Blog Review 781


Netsmith's not all that sure that those coming out of the rubble of communism quite understand contracts yet. You have to take the rough with the smooth.

The difference between cap and trade and carbon taxes explained with an added bonus. Why politicians will choose the worse option.

Placing the blame for the financial crisis right where it arguable should be: with government.

GM hasn't been brought down by that crisis: people have been predicting it for at least 20 years.

How the campaigns starting against the e-cigarette show that the smoking ban wasn't about second hand smoke at all.

Rather, it all seems to be about allowing the prodnoses and killjoys to control the populace.

And finally, a new way to get rich.


Privatize universities


altSir Roy Anderson, Rector of Imperial College London, said the top UK universities, including Oxford and Cambridge, should be freed from state control and allowed to charge students more than the current £3,145 capped fees, and to attract more international students to boost their income.

Why stop there? Before 1919, all UK universities were independent. They should be again. Britain has four universities in the world's top ten, but the league tables are dominated by America's independent universities like Harvard, Yale, CalTech, Chicago, MIT and Columbia. And while we are slipping, America's colleges are rising. They are taking the best brains, and the best students, and are pulling in more cash to fund their teaching and their research. Thirty US universities have endowment funds of over £1bn. Only Oxford and Cambridge come close, but Harvard has five times more cash in the bank than either of them.

But that's how the US system works. The real cost of a university education is not £3,145. It's more like £40,000. And some US universities do indeed charge that amount of money. But they use their endowment funds to make sure that bright students who can't afford fees on that scale are given scholarships so they can get the education anyway. Students are admitted on merit, but supported according to their needs.

As Professor Terence Kealey, head of the (largely) independent Buckingham University, says in an Adam Smith Institute Briefing, that is what should happen in the UK. Instead of subsidizing universities, we should subsidize needy students, so that anyone who is capable of doing well at university has the opportunity to go. I would tell Sir Roy and his colleagues to charge whatever they like – £40,000 if that it what their product actually costs – provided that they make sure no needy student is turned away. Yes, some of the money that is currently doled out to the universities by the Higher Education Funding Councils could be used for those scholarships. Otherwise, the universities will have to go out and raise the money for scholarship funds themselves.

US government enters the car business


altIt appears that President Obama’s plea to buy American was not just an appeal to the conscience of the US consumer; it was actually a sales pitch. When he announced the American government’s acquisition of a 60-percent stake in automotive giant General Motors, Obama took on a new title, Car-Salesman-in-Chief. In addition to democracy and the war on terror, America will now be pushing Corvettes and Cadillacs on the world.

Obvious conflict of interest questions arise from this new venture, which in turn lead to concerns about fairness in the marketplace. Automobile manufacturers will undoubtedly be vigilant in watching for instances of undue influence and market manipulation now the US government has a direct financial interest in the industry. Toyota and Volkswagen cannot be thrilled that the same entity that sets US trade policies is now the majority shareholder in their largest American rival.

The Obama administration insists that it will play the role of passive investor with GM—for example, no government employees will be employed by a company in which the government has invested or sit on such a company’s board. Limiting benefits to individuals is one thing, but will the government be able to resist the temptation to help its investment by tweaking a policy here or relaxing a rule there? It seems unlikely that a market can be free or fair when the market regulator becomes a market player. If the skeptics prove correct, it may not be long until the iconic Uncle Sam abandons his legendary call “I want you for U.S. Army" for the shameless plug “I want you to buy a Chevy."

Blog Review 780


Yes, politics has indeed reached this level.

This of course is simply ridiculous. Satire isn't it?

If only we could in fact insist that presenters (and journalists!) were trained in the meaning of these phrases!

If we are indeed trying to find out what does work and what doesn't in alleviating poverty, shouldn't we try this?

Poverty is definitely more complex that some think.

And why don't we try this as a method of paying MPs? Make them rely upon charity!

And finally, the vexing issue of pets in small flats.

Leftists and localism


Having read a few recent publications from the think-tank Demos, I was struck by the deep problems that leftists have in trying to tune into the latest buzz for localism. A centralized state is deeply unfashionable, so the think-tank that was so influential under the controlling hand of Tony Blair, is treading water in attempting to unite leftist ideology with localism.

For example in the latest paper, A Stitch in Time: Tackling Education Disengagement, the failures of a centralized state are acknowledged: “the approach cannot simply be the standard policy approach of tugging on central policy levers", yet in the next instance calls for the creation of a “national educational policy framework". Apparently, “there is a major role for central government to play in improving how things work at the local level." Yet this is exactly the problem.

This is no criticism of the research itself, but reading it clearly brings to light the tensions apparent whenever statists try to fit their model into the fashion for localism. This circle cannot be squared; the policies of control cannot be localized. Of course, many in the other two parties suffer similar problems, but this caused by the same statist predilections.

So far the most authentic and consistent calls for localism have come from voices on what could be called the libertarian wings of the Conservatives and Liberal Democrats. Unless the Labour Party radically reforms, it will never be the party of localism. As things stand, its ethos is entirely inconsistent with freedom, difference and competition.

Inciting violence


altRecent announcements from the UK's Home Secretary, Jacqui Smith caused some controversy when she released a list of the 16 people banned from the UK. The main reason why these people had been barred from entering the UK was due to what they had said on a variety of issues. One of those on the list, Michael Weiner (Savage) a radio DJ in the US, is now suing the Home Secretary for damages reasoning that he has been defamed.

The majority on the list are there because their speeches on a broad swathe of issues have been judged to be offensive. Not by society, not by single individuals who have complained, but by a clique within the Home Office. They are now the arbiters of taste and decency, the 'philosopher kings' that rule our society and the firewall that protects us from harm. We are seemingly incapable of acting in a rational way. The Home Office has failed to understand the cornerstone of liberty: free speech.

We all have the right to say what we like, even when the language can cause harm to someone; the rational person though tempers their speech so as not to cause harm. But when we pronounce on issues directly to an audience, we do not know how that audience will react, even when we charge them to act in a certain way. The state can, and should, only step in when actual physical harm is pertained to be about to take place, the state cannot assume that inciting violence through others via speech is in effect threatening a specific person. It is not. The lumpen assumptions the Home Secretary makes is one that slices society into sections pitting them against each other. She and her minions are the ones who are inciting violence and we should begin by ignoring them, as any rational person would.

Public companies and private enterprise

This is far better than making insider dealing a criminal offence (if it is, then so must be insider non-dealing!), which merely serves to incarcerate non-violent people at huge taxpayer expense purely to satisfy macho regulators.

No doubt two “problems" will be raised to rule these wild notions out of court. The first is to parrot that “limited liability" status is a gift from government which needs a quid pro quo. But where’s the gift in a voluntary bargain clearly understood amongst all concerned? The second is a similar argument about tax. But the starting point must be why should a “company", owned by taxpaying shareholders, pay any further tax whatsoever? At the end of the day, however one wraps it up, all tax is paid by individuals.

Fascism as racism is a popular description of the creed of the British National Party – which may well be correct. But the word fascism applies also to a corporate landscape where companies are in “partnership" with government – the latter very much the senior partner. In that sense the UK is already fascist.

So, and increasingly so, is the United States. Indeed in their “Securities Analysis"(1987 edition) one of the classic investments books of all time, Graham and Dodd were able to point to some 75 years of Government-sponsored erosion of shareholder rights, which it called “the euthanasia of the shareholder". Pretty much the same “progress" over the same period, as in the UK. Nowadays, the most important quality of senior business executives is that of a lobbyist – often to promote a monopoly in the relevant industry, or something else that gives executive directors an easy life.

All this is light years away from solving Adam Smith’s “Agency problem" – the separation of ownership and control of a business. How could anyone think that this could be cured by the intervention of another agency – government. And don’t expect, Mr Kleinman, any help from the institutional investors and the major fund managers, both of whom are agents and often PLCs to boot.


Mark Kleinman, City Editor of the Sunday Telegraph, is worried about the remuneration (including bonuses) of company bosses. Many shareholders are incandescent, but largely powerless to influence the chairmen of remuneration committees – a group whom Kleinman describes correctly as a new category of City pariahs. So what can be done? One suggestion, says Kleinman, would be to make investor votes on remuneration legally binding, but suspects that this may be unworkable; he prefers the idea of making remuneration committee chairmen stand for re-election each year.

I have a far simpler idea; abolish the Companies Act, now almost 1,000 pages long. Radical? Yes, and rightly so. Unlike politicians, companies (or would-be companies) are perfectly capable of drafting sane constitutional documents and shareholders (or potential shareholders) as well as Stock Exchanges are perfectly capable of deciding whether or not to supply funds or approval on the basis of such documents. All we need is contract law; there is no need for Companies Acts at all – indeed it is they that prohibit certain investor votes from being legally binding. Government controls over PLCs include not only their constitutional documents, but also the relationships between directors and shareholders (hugely biased to the former - so much so that the famous Higgs report suggested that one director should have special responsibilities to shareholders. Gee thanks!) Government rules also control the hostile takeover market (again favouring incumbent directors), and what issues can be raised and validated at an AGM. They even influence capital structure; the tax system favours high gearing and risk.

But what about insider trading? Simple – deal with it in the company constitution. To allow such trading, says Richard Epstein ,the constitution can provide that “if you want to deal in the shares of this company please understand that every employee and director is entitled to trade on inside information to their heart’s content. If you do not want to trade with us you are free to buy shares in our competitor which does not allow the option".

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