Vituperatio: When WorkFare Fails

By DeusExMacintosh

In December the UK coalition government announced that as well as reducing the bill for Disability Living Allowance by 20%, they now intended to abolish the benefit meant to help pay for the additional costs of being disabled and replace it with a harsher ESA-style “Personal Independence Payment”. A foreshortened public consultation over Xmas and the New Year was announced, closing on Valentines Day, February 14th, 2011.

DLA is a benefit that works, it makes it possible for many disabled people TO work. It pays for wheelchairs as well as cars, personal care as well as pub visits. The official fraud rate is less than 0.5% according to the Department for Work and Pensions themselves. We believe the consultation process will simply rubber-stamp the abolition of DLA. This weekend people with disabilities and The Broken of Britain webgroup mourn its loss and we invite you to join our blogswarm on disability and benefits, One Month Before Heartbreak.

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Mr Duncan Smith laid out his plans for a welfare revolution in an exclusive interview.

In remarks that will spark controversy, he became the first cabinet minister to draw a direct link between our economic turmoil and the workless. He told The Sun:

“It embarrasses me. I think this is the greatest country on earth.

“What I cannot bear is the idea that this country was the workshop of the world. It gave everybody the free market, the industrial revolution. You think what we did to change the world. This was the place that everyone looked to.

“Yet we have managed to create a block of people in Britain who do not add anything to the greatness of this country.

“They have become conditioned to be users of services, not providers of money. This is a huge part of the reason we have this massive deficit. We have had to borrow vast sums of money. We went on this inflated spending spree.

“But at the heart of it lies the fact that Britain is not productive enough. We have to get Britain to rediscover what was really great about this country.”

As Iain Duncan Smith then goes on in this interview from December 1st to claim that nearly half those claiming Incapacity Benefit in 2007-8 simply “signed themselves off” my first reaction was …

&ollocks.

(Your initial application for IB may be allowed based on paperwork evidence which will include – at the very least – a Doctor’s Certificate from your own GP and most likely a report from your consultant/specialist, but NOBODY gets Incapacity Benefit just for the asking.)

My second response was “What the hell brought that on?”. Rhetoric in the UK tends to be considerably more restrained than say, the US, so blaming 2.5 million disabled workers now receiving Incapacity Benefit for the multi-trillion pound National Deficit seemed a bit of a reach even for The Sun. Disability activists actually rang the Department for Work and Pensions to check whether his comments had been reported accurately and were told by a spokeswoman: “If we were unhappy with the article in the Sun we would have gone back to the Sun, but we haven’t.” So they reported the comments to the equality watchdog.

You’re sh*t, and you know you are…

While IDS was having his up-close and personal with Sun readers, coincidentally the first progress reports were being submitted from the privatised workfare schemes he’s relying on to get us all back into the jobs market. Officially I still receive Incapacity Benefit and am due to ‘migrate’ across to ESA sometime in the next two years. Existing claimants are only being migrated in two test areas for the moment – Burnley in the north of England and Aberdeen in Scotland – so for the last couple of years, new applicants with a disability or health condition have been claiming Employment Support Allowance. Rather than paying civil servants in JobCentrePlus to administer the new Work Programme for those on Jobseekers Allowance or in the Work Group of ESA, it has been farmed out to private companies like A4E, Remploy or Australia’s own Ingeus (company of the former Mrs Australian PM, Therese Rein), supposedly on a payment-for-success basis. They don’t get you a job, they don’t get paid is the theory. So how are those “incentives” stacking up so far?

The target job entry rate for mandatory participants was 42% by December 2009. The actual job entry rate according to Department for Work and Pensions (DWP) data is13%. Mandatory participants make up three-quarters of the client group. Although the trend in this area has been improving over a period of time, available evidence suggests that the provider will fall far short of the contracted outcomes for this group.

Outcomes for voluntary participants are more positive. The target job entry rate was 42% at December 2009. The actual job entry rate was 39% and job outcomes are likely to be very close to target by the end of the contract.

The target for ‘sustained outcomes’ of participants staying in work for 26 weeks was set at 49% by December 2009. DWP data indicates that the actual figure was 42%. Although below target, the overall trend for sustained outcomes is positive.

Ingeus have a very successful track record of running welfare-to-work programs in Australia, so lack of provider skill is unlikely to be the problem. Feedback from UK participants is very positive and second-hand evidence from Australian friends who have survived the Ingeus experience seem good too – they’ll nag you back to work, mainly with a “you’re on the taxpayers dime now, son” approach but they’re genuinely supportive and extremely proactive as a company when it comes to overcoming obstacles to work (in one case, forcing Queensland Rail to provide ramps so a train service was accessible for a scooter-user who’d found a job but just couldn’t get there otherwise).

IDS may be correct, Britain may simply need a better class of jobseekers, or they just need to stop with the incentivisation by guilt-trip. It may work with those receiving means-tested Income Support due to Incapacity, but as someone on contributions-based Incapacity Benefit I’m just going to turn around and tell you that I paid my dues as a worker thanks (in the form of national insurance), now p*ss off. Human beings may not be able to get much beyond reciprocal altruism and the Victorian definitions of ‘worthy vs unworthy poor’ but the answer is not abolishing the social insurance scheme. Private employment agencies MUST be able to do better – how else do they stay in profit? – but the government is failing to capitalise on the actual advantages of privatisation here. Choice and specialisation.

Instead of paying a single provider in each geographical area to replicate the services of JobCentrePlus, why not harness the power of the free market by voucherising clients?

The Conservatives have been advocating this system for school entry of children, so why not for adult training? Let jobseekers choose the workfare provider that best suits their needs. Adjust the value of vouchers so job-brokers get more money to take on individuals who are harder to place due to issues like disability or long-term unemployment, and encourage the specialised provision that’s the hallmark of companies like Ingeus rather than the two-tier provision currently being produced where more difficult clients are ‘parked’ and only the easiest cases get ‘creamed’ for a quick profit.

Who here has the ‘attitude problem’?

Incapacity benefit is remnant of Beveridge Report social insurance: you have to have paid sufficient National Insurance contributions while working in order to qualify. Milton Friedman predicted at the time that introducing means-testing to benefits would invariably lead to claimants being slandered as ‘cheats and scroungers’ – well spotted there, Milt – but it’s those of us who have paid their contributions who seem to be the target of Duncan Smith’s ire in The Sun.

Having proof-read Bring Laws and Gods for SL I’ve been exposed to a lot of Roman law recently and to be honest, as someone on benefits I’m starting to feel like the accused person in a Roman case who was subject to ritual abuse, called vituperatio. That’s all right. I’m a big girl, I can take it. Think of it as an additional cost of my disability. My main concern is that something worse than VITUPERATIO might be going on here. Have disabled workers effectively been declared INFAMES, like a domestic abuser or dishonourably discharged soldier of the Roman period?

What were the consequences of infamia? Social disgrace was certainly involved and legal disabilities: for example infames could not hold offices or positions of honour, could not vote (at least in early law), or bring criminal accusations, or appear as advocates, or act as representatives (or be represented) in litigation, as we have seen. And infames would often be intestabiles [unable to act as a witness in legal action or documents] as well. The true impact of infamia as a legal penalty can only be fully understood in the context of Roman society, where commerce and social progression was based on family and status connections. These ties were effectively severed when a person was branded infamous, which is why infamy is often described as social (and for that matter also economic) ‘death’.

– Paul du Plessis, BORKOWSKI’S TEXTBOOK ON ROMAN LAW p. 106

(Just as a sidebar, in the 1920s and 30s people with disabilities were also referred to as “the socially dead”.)

Once INFAMES, any claim could be made about you and you would have no remedy in delict (which is the Roman version of the tort of defamation). The News of the World could call you a two-headed paedophile on the front page and you’d be unable to sue them for libel, having no ‘good name’ to defend – even if you’d ‘only’ been convicted of beating your wife.

Perhaps this is the philosophical justification for the simultaneous announcement that Legal Aid funding is to be withdrawn for welfare-related matters. Much of the funding for welfare rights organisations such as Citizen’s Advice Bureaux who assist claimants appealing against DWP decisions comes from Legal Aid. In massively contested benefits such as ESA, successful appeals against decisions to deny awards at the appropriate level are currently running at 40%. This often rises to over 70% where claimants have professional support.

In attempting to rediscover Britain’s “greatness” Iain Duncan Smith seems to be reaching back a bit further than the Industrial Revolution. For a Catholic man who once told Radio 4 that British workers not being able or capable of taking available jobs was ‘a sin’, IDS is starting to sound awfully pagan…

28 Comments

  1. Posted January 22, 2011 at 2:49 pm | Permalink

    [email protected] : “useless eaters”

    The near-synonym I’ve known for a long time is “oxygen thieves”… although with the twist that the people involved to actual harm… and often apply to people begin counterproductive in a particular place and time (like a PHB in a meeting).

    With your current societal problems, I wonder who you consider the /real/ oxygen thieves to be?

  2. Mel
    Posted January 22, 2011 at 3:30 pm | Permalink

    Lorenzo says:

    “Blanket condemnation is not useful: that is my point. Entrenched unemployment is not the product of “capitalism”. It is a product of particular regulatory and other institutional features. These can be changed. They make a difference.”

    I wouldn’t say unemployment is a product of capitalism, rather it is incidental to it.

    I note you have already accepted the cyclical nature of capitalism, thus you already implicitly accept that unemployment is at times inevitable (the bottom of the cycle).

    There is no magic quality to capitalism that guarantees everyone who wants to work a job that provides a living wage (1), subject to whatever “regulatory and other institutional features” libertarians consider ideal (in reality of course, libertarians are as divided as the rest of us on the nuts and bolts of the ideal framework). As labour is not preferenced under any system worthy of the name libertarian, it is no more likely to be fully utilised than any other resource.

    (1) By living wage all I’m referring to is the minimum required to sustain life- food, shelter, basic medical care etc …

  3. PAUL WALTER
    Posted January 22, 2011 at 3:32 pm | Permalink

    onya, Mel..

  4. Posted January 23, 2011 at 9:39 pm | Permalink

    With your current societal problems, I wonder who you consider the /real/ oxygen thieves to be?

    I don’t think ANYONE is a waste of oxygen, Dave. Everyone living has the potential to do something that will help someone else, even if they’ve not done it yet. That could be something as simple as being a living reminder to count your blessings or as important as talking a friend out of suicide. The price of people daring to do that is the risk of getting it wrong (a la Iain Duncan Smith and his spurious ‘welfare reforms’).

    I am pro-capitalist but do not buy the current government view that usefulness is measured exclusively by economic input (that was the official nazi view of the disabled as well, hence all the Godwins). What about ‘social capital’ which Cameron seems to be calling upon with his “Big Society” rhetoric? The value of volunteering for example, is not that you’ve saved society money by doing a job the charity would otherwise have to pay someone to get done, but that you’ve contributed to the betterment of someone that’s neither kith nor kin.

    We DO need to get the economic structures in place (for example income splitting, to allow more women to stay home with young children and thus have time to volunteer as they used to) to support the provision of social capital. Unfortunately I don’t see that any of the current proposals addressing this.

    Indeed for the goal of “getting disabled people back to work” (we should all be Stephen Hawking apparently) removing the Mobility component of Disability Living Allowance is a double whammy. Not only does it say to adults in residential care that they’re “too disabled” to work by withdrawing their funding for independent transport – which includes paying for wheelchairs – it will now also be extended to disabled children in residential schools and colleges. I am waiting to hear if this will include ANY residential setting (say an Oxbridge college) or only those providing specialised disability care support (special schools). It’s further worry that the definition of “care” will also be stretched, for example to Sheltered Housing like mine.

    The government argument is that the institutions are providing mobility aids/funding/transport which DLA simply duplicates but they’re not. When you can’t walk, having an accessible school van to take you on “outings” once a month is not the same as having a suitable indoor/outdoor powerchair which means you can pop down the road to the post office for a paper and a mars bar whenever you fancy. (Indeed without the DLA mobility component, how do you then afford the wheelchair that the bus has been made accessible FOR?!).

    I want to return to education. I’m not well enough right now but I had been considering an access course at an Adult Residential College (just residential for normal adults, not disability specific).

    If it involves taking a £40 reduction in my income each week I’m there though, I won’t be going.

  5. Posted January 24, 2011 at 5:15 am | Permalink

    [email protected] And what libertarians think matters because …?

    What is of interest here is what encourages or discourages employment. Yes, the business cycle will mean labour utilisation will go up and down. It means utilisation of all factors of production will go up and down. So, countercyclical policies that actually work have some value. It is an empirical question which policies actually work.

    When people talk about “living wages” they usually actually mean “screw the unskilled”. See this piece on the problem with minimum wages.

    The existence of society means the generation of a lot of unearned benefits: the more successful the society, the more that is true. Taxing people to distribute those benefits more equally clearly has something to be said for it. The question is, what is the most effective way to do that? This is an empirical question. “Topping up” the income of low-income working households works quite well. Regulating minimum wages, enforcing permanence, etc works really badly. I prefer the former.

    Indeed, they work particularly badly in coping with business cycles and aggravating their effects.

    At the end of the day, the people who most benefit from capitalism compared to the alternatives are, in fact, the workers. Capitalism is better than any other system at creating and using capital. Average labour income is land+capital/labour. The more capital, the higher labour incomes. Hence workers in capitalism are far more prosperous than in any other system.

    So, that there is no “magic quality” to capitalism means nothing: there is no such quality to any system. The question is: what works best? A question both between and within systems.

  6. desipis
    Posted January 24, 2011 at 8:12 am | Permalink

    Lorenzo:

    It is hard to know what to say to such invincible stupidity.

    Yeah, that was a poorly constructed snarky swipe at one of my pet hates: comparing countries as if the only difference is the one at hand.

    This is an empirical question. “Topping up” the income of low-income working households works quite well. Regulating minimum wages, enforcing permanence, etc works really badly.

    What empirical evidence are you basing this on?

  7. Patrick
    Posted January 24, 2011 at 10:00 am | Permalink

    Actually, being pro-labour-market deregulation is like a litmus test for having something useful to add re unemployment, inequality, social exclusion and a whole raft of topics. See as proof of the negative: the ILO.

  8. Posted January 24, 2011 at 10:20 am | Permalink

    [email protected]

    When people talk about “living wages” they usually actually mean “screw the unskilled”.

    The phrase is possibly a combination of dog whistle and misdirection – to one group, a good thing, recognizing the need for employment time to be worth the investment in time by the employed, rather than effectively making a loss on the costs of basics. To another group, it can mean “enough to keep them alive and capable of working”.

    “Topping up” the income of low-income working households works quite well.

    [email protected] questions this, but if a business (but possibly not a charity) relies on top-ups to staff, if it’s hourly pay rate, at full time, would be insufficient to support an average-sized family living close enough to the place of employment to be practical (think “Greater London Allowance”), then the business is merely socializing the costs of running a business, or it some kind of protectionism by the government of inefficient businesses, a skewing of the market, loved by businesses directly getting the subsidy, but which should be deprecated by those professing a free market philosophy.

    If top-ups are needed, then effectively the employee is volunteering a proportion of their time to assist the owners and executives, government top-ups essentially topping up the income at those at the top of the heap.

    The only justification I can see for socializing operating expenses is if the goods produced are essential (eg food), but even then, apart from farmers, it might be better to socialize the business entirely and cut the expense of the marketing department. You wouldn’t do this for non-essential sectors, you should alter the proportion of economic effort to the production and supply of essentials, only allowing any remaining economic effort to production and consumption of luxuries.

    If one must have a mixed model, subsized operating expenses with government top-ups, it’d be philosophically cleaner to have properly socialist provision of all essentials required for livability with plain-wrap products, while leaving production of by definition non-essential goods or luxurious versions to the free market, who’d charge consumers of non-essential items full whack.

    Similar considerations apply to work-for-benefits schemes: either the projects are useless and make poor use of individual skills (better to let people find their niche within an expanded public service), or they’ll head in the direction of work-houses that only boost private profits.

    This whole austerity thing seems to be “screw the disadvantaged”, make the starving tighten their belts of string, while gucci belts are unaffected or even loosened.

    Meanwhile, those already stressed, lives made more difficult, will be pushed into frank mental health issues such as depression, further diminishing the ability to engage in economic activity. That’s not good for the country as a whole.

    I suppose the fundamental question that is not being asked is “if a price must be paid, who is in a position to take the biggest income cut with the least increase in suffering?”

    DEM talks of transport difficulties. Why should a government make her transport to work near impossible when ferraris are on the road?

  9. kvd
    Posted January 24, 2011 at 11:35 am | Permalink

    …you should alter the proportion of economic effort to the production and supply of essentials, only allowing any remaining economic effort to production and consumption of luxuries.

    If one must have a mixed model, subsized operating expenses with government top-ups, it’d be philosophically cleaner to have properly socialist provision of all essentials required for livability with plain-wrap products, while leaving production of by definition non-essential goods or luxurious versions to the free market, who’d charge consumers of non-essential items full whack.

    Yes, Dave – this worked perfectly in the USSR for many years. It was just a shame when reality, and starvation, set in.

  10. desipis
    Posted January 24, 2011 at 11:56 am | Permalink

    [email protected],

    I agree with much of what you said, and was going to make a similar argument but was waiting on Lorenzo’s empirical evidence. The only thing I’d like to add would be to this:

    The only justification I can see for socializing operating expenses is if the goods produced are essential (eg food), but even then, apart from farmers, it might be better to socialize the business entirely and cut the expense of the marketing department.

    I wouldn’t base the justification around whether the goods or services are ‘essential’. Rather, I’d consider whether they benefit society (or the local community) and are otherwise economically inviable. The idea would be to enable them to be integrated and productive, without competing against other non-subsidised workers (so we don’t just create more unemployed). This could limit the net effect on unemployment of labor regulation while preventing the market from forcing workers into unlivable wages who otherwise produce enough wealth to provide a livable wage.

    Existing government programs could provide ideas on how this could be accomplished: e.g. particular industries (education, health) or providing goods or services only to means-tested customers (like a form of non-cash welfare).

  11. desipis
    Posted January 24, 2011 at 12:04 pm | Permalink

    Why should a government make her transport to work near impossible when ferraris are on the road?

    I’m guessing there’s a claim that the executive who owns the Ferrari managed to extortcreate enough wealth through fiddling numbers on a spreadsheet that justified the extra payments. If they weren’t paid that bit extra they might not be bothered to fiddle with the numbers to extortcreate that wealth, and that society is better off overall with that wealth being extortedcreated.

  12. Posted January 24, 2011 at 12:27 pm | Permalink

    [email protected] mentions USSR and starvation in response to [email protected]
    I think your comment is quite valid iff those running the USSR at the time were honestly concerned with the welfare of the populace rather than stoking their own comforts including the titillations of power over others. However, I doubt Stalin, or Mao with his cultural revolution, were motivated by compassionate concern for the masses.

    [email protected]
    Your quibble with my point is valid, and raises questions about what is essential, what is useful (to what degrees). That’s a debate for each society to have. I’d say DEM is at least in part protesting about the lack of provision of essential social infrastructure that would allow her to maintain dignity while contributing to society in the most efficient way – but I obviously stand to be corrected by the best authority on DEM’s thoughts.

    If the objective of the government is maximizing the efficiency of contribution, then efficiency of consumption between people is an issue. A dollar/euro/pound spent by DEM or on the social infrastructure she needs is more efficient than the same amount given to the resource-rich, especially if it helps DEM produce goods and services that are most needed within the community rather than luxury items only the well-off consume. But that’s Keynesian – and parts of Keynes’ works became fashionable recently, but have gone back out of fashion. (Hmmm… cynically wondering whether the fashion correlates to the pressures on which members of society).

  13. kvd
    Posted January 24, 2011 at 12:35 pm | Permalink

    A dollar/euro/pound spent by DEM or on the social infrastructure she needs is more efficient than the same amount given to the resource-rich, especially if it helps DEM produce goods and services that are most needed within the community rather than luxury items only the well-off consume.

    Agree with this completely.

  14. kvd
    Posted January 24, 2011 at 1:14 pm | Permalink

    Dave, this is only a hesitant comment: efficiency, aspiration, striving, is a “bottom up” thing; you can’t successfully deploy it top down via a managed economy – despite the very best of intentions of a benevolent dictatorship/committee.

  15. Mel
    Posted January 24, 2011 at 2:06 pm | Permalink

    Lorenzo,

    You appear to be raising the spectre of flexicurity as practiced by some European countries. I find the idea appealing myself, given the likelihood of min wages destroying jobs. But if you favour such an idea I wouldn’t define you as a libertarian.

  16. Posted January 24, 2011 at 2:36 pm | Permalink

    I’m wondering whether DEM could give a little exposition on spoon (in the sense of “Spoon Theory”) supply, distribution and consumption, especially how she thinks different means of distributing spoons would affect national productivity to different degrees.

    Assistance with transport is a “spoon”, a very important one – and DEM about to have that spoon taken away.

    (And btw – I reckon that classical spoon theory is “special theory of spoons”, that there is a “general theory of spoons” that applies to those without classical chronic conditions, but who suffer the general pressures that put them near a threshold of becoming catastrophically unproductive, such as when stress finally cracks over into depression).

  17. Posted January 25, 2011 at 12:19 am | Permalink

    I’d like to answer that Dave but I haven’t the cutlery…

    One thing I have quite liked about the Conservative rhetoric has been the restatement of the idea that there are “different ways” of doing capitalism. Mutualism like building societies, the co-operative movement and the middle class British favourite, John Lewis (department store of champions) can be just as economically successful as the more ‘parasitic’ modern norm. Quakers have proven historically that capitalism with conscience is entirely possible and we have the models of umpteen ‘model villages’ for factory workers to prove it (New Lanark, down the road from me was founded by a Unitarian rather than a Quaker mill owner, but the basis of employee education, living conditions and healthcare is identical).

    Everything has more than one angle. I understand the economic theory that having a minimum wage makes it harder for unemployed people to enter the workforce but I think that currently it has better social effects than the alternative (especially as low-skilled immigration has been effectively put beyond our control by EU rules). I’ve worked for a psychopath or two in the business world and so realise that there are indeed some employers who live for the chance to screw you over (we need a lot more professional management training for small businesses in this country) but most are just trying to make a profit. What’s that Adam Smith quote about people doing great things for society despite their motivation being purely self-serving?

    That’s the other nice thing about capitalism, it doesn’t care if you’re white, black or brindle, disabled, gay or female, it only cares that your business is profitable. It’s also very hands off and supports the public/private distinction which protects a wide range of liberty rights that are interfered with in order for more socially intrusive economic systems to work. A market-led system in effect, manages itself. An outcomes-based system means paying people to manage and inspect it constantly. The former is therefore cheaper the same way that waiving tax for low earners earning up to £10,000 a year is a lot cheaper than the current system of taxing half of them at the normal rate and then having them claim it back from HMRC every six months via the tax credits infrastructure. People on a low income will be best served themselves by the increase in income however it is achieved, but ‘topping up’ seems an extremely costly and inefficient choice for wider society as a whole.

    At the moment our national priority is to slash administrative costs where possible, hence the targetting of the welfare net. I’d argue that there are effective alternatives where admin could be reduced FIRST before we cut assistance to those on their absolute uppers. Yes the poor will always be with us as one tail of the economic distribution spectrum and this will probably be the lowest 20% of the population, but the idea of improving access to education and the workforce is to ensure they won’t always be the same 20%. Yes you risk high-earners getting a ‘free ride’ on measures designed to improve life for those at the other end (rich people would get their first £10,000 tax free as well) but due to the social benefits of people becoming more economically successful I personally don’t have a problem with this, so I find it harder to justify expensive means-testing regimes as a way to ensure only the “deserving” receive the benefit. I’d prefer having a lower level of benefit for all than a higher benefit for a select few, but that’s a matter of personal economic taste and doesn’t imply a value judgement.

  18. Posted January 25, 2011 at 9:26 am | Permalink

    [email protected] – agreed on the different ways, so, with those in charge compassionate first, using capital as a /means/, seeing themselves as a provider of a living for others, and obligated to provide a /decent/ living, rather than exploit, things can go better.

    But then, with folk like that acting as managers, /any/ system would work.

    The clearest example comes from health funds. Old mutuals paid out more than getting in subscriptions, by prudent investment getting returns, modest admin costs. The new corporates, if you grovel through annual reports, pay out /less/ than subscriptions, profit marginally more than the government rebate, because they are less competent fund managers, or profiteers taking advantage of the political landscape.

    Ditto superannuation – the non-profits far outperform the big companies.

    Ditto clothing – Fletcher Jones was for decades a popular provider of decent clothing at decent prices, to those with modest tastes. All employees were partners – the proper name of the company being “Fletcher Jones and Staff”. It got taken over by a corporate… and started going down the gurgler.

    Capitalism with a human face, versus the faceless predators who’d love to profiteer in a dickensian manner.

    If politicians can promote the former mutuals, undo the marketing and political clout of the latter, then the traditional arguments of Smith, the invisible hand punishing unwise risks severely on an individual basis, then things might improve. If the tories can reboot capitalism, clear out the structures and close the loopholes that promote parasites, then that would be an improvement. Can’t see it happening though – the parasites won’t go quietly.

    So… Question: what’s the difference between a mutualized enterprise and a collective?

  19. desipis
    Posted January 25, 2011 at 9:39 am | Permalink

    Dave, I was surprised how much I related to the “spoon theory”. It pretty much described how I handle getting through day to day life despite the fact that I’m pretty much the epitome of privilege. My internal “spoon economy” is more important to my wellbeing and happiness than other factors such as financial status.

    The idea that everyone (or even just a significant portion of the population) needs to manage their own supply of spoons is one that supports an economic system that emphasises individual choice, but also demands a system that acknowledges that individuals are vulnerable and potentially unable to consistently behave in an economically rational manner.

  20. Posted January 25, 2011 at 10:49 am | Permalink

    [email protected]

    Yes – individual choice.

    Unfortunately there are quite a few (and one encounters then even in privileged Malvern) that report the individual choice being something like “Do I take my anti-schizophrenic meds, or do I eat?”

    My choices haven’t been so harsh, but I’ve had runs of months where it’s “Do I work 90% of my waking hours, not having a life but crashing out as soon as I get home to cover an increased need for rest, or do I risk losing my job and the ability to pay rent?”, each day running up a bigger debt on spoon credit account.

  21. Posted January 25, 2011 at 10:31 pm | Permalink

    So… Question: what’s the difference between a mutualized enterprise and a collective?

    Uh, one is John Lewis and the other are Borg?!

    It’s basically what Capitalism did prior to Salomon & Salomon in 1897, when the Lords confirmed companies as seperate legal entities and effectively limited liability for the first time. “Capitalism without factories” to quote one of SL’s study group. Mutualism is the name of the social movement, co-operatives are one of the types of structure where the employees own the business and reap the rewards, in a building society it is the depositors who effectively own the business and reap any rewards. Actually, people get so enthusiastic about John Lewis they are compared to the Borg… (unfairly I think – I’d work there if I could). The John Lewis Partnership is made up of every employee in the business and whilst the CEO is well paid, he is not a fat cat as his salary is restricted to a certain multiplier of what the lowest partner earns (I think it’s 72 times, which sounds a lot but isn’t compared to the standard high street model where CEOs earn several million while the lowest earner is on eight hours at minimum wage for example). The BBC documentary “Inside John Lewis” was excellent.

    Apparently the UN have named 2012 the international year of the co-operative, so you’ll probably be hearing a lot more about this kind of business model over the next 18 months or so.

  22. Patrick
    Posted January 26, 2011 at 4:11 am | Permalink

    Well, you might be, but then again 2011 is the International irrelevant agency of the year year of the what again??

    Many co-operatives are great, but they aren’t a whole economy. I hate to use the archetypal example, but Microsoft isn’t a co-op and never was, and I for one never begrudged Bill Gates or Paul Allen or any of the others who made fortunes their their money.

    On the other side of the scale, Goldman Sachs was a partnership for a very long time and still is effectively ran as one. I have never begrudged anyone their their money either (well maybe Robert Rubin but not the money he made whilst there) (what I do hold a grudge against is the absurd lefties who insist that we regulate the socks off the world just so that the millionaires at GS can become even richer).

    Which firm do you prefer and how do you think their corporate governance structure has contributed to this?

    Also, iirc Salomon v Salomon confirmed separate legal personality, not limited liability as such. Limited liability, like nearly everything a lefty hates apart from humanity, is the creature of statute. Iirc, I don’t believe that the various shipping and Atlantic trade companies acted in any particularly ‘John Lewis’ way prior to Salomon v Salomon.

  23. Patrick
    Posted January 26, 2011 at 4:18 am | Permalink

    Also, one of the biggest effects of limited liability is reducing the costs of investing. The whole friggin point is that without limited liability you and I could never afford to invest in anything because we would be taking the risk of going bankrupt each time, so we would have to conduct careful due diligence and be closely involved in supervising the business we had invested in.

    With limited liability we can simply buy a few shares and walk away comfortable in the knowledge that we are not going to lose anything more than what we invested. Limited liability broke the cycle where only the richest and most connected could afford to be rich, and in effect where only the aristocracy had the right to be rich.

    As usual, it is the little people who benefit most overall (if, that is, one accepts diminishing marginal utility – since it appears to be an article of faith in the present discussion, I imagine that that box is checked).

  24. Posted January 26, 2011 at 8:03 pm | Permalink

    On the other side of the scale, Goldman Sachs was a partnership for a very long time and still is effectively ran as one.

    Which makes it a mutual 🙂 as are joint ventures (or joint vultures as they’re often referred to). Mutualism doesn’t guarantee peace, love and mungbeans in management just that more of the workers (in the case of co-operatives ALL of the workers) have a stake in the company they work for and often input into management decisions depending on the founding philosophy . It can be achieved with either model but is a lot less common in a limited liability corporation such as Microserf. You’re just as stuffed if it goes belly up but tend to be better motivated to work harder. I know I don’t work well ‘for’ people, I prefer to work ‘with’ people. Some bosses can handle that, some can’t.

  25. desipis
    Posted January 27, 2011 at 7:50 am | Permalink

    As usual, it is the little people who benefit most overall

    It’s the middle class that would benefit from small scale investments. The poor/lower/working classes typically don’t have significant wealth to invest in the first place. I guess it depends on your perspective as to who are the ‘little people’.

  26. Patrick
    Posted January 27, 2011 at 9:28 am | Permalink

    They do have pension funds in Australia and increasingly the UK.

    And they benefit from the vast increase in activity that low-transaction-cost funding provides to the economy.

    However, I agree that the bottom 5-10% is a completely different question.

  27. Posted January 27, 2011 at 11:39 pm | Permalink

    It’s the middle class that would benefit from small scale investments. The poor/lower/working classes typically don’t have significant wealth to invest in the first place. I guess it depends on your perspective as to who are the ‘little people’

    Given the magic of compound interest anyone can benefit from a small scale investment given enough time [Noel Whittaker, you’re my hero]. For example, one of the best investments a British parent can make for a child is not this “child trust fund” rubbish that’s just been abolished, you’re actually better off starting up a Stakeholder Pension for your baby. Put his first ten years of child benefit straight into it and even if he makes no further contributions as an adult, he’ll be set for life thanks to compounding interest. That seems to be the basis of the Singaporese social insurance system – your problem is of course, coverage of those leftover from the old system or who move to the country as adults.

    You’re right that most people at the lower end of the economic scale DON’T have money to invest anymore. It has effectively been hoovered up by the credit industry and is spent servicing debts. As the credit market contracts in the next few years this will change and poor people will have to start ‘re-skilling’ to achieve subsistence (few grow their own veges or raise their own animals to reduce costs any more, and the wartime “make and mend” culture is long gone).

    Desipis, they might also “benefit most overall” from the general rise in living standards that follows a successful economy as even small increases are worth more to people on lower incomes (an extra £20 a week won’t mean much to a billionaire but might be a hugely significant improvement for someone on £8,000 a year).

    @diminishing marginal utility – I know SL doesn’t accept the Labour theory of value at all, but I’m a non-economist so I’m not entirely convinced. Am not quite sure what you mean by this though, Patrick.

  28. Patrick
    Posted January 28, 2011 at 4:06 am | Permalink

    All it means is that if you accept, as you obviously do given your comment 76, that $1 means more to you than to David Cameron, then you should be glad that even poor people can now afford to invest when, pre-limited liability, only the aristocracy had the connections and resources to do so.

    Rich people may still benefit more from investment (although this seems to be partly a recent phenomen) however the fact that less-well-off people can now benefit at all makes it a large winner for them.

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