you never regard or heed at all? Are you not ashamed of this?” Socrates, ancient Greek philosopher.

Let us suppose, as a pure thought experiment, that you have £3,000 in your bank account. The mortgage is paid, the grocery bills are met. You have no real pressing need of the money, and plenty more is coming in. You have the option of paying £500 to a good cause, which would be a moral and decent act benefiting those much worse off than you.

If you do not, you stand to be reviled and hated by all. What else is money for but to ease your way through life and make your relationships with those around you better? No pockets in shrouds.

I know Philip Green, whose finances are pretty much as above, if you multiply them by a million. I have had the chilling experience of taking a call at about 9.30 in the morning, when a female voice says: “I have Sir Philip Green on the line.” He does not often ring you to compliment you on something you have just written.

I know that the one thing that would distress him above all else, aside from the loss of that £3 billion that is his net worth which isn’t going to happen, or the loss of one of his three yachts, ditto, is the stripping from him of his knighthood, which he believes he has earned for services to the high street. I know nothing of his faith, if he has one, or his personal morality. He gives a lot to charity. He is not keen on paying tax.

 I knew him in the early 1990s, when he ran Amber Day, a quoted company, and was perforce required to interact with journalists like me. It was not a mutually agreeable relationship.

I just think that if it were me then I would part with £500 million of my £3 billion personal fortune to pay off the BHS pension deficit and see those pensioners all right, and regard it as a price worth paying for my rehabilitation into society. It is too late to do anything for those 11,000 employees who have lost their jobs, and frankly, that was not of Green’s doing. As I say, what else is money for, if not to make your life better? Perhaps it will happen.

I started this blog almost three years ago, at a time of some personal conflict, in an attempt to make sense of the manners and morality of the business world on which I write elsewhere. The blog may have wandered off into other, more arcane areas, but that central question remains. When is enough finally enough? What is money for?

On Southern Trains, And Brexit

Odd how unconnected ideas sometimes come together. We were travelling on Southern rail over the weekend. This is officially the worst rail franchise in the country, the operator having been given permission to scrap hundreds of services a day because there are not enough staff to man them – or because the staff are constantly pulling sickies as a form of industrial action. Depending on who you believe.

There is a long-running dispute with the union over removing the guards from the trains. You can wave to the new rolling stock all ready and standing at Three Bridges as you go past, assuming you can get onto the train in the first place.

Our train out was, needless to say, cancelled. We were told to change at Brighton – except that we were not allowed to use the next train there. Against the rules. Wait for the next one. More delay. It is fair to describe the attitude of Southern staff as unhelpful. This has been a long running scandal, with passengers stranded for hours day after day.

Go to the information desk to ask what you do now, and there are two policeman standing there ostentatiously. They are there to prevent trouble – there have been ugly scenes, demos, one man was recently escorted from Victoria Station, itself a warren of temporary barriers put up to combat the persistent overcrowding.

People are understandably angry. Lives are disrupted, for months on end now. The fares are enormous, and the recent change to the timetable is designed to prevent them from claiming refunds. We have the forces of law and order standing by to prevent protests getting out of hand, because those customers have no levers they can pull, no power to compel those who run the service to do so properly.

It is that sense of powerlessness, the sense that there is nothing people can do to change a system which is weighted in favour of those who sit in offices somewhere out of their reach and control their lives, which led to the recent regrettable referendum vote. People who feel they have no power will do anything.

Abusing disgruntled Southern staff is not the solution, but it is all they can do. Most of us have felt like that at some time or another. Equally pointless is a vote to leave an economic union they may barely understand, whose consequences are unknowable and probably self-destructive.

On Tax, And Thucydides

As the story about mass tax evasion via Panama was running, I was reading a review of the book by Yanis Varoufakis, former Greek finance minister, the other day. Not terribly good, by all accounts, but the title struck a chord.

Varoufakis uses the second half of a quote from Thucydides. The full phrase is, The Strong Do What They Will And The Weak Suffer What They Must.

Thucydides was talking about a war two and a half millennia ago. Today the strong pay what tax they will, and the weak what they must. The weak, that’s us.

None of us with any experience of finance will have been remotely surprised about Panama. We know that there is a booming industry in London and elsewhere, but much of it in London, that allows the rich to pay as little as possible in tax.

“What do you do for a living?” “I help rich people get off paying tax.”

On Brexit, And Teenage Idealism

I appreciate that in some circles today this will be as popular as admitting an earlier interest in paedophilia, but I campaigned in favour of the UK joining the EU ahead of the June 1975 referendum.

Aside from the clear business benefits of an open market, I had two main reasons for doing so. One, the French had been blocking us for years, in what looked like either spite or a bid to protect their own inefficient markets.

Two, the Communist Party, active at my university, was dead set against it. “No to the bosses’ Europe” was their slogan. I thought that if the Kremlin didn’t want a more united Europe on its doorstep, a more united Europe we should have.

Since then, to misquote Emperor Hirohito, the European project has worked out not entirely to our advantage. We did at least avoid the euro.

This summer’s referendum will lead to a vote to remain in, just as did the Scottish referendum, and for the same reason. Referenda tend to be carried by people who do not want change, rather than those prepared to risk it. We are at heart a cautious people.

This has led to the unattractive sight of many of our elected politicians being prepared to subsume their principles to their political ambitions. No big Conservative figure has stepped forward to lead the out campaign, even though they wish to leave, because they know this is going to lose, and they do not want to risk any further advancement to their careers by upsetting Number 10.

Perhaps if they were not so confident that the next election will see a Labour defeat, so prolonging those careers, they might be more prepared to make a stand. Politics is full of such grubby compromises.

Next time one of those shy Outers, and we know who they are, uses in a speech the word “principle”, bear this in mind. They don’t have any.

And I do hope this is the last thing I have to say on the subject.

On Google, Tax, And Ageing Relatives

Someone I know who is self-employed has just asked, via Twitter, why she has to pay tax at a rate of 20% and Google, which is significantly richer, has to pay at 3%. Let me explain.

It is because it is easier for HMRC to extract tax at 20% from a private individual or small company than it is to extract it, at any rate at all, from a global corporation. Such corporates pay tax on a largely voluntary basis, at a rate they calculate is the barest minimum level to prevent consumers from becoming so disgusted that they boycott their services. Or burn down their head office.

Let me explain further by example, though for reasons of privacy I will hedge around some of the details. Several years ago I took over the financial affairs of an Ageing Relative. Said AE had become incapable of looking after these for themselves, and those finances were in a mess.

To do this requires obtaining something called a Lasting Power of Attorney (LPA). This takes some months, because there are certain understandable safeguards put in place by the law to stop the young raiding their Ageing Relatives’ bank accounts. The process was made more difficult by the incompetence of the solicitor involved.

One of the AR’s problems was the lack of a tax form for some years, partly because of carelessness and partly, more recently, because of lack of the necessary ability. As a result, HMRC wanted a form filled in by the deadline that year, even though AR’s financial incomings and outgoings were awfully simple and easy to track, consisting of two private pensions and one state one.

I could not fill in that tax form until I got that LPA. Also, I needed some information about those pension payments for the relevant year from HMRC. There was a delay on the LPA. HMRC was unhelpful, to say the least, in providing that information.

As a result, I missed the tax deadline by some months. Once the form was in, HMRC issued a notice fining me £800, to come out of AR’s assets.

I rang and explained the reason for the delay. It was physically impossible for AR to fill in the form, and once this became obvious, it took me some time to put myself in a position to do so for him. In part because of delays by HMRC.

The tax man I spoke to said, quite fairly, that I had a good point and should appeal. Now, guess to which body appeals against the actions of HMRC go? Indeed, to HMRC, which in its wisdom decided its earlier decision was the correct one. Odd, that. The fine was paid.

It is easier for the tax authorities to extract money from someone who was, during part of this process, literally on their death bed than to extract it from the likes of Google, Amazon, etc, etc. This is why we pay and they don’t.

On Mindfulness, And Peak Guardian

A couple of years ago I tried out the currently modish meditation technique called mindfulness.

This involves training yourself to become aware of your body and your feelings, setting aside ten minutes or so a day to focus on sensations, noises and what you are experiencing. Its proponents say it can be used as a form of therapy to fight mental illness, or as a simple process to improve mental well-being.

It has been adopted and endorsed by a range of celebrities. I found it did not seem to make much difference to me, nor did I see much effect, good or bad, when I dropped the practice after a few months. I suspect the perceived benefits may in many cases be down to the placebo effect. Those benefits are, in any case, hard to measure objectively.

Now an attack on mindfulness has appeared in The Guardian, for some reason. The piece claims mindfulness can cause panic attacks or a full-fledged psychological breakdown, and interviews people, unidentified, who have experienced this.

This seems, from my experience, implausible. One of the benefits, I suspect, is bringing the practitioner to a fuller awareness of his or her surroundings. We live much of our lives on automatic pilot. We all know the sensation of engaging in a pleasurable action without really being aware of it, of getting half-way through a meal or a casual drink and then realising we haven’t really tasted anything because we are not aware of what we are doing.

Any process that allows us to better experience such sensations, rather than wasting them, must be a good thing.

I am no psychologist, but I suspect The Guardian has merely turned up a few people with existing psychological conditions that worsened and attached the blame to their undergoing mindfulness – the practice is often diagnosed in such cases. It’s our old friend causation again – event B follows event A but is not necessarily caused by it.

The Guardian piece comes with a political spin attached. We are told the main business promoting mindfulness is worth £25 million. No indication how this sum is reached, but the implication  will be picked up by the paper’s readers. A business, therefore obviously bad in itself.

We are told, again without substantiation, that employers are forcing their staff into mindfulness sessions as an alternative to doing something about excessive workload, poor morale or bad management. It is being considered as “a route to heightened productivity.” Again the spin is obvious.

Oh, and the NHS is promoting the practice because it’s cheaper than other psychological therapies. It’s “the cuts”, you know.

It is, and you can believe me on this, impossible to “force” someone to practice mindfulness. All very Peak Guardian, then. Set it up to knock it down, with a political, anti-business spin. Mindfulness has previously been attacked by practitioners of organised religion as a fake one, a cult. It is not that, either, and comes with no spiritual baggage.

Hmm. With enemies like that, I am rather coming around to the idea again.

On Executive Psychopaths

There is a widespread perception, and I have suggested this here before, that the ranks of senior managers in business contain more than their fair share of psychopaths. To get on in business might require a lack of feeling for your fellow employees, a steely ruthlessness and a willing to behave in ways that most of us might find difficult.

The psychopathic personality lacks what psychologists call “affect”, the ability to feel how others are feeling. This, for normal people, may make it difficult to carry out the sort of ruthless behaviour that might lead to success in the business world.

I recall a business leader I knew some years ago, who certainly seemed to match that personality trait, who openly boasted to me how he had done down a rival and deprived him of a benefit that he rightly deserved. The man seemed genuinely surprised that I seemed not to approve of his actions.

A study from the University of Bern in Switzerland, though, seems to suggest that the picture is more complex than it seems. It ranked a sample of employees for three personality traits that might seem to lead to success in business.

These were Machiavellianism, the ability to manipulate your peers, narcissism, being utterly self-obsessed and selfish, and psychopathy. The study’s findings were that the psychopaths in the sample actually were less successful. They were also less happy. Their willingness to take foolish risks told against them in the long run.

Machiavellianism was more closely correlated with success, understandably – the ability to manipulate may be useful in the workplace. The narcissists did best, of the three. They seemed able to translate their high sense of self-worth into higher pay, because they seemed to persuade colleagues that they deserved special treatment.

But in the long term, the study’s author, Daniel Spurk, found, people became tired of their selfish behaviour and saw through them.

Negative personality traits may get you so far, but apparently sometimes good guys finish first. They also tend, on the whole, to be happier.

On The Death Of Corporations, And Inequality

There is an extraordinary essay by Paul Graham, a US entrepreneur and author, giving a new insight into the reasons behind growing inequality. I will leave a link later on, and I urge you to read it in its entirety. I will also try, probably badly, to summarise.

Graham’s thesis is that The Refragmentation, as he calls it, is caused by the cessation of twin forces that had previously been bringing together different strands of society into a more homogenous whole. Instead, anything from politics to culture to the spread of individual incomes is increasingly being pulled apart and fragmenting.

(I have to thank the often excellent Capitalists@Work blogsite for bring this to my attention.)

Those two forces of integration were WW2 and the rise of the global US corporation. Graham writes, understandably, from a US perspective, but much of his argument applies as well to the UK.

WW2 saw conscription, and was followed by an expansion in higher education, former soldiers being funded by the state to go to college. As he points out, the man behind the mule team in West Virginia didn’t return there when hostilities ended. He got a degree and went to work for one of the emerging corporations.

These were heavily unionised, which exerted upwards pressure on salaries at the bottom. Meanwhile, there were none of the extravagant rewards for the executives we see today, when in the UK we have just passed the day on the calendar by which the average FTSE-100 boss will have already this year have earned the average annual salary of the rest.

The corporations were, in salary terms, a flattened pyramid, then.

Back in the post-way years and beyond, there were few entrepreneurs, and they were probably only running small stores and gas stations, or working as plumbers or other contractors. (My interpretation.) The middle classes worked for those big corporations – the biggest of all even had a name, the Nifty Fifty. (Again, my comment.) They stayed for life, often, because it was a safe job leading to a safe pension, and it was hard to move around.

The media was consolidated into three US channels – two in the UK, even after 1955. Independent films would have difficulty finding distributors.

This was all broken apart by disruptive technology. IBM was destroyed by Apple and Microsoft, after one of the worst decisions ever made in the business world, its failure to acquire exclusivity for the DOS operating system.

Then Netflix, Amazon – other routes to market that challenged the old oligopolies. The rise of the multi-billionaire dotcom entrepreneur. These so weakened those global corporations that they were no longer offering jobs for life. Those that survived at the top saw their salaries spiral up. The unions were weakened because the survivors had to cut costs to compete. Downward pressure on salaries at the bottom. Automation didn’t help.

Choices for consumers grew. People began to dress differently. They ate differently. Fragmentation everywhere.

If Graham’s thesis is right, then this will only continue.  Refragmentation, because it is in reality a return to the old social inequalities before those two factors, WW2 and the corporation, kicked in.

Anyway, take time to read the essay. You can find it here: http://paulgraham.com/re.html