Douglas Carswell

23 JAN 2017

Inequality is a problem - but redistribution isn't the solution

Oxfam is once again touting redistribution as the solution to inequality. That's a false promise. NGOs seem to see private property itself as the problem. But to reduce inequality, we need to recognise that the erosion of property rights is often what causes it.

Inequality is actually falling on some measures – especially here in the UK – while Oxfam's methodology for calculating it is deeply misleading.

Where it has reached extremes is in the pay of top corporate managers. In 1998, the average pay of a FTSE 100 boss was around 50 times the average UK wage. Now it's 180 times.

But the issue here isn't that getting rich is bad per se. The world as a whole is getting better off. We shouldn't see wealth as a zero sum game – because it's not.

The problem is that CEOs are being rewarded for failure. Their pay rises far outstrip any increase in the value of the companies they lead. Managers are gaining at shareholders' expense.

Why?

Because shareholders have lost control. Their votes on managerial pay aren't binding. And most no longer hold their shares directly, but rather through funds. The proportion of UK equities held by individual shareholders fell from 50% in 1953 to just 12% by 2010.

Redistribution won't solve a problem caused by poor corporate governance. Moreover, do we really think one form of expropriation can be corrected by another? Shouldn't we aspire to cut it out full stop?

Rather, the answer is to align the interests of managers with those of owners. CEOs should be made much more legally accountable to their shareholders. Corporate democracy needs to be restored.

To beat the CEO kleptocracy, shareholders must take back control.


20 JAN 2017

Let's be optimistic about President Trump

Today Donald Trump becomes President. Two months on from his election, some British politicos and pundits still seem to be in a state of mourning. It's time to snap out of it.

From Britain's perspective, there is a lot to look forward to from the new administration. Unlike his predecessor, President Trump wants to sign a free trade agreement with Britain post-Brexit. He won't be backing the EU at our expense. That has to be good news.

Those worrying about his attitude to Putin have remarkably short memories. It was President Obama who promised a Russian reset, scrapped plans for a missile defence shield in Eastern Europe, and ignored his own red lines in Ukraine and Syria. If the new president is soft on the Kremlin, it will hardly be a shift from the status quo.

Beyond what President Trump means for us, we should watch his plans to shake up the political establishment with interest. By spending so little on his campaign – half what Clinton spent on hers – he has already shown up Washington's vast network of fundraisers and lobbyists. He's lost no time in calling out the price gouging of the defence contractor cartel. And his cabinet picks aren't afraid to challenge official groupthink – notably on education.

Beating vested interests is a tall order, though. Outsiders have won political office on occasion ever since the Roman Republic. But most have failed to deliver the change they promised. Instead of overthrowing the ruling class they opposed, they ended up entrenching it.

It's not enough just to change the people at the top. Defeating oligarchy requires abolishing the system that keeps it in place. As my new book argues, that system is almost always based on redistribution, rather than free exchange.

Very often, the danger from insurgency isn't being radically different from what came before. It's being the same. So let's wish President Trump well – and hope he succeeds.


19 JAN 2017

Brexit makes free trade possible

I'm confident that Britain will strike a good free trade deal with the EU. It's in our mutual interests to do so. But more important are the implications for our trade beyond the EU. Because Brexit is what makes free trade possible.

The EU is a protectionist club. Its tariffs raise the price of agricultural and manufacturing goods, in particular, 20% above world prices.

Brexit is a rejection of EU protectionism. It allows us to buy those same goods more cheaply.

Wider economic benefits will follow. Spending 20% less for the same amount of food and widgets means that 20% saving can be spent on something else – clothes, cars, meals out.

That won't just make consumers better off. More demand means more opportunities for British producers. More jobs.

"What about the producers who lose out from international competition?" You may ask. "Doesn't free trade hurt them?"

Economies are fundamentally dynamic. Production techniques improve over time. Conditions change. As some industries grow, others shrink. That's inevitable.

The right response to that reality isn't protectionism. Trade barriers are part of the reason why so many EU economies are stagnating.

Rather than resist economic progress, we need to embrace it.

Leaving the single market allows us to make our industry more competitive. I'd like to see us repeal EU rules that have increased energy bills, pushed up compliance costs, and raised barriers to entry to small business.

But we can go further than that. Liberalising international trade isn't enough. We need to make free exchange between people in Britain easier too. That's one of the big themes of my new book.


18 JAN 2017

Theresa May is broadening the Brexit coalition

Think back to January 2016. If you'd been told we'd have a Prime Minister committed to Brexit – without caveats – within a year, would you have believed it? That's how far we've come.

What was significant about the PM's speech yesterday wasn't that she confirmed Brexit entails leaving the single market and the customs union. We knew that already.

No, what struck me most was her tone. Positive. Internationalist. Recognising that the economic opportunities for Britain in the 21st century lie beyond Europe's frontiers. Prepared to work with the EU pragmatically – but as an equal, not a supplicant.

I felt that the Prime Minister channelled the infectious optimism that Boris Johnson brought to the Leave campaign – which is all the more remarkable because she wasn't a Leaver herself.

Seven months ago, that upbeat approach helped build the broad coalition we needed to win the referendum. Now it will help to bring former Remainers on board with Brexit too. Others will follow the PM's example.

So I'm incredibly excited. Resistance in Westminster and Whitehall is melting away. Britain is coming together behind a liberal Brexit. This time, the people are winning.


17 JAN 2017

Brexit optimism has gone mainstream

Today, Theresa May is set to confirm Britain will leave both the single market and the customs union. Over the weekend, the Chancellor hinted we could cut taxes to be more competitive after leaving the EU. Isn't it extraordinary how the new year has brought a new attitude to Brexit?

Brexit optimism goes beyond Downing Street. The Bank of England admitted it got its forecasts wrong. The City has dropped its demand for passporting, and is backing a trade deal with the EU based on regulatory equivalence. The FTSE 100 has had its longest winning streak ever.

Meanwhile, with a new US President and Congress, the prospects for a US-UK trade deal are brighter than ever.

Lots of companies that were negative about Brexit are now starting to see how Brexit could be good for business. That's actually not so surprising.

Many CEOs were fed a negative view of Brexit by their corporate affairs team. Some of these lobbyists are to Brexit forecasting what Bernie Madoff is to investing.

But businesspeople themselves are pragmatic. They can see the opportunities.

In fact, across Britain, the Leave coalition is growing as people have realised that the sky hasn't fallen in after all – and self-government will make as better off.

For pundits, stuck in pre-referendum groupthink, the PM's speech might be news. But it should have been obvious that we were leaving the single market and the customs union on June 24th.

The real significance of her speech is that it reflects a new reality. British politics has fundamentally shifted. We're all Leavers now.


16 JAN 2017

The age of technocratic groupthink is over

Do you get the feeling that the world is being reshaped by people who think differently?

For several months, some of us have been talking about making a free trade deal with the United States. Now – as Michael Gove revealed today in his interview with the President Elect – that deal is within reach. It now looks likely that we could have an agreement on the table within 24 months – in time for Brexit.

How can a deal be done so fast? Because it doesn't require unifying standards, like the single market. Instead, it's likely to be based on mutual standards recognition: with some obvious caveats, whatever it is legal to buy and sell in Clacton will become legal to buy and sell in California, and vice versa.

The important question now is what effect mutual standards recognition could have on British industries and exporters – pharmaceuticals, financial services, beef farmers? We need to be prepared to do business differently.

If there's opposition to a deal based on mutual standards recognition, it won't come from the US Congress. The real obstacle will be the federal regulatory agencies. They tend to see regulatory equivalence as a dilution of their own powers.

So it will be crucial to take note of whom President Trump puts in charge of these bodies: will they be people likely to challenge the institutional mentality of officialdom? That's where the front line in trade negotiations is likely to be.

The commentariat is months behind this story. Bovine pundits are still struggling to get their heads around the fact that we're leaving the single market, let alone the idea that there is a different model of international trade.

However the US-UK deal plays out, it's clear the world is being dramatically reshaped. Those stuck in the old groupthink won't be shaping it.


13 JAN 2017

Free trade doesn't require common rules

One of the big misnomers in Brexit coverage is that free trade requires uniform rules. It doesn't. The trade deals we now make should be based on mutual standards recognition, not regulatory union – as industry is starting to agree.

Reading the Brexit recommendations published this week by finance lobby group The City UK yesterday, I was struck that they omitted any demand for continued passporting arrangements for banks. Instead, they call for "the mutual recognition of regulatory regimes".

That's an approach we should adopt more widely.

Trade isn't free if it depends on reams of new regulation that makes every transaction subject to official permission.

Successful free trade deals are instead based on mutual standards recognition: each party allows the sale of goods and services produces produced according to the other's standards.

Many of the economies we want to trade with – from the US, to the EU, to Japan – are highly developed. Their regulatory regimes are similar to ours. So we can trust each other's rules when we buy each other's goods. We don't need to have the same rules to be able to trade.

Even the EU is capable of trading based on regulatory equivalence – as its new MiFID II rules testify. So that's how our future trade with the EU should work too. On that basis, we can have single market access without single market membership – as Leavers said all along.

But there's a broader point here, which is that trade isn't orchestrated by fiat. The mandarins who make a living from overcomplicated, permissions-based commerce want us to believe that they are an essential part of international trade. But they're not.

To beat oligarchy, we need to get these parasites out of the way.


12 JAN 2017

Davos elites still don't get that they're the problem

"Anti-establishment sentiment" may reflect "a threat to the democratic process itself", according to the World Economic Forum. Does it ever occur to this Davos elite that they might be the problem?

This year's Global Risks Report, which the World Economic Forum published yesterday, ostensibly identifies pitfalls for the global economy. But much of it just seems to highlight threats to the rule of people like them.

The report complains that "when moderates point to public debt and overstretched monetary policy as constraining room for manoeuvre, they can be portrayed as patronising." Would these be the moderates who presided over the financial crisis – and bailed out banks with taxpayers' money?

It laments that "historically, relatively small numbers of media outlets provided a widely trusted common foundation for national debates", but now "the media landscape is characterised by fragmentation, antagonism and mistrust". Apparently, we should miss the days of media cartels.

It proposes that governments tackle the "cultural challenges associated with immigration" just by "getting better at communicating change" – as if the only problem is that establishment politicians haven't propagandised enough.

Solutions to the world's political and economic problems aren't going to come from the crony clique that created them – and has most to gain from perpetuating the status quo.

But equally the answer is not just to overthrow this governing elite, and replace it with another. We need a system that prevents oligarchy from emerging in the first place. What would it look like? That's what my new book aims to set out.


11 JAN 2017

Capitalists should worry about corporate pay too

It's easy to mock Jeremy Corbyn. He rather sabotaged his own relaunch when he called for a maximum wage. But there is a problem with excessive executive pay – and capitalists can't just laugh it off.

Make no mistake: a maximum wage is a daft proposal. They tried it in Russia last century, and still do in places like Cuba and Venezuela today. It's fair to say it has been disastrous each time.

But that doesn't mean there isn't a problem with corporate pay. A survey of FTSE 350 companies published by the Lancaster University School of Management last month found that, between 2003 and 2014, average CEO pay rose by 82%, but the average return on capital was less than 1% per year.

In other words, the people who run companies are enriching themselves at the expense of people who own them.

Jeremy Corbyn offers retro socialism. Capitalists need to offer more than kleptocratic corporatism.

Few seem to understand that we now do capitalism without capitalists. We have diluted corporate ownership – so that shares are now held through third party organisations like funds and trusts. That makes it easy for managers to help themselves to other people's capital.

We're experiencing the resurgence of an old problem. In the eighteenth century, the East India Company became a byword for parasitism by expropriating not just Indians, but its own shareholders.

Poor corporate governance today is likewise sapping economic dynamism. The number of well run businesses and successful start-ups is declining – especially on this side of the Atlantic. Productivity is stagnant. That's because capitalism has been corrupted.

So how do we fix it?

I'm working on a couple of ideas in my new book. One is to insist that directors don't draw a salary at all, but own equity instead. Another is to give shareholders more power to control the management.

One way or another, free marketeers need to come up with a cure for corporatism. Otherwise, in a few years' time, Jeremy Corbyn's Castro impersonation won't sound so stupid.


10 JAN 2017

Theresa May won't solve anything with more patrician Toryism

Theresa May is inching her way toward the idea that there is something wrong with executive pay, corporate governance, and lack of opportunity. But what is her answer? For all the fanfare, it appears to be just more patrician Toryism.

Writing in the Telegraph yesterday, the PM criticised "burning injustices", called for "building the shared society" – and concluded that "it is the job of government ... to correct the injustice and unfairness that divides us wherever it is found".

Rather than looking for opportunities for government to intervene in people's lives, surely she should be looking to create an economic and social system that doesn't require ministers to intervene.

If she wants to reform corporate governance, why doesn't she stop the people who manage companies from parasiting off the people who own them?

If she is serious about economic reform, why isn't she breaking the producer cartels that dominate everything from energy to credit?

If she believes in equal opportunity, when is she going to do something about a monetary system that transfers wealth to those who already have assets, while preventing young people from buying a house?

There is a hugely important debate to be had about oligarchy. But we're not getting it from the leaders of the big parties. For Jeremy Corbyn, the answer is 1960s Cuban-style socialism. For Theresa May, it seems to be pre-Thatcherite conservatism. Both have been tried before. Neither has worked.

The real answer is uber-liberalism – in the genuine sense of the word. We need to frustrate a system that allows an oligarchy to rule. My forthcoming book, Rebel, shows how.


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The End of Politics and the Birth of iDemocracy

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