What Money Can't Buy

Michael Sandel Sept 12, Labour Party Conference

Really enjoyed the talk by Michael Sandel from Harvard yesterday.  Funnily enough I was relistening to his Reith lectures the other week.  I'm a particular fan of the idea that we don't always want to be consumers, we do actually want to be citizens as well.

His idea that we are now living in a market society, not just a market economy, is particularly pertinent these days, especially when it comes to issues like trust that I have blogged about before.  Valuing things only when they have a price tag attached does not reflect the values that we all have.  CEO salaries no longer reflect the value that they bring to the job.  Price no longer tells us something about the real value of an item, all it tells us is how the 'item' wants to be valued.  

Pay as You Throw?

I know it's really geeky to take photos of bins while I'm on holiday but I can admit to doing this occasionally because I know for a fact that I am not the only one!

So for all you bin geeks out there, check this out. Below ground storage in Ljubljana town centre. Swipe card for residual and Organics. Free to open for dry recycling. Am assuming this means that if you don't pay for your residual at the moment, you soonwill.

Facebook Friends and Trust

I know I keep banging on about trust at the moment, but Facebook has shown us recently why people are losing faith in the idea of a free market.

When Facebook shares were floated, they were bought by small investors and fans of Facebook at $38 a share.  It wasn't only small investors, George Soros bought some too.  However last week saw the end of the 'local-in' period for the early investors, such as Goldman Sachs.  As they rushed to cash in their gains, Facebook's share price fell to less than half of what we were originally told it was worth.  Told by people like Goldman Sachs.

It doesn't matter if this was rigged or not.  It's a high profile float where those who were on the inside make lots of money, and those who take their advice and listen to the hype, don't.  At least in the short term.  I personally have an issue with free marketeers who say that capitalism is the only answer.  It may be, I don't know, but the market isn't free and we shouldn't pretend otherwise.

Transparency and the Electricity Market

A belated comment about electricity markets, which I suddenly realised when I was reading the FT magazine recently.  Tim Harford wrote a piece in the Undercover Economist called 'Don't Judge a Book By Its Cover Price'.  The article was about amazon and computer pricing models, but he mentioned the problems of price transparency.

As JLF Bertrand pointed out in the nineteenth century, is two companies are offering an identical product and have transparent pricing, then rational customers will just go to the one that is the cheapest. This will lead to a race to the bottom in terms of pricing, until the price is at, or just above the cost of production.  This surely highlights a reason why electricity pricing is far from transparent.  The more complicated each company makes its products, the harder it is for customers to compare, and then move to the competition.

Bertrand's argument was too simple, however.  While a cartel would be illegal, imagine if the competing companies understand this model and find a way to raise prices between themselves, or just never start the price competition in the first place.  In fact, it would be entirely irrational to start undercutting your competitor, as you know where it ends - zero profit for everyone.

Which makes me wonder which way electricity prices are heading.

The Price of Sport

Last night I watched a Women's Semi-final football match in Wembley. As someone who's really caught Olympic fever,even from the Midlands, I was excited just to be there.

The Columbian-American sitting next to me commented on the missed opportunity of the empty seats, and there were great swathes of them. He said how he and fellow American tourists had said how much they would love to buy these leftover tickets on the day and just how much they would be willing to pay for them. Afterall, as he said, we're here now, what's a few extra hundred pounds?

Despite these small set backs, I've been incredibly impressed so far. London isn't quite as busy as I expected. However the volunteers are amazingly helpful and friendly- the best sort of ambassadors you could hope for. And on top of all that, we are winning medals. So what about the legacy? (hard to say without coming over all twenty twelve).

In 2002, 25% of young people were doing at least 2 hours of sport a week. By 2010, that figure was 90%. Since then the School Sport Survey has been scrapped, Sports Partnerships have been scrapped and Michael Gove has approved the sell-off of 21 out of 22 schools playing fields (since 1998 schools have to get government permission). So the legacy picture looks not so bright. The changes that have happened over the last couple of years are exactly the reasons the Australian press is currently giving for its poor performance since its home games and 4th position in the medal table.

I've blogged about trust a great deal this year. Currently our elite athletes get only a few percent of their funding from commercial sponsorship. Most comes from the National Lottery and the rest from government. As the coalition continues its austerity drive, maybe the commercial players need to be stepping in and filling the gap, so we don't lose the momentum. Now is the time to capitalise on our successes. I can't see the government stepping up. Let's hope someone else does.

Time Called on London Finance

I've read an interesting article in Time Magazine this week, that essentially blames the London culture for the issues that are appearing in the financial sector at the moment.


I thought this was interesting, because it raises some points I discussed in a previous blog, about trust.  We hear much about the importance of the financial sector to this country's economy, which justifies the state's active role over the last couple of years.  Time points out that in the boom years up to 2007, British based financial institutions accounted for more than half of the generation of global funds.  In other words, these institutions provided the largest part of the world's liquidity.


At the same time, London is the major hub for foreign exchange, with over a third of the world's turnover in this market.  So it is no surprise that the rest of the world watches London closely, and that issues of integrity and trust start alarm bells ringing elsewhere.


The focus in this country started around the salaries of the top bankers when the companies they ran were clearly not performing well.  Bob Diamond has earned more than $150million since 2005 from Barclays.  While that raised questions about individual integrity, we now are starting to see evidence of more widespread manipulation of the markets.


Today we saw that Barclays first half performance was better than expected, but that profits are being pulled down by the fines; £290m for manipulating Libor, £450m put aside for mis-selling interest rate hedge products to SMEs and a new investigation by the FSA into 4 senior staff members.


Time Magazine quotes Democratic Audit as saying that British Institutions are "especially fragile" when compared to other EU and OECD countries.  In fact, its Audit of the United Kingdom (Wilks-Heeg, S., Blick, A., and Crone, S. (2012) How Democratic is the UK? The 2012 Audit, Liverpool: Democratic Audit.) concludes that:


"these findings strongly reaffirm what is perhaps the most important of our five overarching theme: that representative democracy as we know it is in long-term decline. Key representative institutions, most notably parliament, are fatally undermined if they are perceived to be riddled with corruption and if policy decisions are seen to be taken 'behind closed doors’ between ministers and lobby groups. "


So while the Time Magazine article may be laying the blame squarely at the door of London and its culture in the city, the important issue it raises is again one of trust.  

Responsible Capitalism-who do we trust?

Copyright Philippa Roberts 2012

It's been a grim week already on the economic news front, as we bounce from the Libor rate fixing scandal to resignations and fines in the face of wrong-doing.  Just a quick look at this week's headlines in the FT shows Bob Diamond leaving Barclays, GSK fined $3billion by the US authorities and an ex-Glencore staff member being sued for fixing the price of cotton.


I've just been listening to George Osbourne on the Today programme and was interested to hear him say that the regulators failed and 'this causes the current crisis' (that's not an exact quote btw).  I find this comment quite astonishing as it implies that we all need someone watching over us otherwise we'll be dishonest.  Obviously that's nonsense, but the role of the regulators is important.


We are in a period of significant change at the moment.  Our institutions, and our trust in them, is part of the glue that holds society together.  David Brooks talks in The Social Animal about how institutions pass on knowledge, and norms of behaviour, and are subject to incremental change over decades and generations.  However, at the moment, trust in key institutions is low.  We have been rocked by the Parliamentary expenses scandal, the media's phone hacking, the police taking cash for information and now the banks fixing rates that ultimately impact my, and your, mortgage.


I think we will look back on this period as being significant because these institutions are important, not only for what they do, but also for providing the checks and balances on each other.  At the moment, with scandal after scandal, it is difficult to see who should be trusted to play that role.  There has to be change, because the economy will never recover unless we have trust and confidence in the country's ability to make sure the game isn't rigged.  Why would I, as a small business owner, go to a bank right now if I needed capital?  Especially when I hear from my peers that it isn't lending.  Why would I be going through tender processes for new work if I think there is an old boy network in place and the winners will be the same companies as usual?


Confidence is key.  I'm a positive person, so think that the change will happen and that it will set us on a slightly different and better course.  I also think that at some point the sun will come out this summer, so don't put money on anything I say!  The important thing is that with so much uncertainty it is difficult to have positive growth plans; better to sit tight and wait and see what happens next.  We need our institutions to be strong and trustworthy. If we don't think that we all have an equal chance of making it (in however we define 'it') then why bother trying?