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This nonsense about uncertainty 14 September 2014

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IMG_1714 In de War, Warmoesstraat crVoltaire: Le doute n’est pas un état bien agréable, mais l’assurance est un état ridicule. [letter to Friedrich Wilhelm I of Prussia, 1770]

I’ve been irritated recently by the chorus of business leaders (seemingly organised by the ‘No’ campaign) who have opined that a Scottish vote for independence on Thursday will be bad for the economy because it will create “uncertainty”. It seems to be taken as axiomatic that business dislikes uncertainty. This is at most a half-truth.

Business opportunities only come about through uncertainty. Someone with both information and imagination spots a need which they can satisfy and for which people are willing to pay. It’s a gap in the market. It’s otherwise known as risk. The entire justification for profit-making is that it involves risk. Financiers demand a “risk premium”. Risk-taking is seen as that grand thing, an entrepreneurial mindset, and tolerance of ambiguity is a political and diplomatic necessity.
Business can’t have it both ways. Either they are not taking risks – in which case the justification for taking profits disappears – or they are taking risks, in which case a bit more uncertainty is a good thing as it opens up entrepreneurial opportunities.
What these business leaders are saying is that they like the cards stacked in their own favour, just like they have always been. They don’t want the apple cart to be upset. They only want to deal with uncertainties that they have already analysed and assessed. They don’t want the bother of having to adjust their spreadsheets, set up new lobbying operations, do new market research or pay attention to new voices of citizen and consumer representation.
Uncertainty shouldn’t induce paralysis, but a search for new paths – the much praised activity of innovation. If people are poorer, that is a market opportunity, as discounters like Aldi have correctly deduced. The media industry thrives on uncertainty – without it there would be no demand for newspapers or television current affairs programmes. Uncertainty is the consultancy industry’s bread and butter. There is enormous growth in online information services that feed on uncertainty by advising us how to avoid bad weather or traffic jams. This market exists because we humans are quite risk-averse ourselves – we all want to know that is likely to happen next. And we all love a good thriller – the hero of Breaking Bad is even nicknamed Heisenberg, presumably after the inventor of the Uncertainty Principle.
So this outbreak of uncertainty-mongering must be code for something else, some other underlying fear. By voicing their fear of uncertainty, business leaders are unmasking their true nature as conservative rent-seekers, seeking to preserve their privileges – and this is hypocritical because their public stance is that they are agile and responsive to changing market demands. In principle, they should welcome change, as it opens up opportunities for innovators to make the system more efficient in meeting consumer needs.
The veiled threat is that business people will refuse to invest unless they can be sure of a predictable return. So what they are saying is that they are not entrepreneurs, just managers. They are not in business to take risks – only to preserve profits.
What’s fascinating and heartening about the Scottish referendum debate is that it has finally let out the pent-up anger at the way the City of London establishment has messed up. Their complaints about uncertainty are not only hypocritical, they are discredited. Anyway, an independent Scotland will be full of entrepreneurial opportunities.

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Piketty and social enterprise 11 July 2014

Posted by cooperatoby in Social enterprise.
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big eurolittle eurotiny euroI confess I haven’t yet ploughed through all the 685 pages of Thomas Piketty’s surprise best-seller Capital in the 21st Century (I only got it for my birthday – thank you Truus). But I think I can claim that Piketty would approve of social enterprise. He argues, and seems to demonstrate thoroughly, that inequality of wealth has been steadily rising, despite a fall in the years around the two World Wars. This is because the rate of return on capital consistently exceeds the rate of growth of the economy (r > g). This means that those who possess wealth gain more of it, while those who live by their labour receive a diminishing share of the surplus society creates.
Hence the extreme relevance of the idea of limiting the return to capital invested in businesses, which is incorporated in co-operative principles and in at least some definitions of social enterprise. We should beware of its being eroded, as has happened recently with the UK’s Community Interest Company. Happily, the EU’s definition of social enterprise does contain this principle, albeit rather vaguely (“whose primary objective is to achieve social impact rather than generating profit for owners and shareholders”).
Piketty’s work seems to show what a wise principle this is if we want to build an economy that is sustainable socially as well as environmentally.
It will take a mighty effort of international co-operation to create the progressive wealth tax that he says it the best way of stabilising this trend, and international co-operation is not yet at this stage. But there are things that can be done on a smaller scale.
In his admirably succinct conclusion, he says:

The nation-state is still the right level at which to modernize and number of social and fiscal policies and to develop new forms of governance and shared ownership structures intermediate between public and private ownership, which is one of the manor challenges for the century ahead.”

That sounds like social enterprise to me!

CIRIEC in Antwerp – more theory than policy 6 November 2013

Posted by cooperatoby in EU, social economy, Social enterprise.
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CIMG1196-7 BoerentorenSocial Economy on the Move, the CIRIEC conference in Antwerp two weeks ago, was the first academic conference on the social economy that I’ve ever been to. Given that it was so close I couldn’t really say no – especially with €10 ‘Web Deal’ train fares on offer.
But I confess I was a little disappointed. The organisers had given space to as many promising young researchers as they could – the 48 workshop sessions each dealt with between 3 and five papers – and this meant that they each had very little time to play with. Anxious to prove their academic credentials, they tended to use most of their 15 minutes of fame to set out the theoretical model they were applying, and had no time to talk about the real world to which it referred. So not only was there no way to verify the truth of their assumptions and deductions, but I learnt very little about the state of the social economy in the wide world.
Of course the corridors and Oxford-style quadrangle of the Hof van Liere – you should not ignore the mediaeval heart of Antwerp if you have the chance to visit – did provide a place to bump into old friends and colleagues.
Thus, the main value I got from the event was the plenary sessions, held in the Boerentoren or ‘Farmer’s Tower’ – a miniature Empire State Building which was Europe’s first skyscraper, and has now passed from CERA to KBC, my bank.

Positive social value, but market regulation

On the bright side, the Belgian state certainly sees the value of the social economy. Yasmine Kherbache from the cabinet of Prime Minister Elio di Rupo reassured us that it was a misconception that policy to support the social economy has more costs than revenue – it’s just that the benefits are hard to measure in strict economic terms. She also stressed that the social economy’s role is growing: the present economic model cannot last till the next generation as it cannot cope with the issues of demographic change and the environment. “We can only progress if everyone can follow”, she said. She sees the sector’s growing relevance, noting how second-hand shops (kringloopwinkels) have been transformed from being the preserve of the poor into a resource for sustainability for everyone.
Getting down to brass tacks, she went on to justify the controversial Flemish maatwerkregeling (‘made-to-measure regulation’) which reallocates work integration subsidies according to each individual’s distance from the labour market. This reform has caused concern among WISEs in Flanders, as it makes their budget unpredictable and their financial planning very difficult. Not only that, but it puts social and conventional enterprises on the same footing. The subsidy is portable, and the worker carries it in a ‘rucksack’ if he or she changes jobs (although apparently the social economy and economic affairs ‘rucksacks’ will be different beasts, which might limit mobility).

Trust in globalised markets

Avner ben Ner from the University of Minnesota looked at how the globalisation of the supply chain is affecting the social economy.
Globalisation leads to long anonymous supply chains with asymmetric information and social distance. Businesses have greater opportunities to take advantage of this information asymmetry, so the self-regulation which the social economy practices is a valuable asset. It was asymmetric information (in the form of adulterated flour) that led the Rochdale Pioneers to set up shop in 1844. Long supply chains make quality inspection prohibitively expensive, and government regulation is out of fashion. So by quasi-regulating themselves, social economy organisations reduce the damage that globalisation causes.
His conclusions are that the social economy should focus its efforts where success is most likely: on food, on collaborative marketing, on new ways of raising capital (e.g. crowdfunding) and on new technologies.

Co-ops poised to benefit from global trends

According to Ruben Monbaillieu from MacKinsey, co-operatives’ credibility with their members means that are in a good position to benefit from four trends:

  • the rebalancing of the world economy from developed to developing countries
  • the rapidly raising old-age dependency ratio
  • ‘pricing the planet’ – factoring environmental costs into prices
  • the ‘market state’ – governments becoming active in the market

Aspects of management they need to improve are measuring their impacts and the speed with which they react to change.

The social economy as a component of social justice

Philippe van Parijs of UCL in Louvain-la-Neuve situated the social economy in a philosophical perspective. He believes that social justice has there dimensions: equality of opportunity, freedom and efficiency:

  • Equal opportunity means equal concern for the interests of all members of society – but personal responsibility means that it is up to each individual to make the most of the opportunities he or she has;
  • Freedom implies a liberal, pluralist perspective, that respects everybody’s right to seek their own conception of the good life;
  • However efficiency must also be considered: if equality leads to worst outcomes for all members of society, then we should allow injustice.

We need the market to ensure efficiency. The state’s role is to regulate the market, redistribute income and provide services such as education, health, cash transfers, justice and tax. So do we need a third sector?
Luckily the answer is “yes”, because of two characteristics:

  • its ‘marriage of trust and flexibility’
  • its facility for ‘legitimate self-exploitation’ which benefits the public

Non-profit private sector organisations are particularly needed where there is asymmetric information in markets.

Sven Giegold on Tobin tax success 3 August 2013

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Financial Transaction Tax: European Parliament defends the tax against the lobbyists

From Sven Giegold’s note ‘Mixed Feelings’ of 29 Jul 13

During the same week we voted on Parliament’s position for a European Financial Transaction Tax (FTT). The Economic and Finance Ministers of the EU had finally come to an agreement in January to introduce the FTT in an enhanced cooperation in 11 EU Member States. The proposal on the table foresees a tax of not less than 0.1% on transactions with stocks and bonds but also includes taxation of derivatives transactions of not less than 0.01%.
The financial lobby has made great efforts during the weeks prior to the votes to persuade MEPs to vote for various exceptions. Many opponents of the tax in the financial industry and in politics have changed their strategy in recent months.
Instead of opposing the tax directly, they demand exceptions. It sounds appealing to exclude e.g. pension funds from the Financial Transaction Tax. Then, however, fair competition between life insurance and many investment funds is not possible anymore. Allowing many exemptions would be the end of the tax. It is quite simple: either all are taxed or none. Only then tax collection is simple and inexpensive.

Fortunately, we managed to preserve the core of the proposal. The Parliament voted by a large majority for a tax that applies to a large number of financial products and market players. I have been fighting for the original proposal by Professor James Tobin for ten years now.
It is therefore a great success for me to see the European Parliament voting for taxing currency transactions. On this point European Parliament is going further in its position than the EU Commission.

To achieve a broad tax base in the original proposal pension funds and other mutual funds were not exempted from taxation. Many conservative and liberal Members of the European Parliament intended in first place to vote for an exemption for those instruments. With a compromise across political groups we luckily managed to avert this disastrous outcome. Unfortunately, this compromise came at a price. We had to agree to a couple of exemptions we consider to be useless and even harmful. In tax matters, the European Parliament is not involved as co- legislator but only has to produce an opinion. Our opinion on the Financial Transaction Tax is not binding for the Council. Although the Parliament managed to pave the way for the tax it is now the Council’s job to go down that road. The 11 Member States in the framework of enhanced cooperation bear the responsibility to agree on the broadest possible tax base and effective controls. It is crucial to keep up the pressure from civil society, to ensure that the industry lobby does not succeed in influencing those who have the final say on the binding rules.

I will continue to fight for fairer financial markets and better investor protection in Europe. In September I will be back with the latest stories from the European Parliament!

Follow Sven Giegold’s work in English at: http://www.sven-giegold.de/english/

See also: Teresa Pearce MP’s excellent critique of the UK government’s wrong-headed opposition to the EU Financial Transactions Tax in Left Foot Forward on 15 May 14.

Labour should turn Europe into an electoral asset 27 February 2013

Posted by cooperatoby in Brussels, EU.
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Shadow foreign secretary Douglas Alexander spoke to the British Labour Party Group last night, to an audience impressively swollen by the visiting Yorkshire branch of the European Movement. He made some key points that I think and hope show Labour is shaping up to win the next election on the basis that being in the EU is the way to create both prosperity at home and influence abroad.

Firstly, he pointed out that labour has a much more developed policy on Europe than the Tories do. Cameron has lost the electorate’s trust, because of the economy. He is weak, being driven hither and thither by the Eurosceptic wing of his party, rather than leading it. The speech on Europe that he tried so hard to avoid making was not about Europe at all but about holding Conservative Party together. If you listened hard, there were almost no commitments in it – the rhetoric of repatriation has been toned down so low it is practically inaudible – there is even no mention of taking away employees’ rights!

Growth Commissioner

In an interdependent world, ‘reform not repatriation’ was Alexander’s soundbite, but his speech was so deftly tailored that he left it to questioners to bring out what he actually meant by ‘reform’. He led with a push for growth and jobs. This would translate into a dedicated Growth Commissioner and growth impact assessments of all policies. Along with transparency and economic efficiency, he also, somewhat sotto voce, mentioned freedom of movement of labour.

To me he came over as reticent, not wanting to give away too much.(*) He was picked up on this by one perspicacious questioner, who pointed out that in the 2012 Dutch elections, PvdA leader Diederik Samson nearly doubled the party’s number of seats by reversing the conventional wisdom of the three other parties that there was no way Holland would contribute more to the Greek bailout. He said that those three promises would be the first three to be broken. Of course we must ensure the Greek bailout works, because if we allow the euro to fall apart, we will suffer ourselves.

Diederik Samson showed leadership on Europe, and rejected populism. I feel Labour should do the same. We should be clear that Britain is ineluctably a part of Europe – and not leave it to visiting American diplomats to make that point. Europe is good for Britain! If it didn’t already exist, we’d have to invent it! Yet we are hiding our light under a bushel. It was Richard Corbett, from his vantage point in President Barroso’s cabinet, who noted that it is only Labour’s refusal to cave in to pressure for an in/out referendum is what gives multinational capital the confidence to keep investing in Britain.

Douglas Alexander says that what he learnt from talking to Diederik Samson was not to believe the opinion polls – 10 minutes’ debate will bring voters round on Europe. Labour should become more straightforwardly pro-European.

* To be fair, Douglas Alexander set out Labour’s position on Europe in great detail in his speech at Chatham House on 17th January. The Q&A session is also online.

Electricity prices – unfair comparisons 18 December 2012

Posted by cooperatoby in Brussels.
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Electricity meterI’ve just learnt a new and total distrust of price comparison sites – Belgian ones anyway. The other week our copropriété decided to switch electricity providers, and Essent looked the best. I typed my private consumption details into Mesfournisseurs.be – and was told that switching to Essent would save me not the 17% I expected but, wait for it, 100% of my bill – yes, my power would be free. I am sceptical it would work out like that in practice.

This morning, stung by an abnormally high Internet bill from EDPnet, I took up their own suggestion and compared prices on besttariff.be. Strangely, whatever probable or improbable usage estimates I key in, it always always recommends Belgacom – and at prices higher than I am currently paying!

There are some rubbish programmers around, hiding behind glitzy web design. It makes (seasonal) mincemeat of information assymmetry being the main barrier to fair markets. Maybe good old fairness – ethical business practices – would work better.

Invest in Luxembourg!

It’s not what you might think. The Lucéole co-operative is inviting subscriptions to invest in a wind farm at Fauvillers in Luxembourg province. it offers an ethical investment at a fair return.

Blue exclamation mark 9 November 2012

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Here’s a lovely map showing the results of the EU’s Regional Innovation Strategies survey, sent round by the Enterprise DG. The blue regions are the most innovative and the red the least (no relation to the electoral map of the USA).

EU’s innovative regions – RIS 2012


we used to hear about a blue banana of prosperity. This looks more like a blue exclamation mark.

A billion people can’t be wrong 4 October 2012

Posted by cooperatoby in cooperative, social economy, Social enterprise.
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Mutual advantage is a comparative advantage

The EESC’s conference on The Social Economy and 2020 on 3rd October 2012 started with an interesting economics lesson from Professor Luigino Bruni of Milan-Bicocca University. The social economy, he said, produces economic value because it is based on the principle of mutual advantage. This he likened to economist David Ricardo’s concept of comparative advantage. This posits that trade is beneficial to both parties when their costs of producing various goods have different relations to each other – not only when their cost is cheaper than their trading partner’s. So even when one party can produce everything cheaper (China?), it is still good for it to trade with others. Prof. Bruni transferred the reasoning to work integration. If we put unemployed people back to work, then everybody in society benefits. Capitalism is based on self-interest, but by contrast the strength of the social economy is that all the stakeholders benefit: it serves the general good. All the recent social innovations such as microcredit, fair trade and social co-operatives are built on this principle. Without this logic of mutual advantage, it becomes not entrepreneurship but ‘assistentialism’ – it encourages dependency but doesn’t really improve anything.

Don’t let the wolf into the sheepfold!

This excursion into theory also provoked a short bout of calling a spade a spade, when Professor José Luís Monzón, head of CIRIEC International, presented its new study The Social Economy in the EU. As rigorous academics do, he called for a single definition of what the social economy is. CIRIEC’s formal definition fills the screen, but it turns out that reduced to its essentials it basically means ‘not capitalist’. But did he mean this in a technical or a popular way? He pointed out with the aid of a simple Venn diagram that while ‘social enterprises’ in the continental definition are inside the ‘social economy’, ‘social enterprises’ in the Anglo-Saxon conception are outside it. And this could be dangerous, as financial investors’ interests should not be allowed to predominate. “Ne laissons pas le loup dans la bergerie”, commented Conny Reuter, president of the Social Platform. Haroon Saad of LUDEN expanded on this to ask whether the social economy was not in fact a fundamental critique of the economic system: “We should not depoliticise it – Europe 2020 is bust.” But Philippe Huchet, President of AIM representing health mutuals mollified matters by saying no, it was just about consumer choice. Prof. Monzón summed up by saying that because the social economy not only creates wealth but distributes it more equally, this legitimises public policies to support it. It combines efficiency with fairness.

A co-operative seat at the G20

The pragmatic consensus seems to be that we should focus on the ‘real economy’, not on rehashing definitional arguments. And in this regard CIRIEC’s new study, which updates its 2006 predecessor to cover 29 countries, is a cause for celebration, Rafael Chaves showed. The social economy employs 14 million people in the EU, which makes up 6.5% of total paid employment. What’s more, it is growing in this crisis: between 2002-03 and 2009-10 it has grown by 27% (in Malta it has grown by 604%!). In the two years from 2008 to 2010, employment in Italy’s 106 largest social co-operatives rose by 11% from 75,800 to 84,200. And in those countries where the crisis is hitting hardest, the social economy is proving itself resilient: in the last four years Spain’s employment has fallen by 19%, but that in co-operatives by only 9%. Dame Pauline Green backed this up by pointing out that the co-operative family worldwide involves no fewer than a billion members. “If you add up the turnover of just the largest 300 co-operatives, it’s equivalent to the 9th largest country in the world. Co-operatives should have their own seat at the G20!”

Conclusions

The conclusions of the conference insist on the importance of social economy values, regretting that the Commission’s Social Business Initiative is sowing confusion through loose terminology, and that private businesses are claiming to be social enterprises.

Perverse incentives 17 May 2009

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The BBC World Service today reported research done by Duke University in the USA, which shows that higher incentives lead to worse, not better, performance. The experimenters took three groups of people and offered them a reward for performing a task well. The first group was offered a day’s pay, the second two weeks’ pay, and the lucky third group six months’ pay (they carried put the experiment in rural India, where they could afford it). The findings are totally counter-intuitive, at least to today’s economists. While there was no difference between the two less-incentivised groups, the third, golden-handcuffed group, scored not better, but worse!
Why should that be? The research leader theorises that two effects are at work: an incentive effect makes people want to perform better – but a countervailing stress effect means that when so much is at stake, people can’t focus on the task at hand at all! Good to know we are on the way to understanding that the intrinsic value of the job is more important than the reward.

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