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Archive for October, 2009

(What to change)

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Finally, I get to write a really short post on a topic.

Local body rates and local government taxes could be a huge subject, but I can get to take a dodge on this subject, because at the current time there is a large legislative bill slowly working its way through Parliament exclusively on Local Government Reform.

Until such time as that has been fully defined, passed into Law and had time to be tested on the ground, we wont know what is good and what is not.

Who knows, it might be the best thing since sliced bread, there are even some indication so far that there could be some significant merit. Maybe…

In any case I wont prejudge it.

(come back in a year and see how I feel)

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(What to change)

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Tax’s – can’t live with them, can’t live without them. What can you do? Well …what you can do (to crib a line from a comedy routine)… is to try and make them fair and reasonable – chance would be a fine thing. The problem is of course, what does that mean, every man under the sun has their own opinion about how and what and where. And as the saying goes, opinions are like arseholes, everyone has got one [..and..].  Typically too, most people’s views on tax tend to boil down to how can I minimise what I have to pay and offload the burden onto someone else. Most of any tax code after the first couple of pages is about the machinations and manipulations of various interest groups and sectors to wangle themselves some exemption or other. Alternatively it is the scheming of the state revenue service to find anything and everything that it can sink its fangs into in order to leach off as much of the juicy goodness as possible. Basically everyone in the whole system is trying their level best to look out for their own self-interests to the exclusion of the rationality and utility of the system as a whole.

If any State system needs a scalpel to the heart and vigorous job of recision, it is the tax and revenue system. Not that there aren’t actually some good features, there are and they need to be appreciated. As for the rest however, the quicker they can be given a decent burial the better. The point is that a bad tax system does untold damage to the whole economic system, often in areas where you are not expecting it. It is the untended consequences of poorly thought out tax policies that is so problematic. Inevitable also, the haphazard responses and attempted patch’s to those problems do nothing to correct the original mistakes. Governments are at fault in so many ways for creating an environment where there are perverse incentives for the misallocation of money and resources. Badly thought out tax policy can reward behaviour we don’t want to encourage while discouraging the things we do want. Once again we end up create situations where we are effectively paying people to do things we don’t want them to do. That situation is always on a hiding to nothing. So let’s stop, amend the system and make some changes, a tweak here and a tweak there, how hard can it be? But if it was that simple, we wouldn’t still have the problems we do would we, they have been tweaking furiously since forever. At some point you have to acknowledge the failures, stop, start over and build something rational from the ground up with clear principles and clear priorities.

In the end, one of the biggest priorities has to be that you don’t spend more than your income. That can’t ever be allowed to be breached, I’m sorry but it just can’t. The problem with that is that it means that a lot of people are going to have to face up to the reality that the current spending on their favourite hobby horse or programme might just have to be eliminated. Certainly there are plenty of government spending programmes that could well be just wiped altogether, but it need not be completely a slash and burn exercise either. The answer can be quite simple and effective. If government revenues fall by 10%, then the answer is that government spending must also fall by 10%. That can be spread equally across all budget areas and the net result is a balanced budget. Of course it will inevitably create no end of bitching and moaning too, but – tough! It is not too hard, whatever the wailing may plead, it just means people have to get their heads around the concept and get used to it. It means that systems and processes have to be put in place to amend and scale organisations to cope with fluctuations in budgets. And it means that people’s jobs may well just stop at the end of one financial year and the beginning of the next. So it means that there needs to be a very critical look taken at just what exactly the spending priorities are because not everything is going to be able to be paid for, and therefore some things are just not going to be able to be done. Some things may have to be cut if they can’t make it far enough up the priorities list for an allocation from the available resources. Mostly though, it is about recognising that Tax’s are actually about Spending. Appropriating money from one sector of the economy and putting it elsewhere. Robbing Peter to pay Paul, and usually with a whole hidden political agenda involved too. In that respect, we need to get a firm grip on our addiction to spending, particularly to spending other people’s money. But that is a subject for another Post, here I want to focus on how the State goes about collecting tax revenue, because however much we may resent paying tax’s, our society simply won’t work without us all contributing to the commonwealth, therefore tax’s are going to stay with us all for a good while yet.

In one respect, tax sometimes can be eliminated. If the State has access to huge resources that it can sell to generate income, then tax’s normally imposed on regular citizens can potentially be eliminated. Many oil rich States have found that they receive enough revenue from taxing that one industry sector that they are able to forgo income or sales taxes. There are of course issues with that whole concept too, but in theory, a State with a big enough revenue stream from where-ever need not interfere in the financial transactions within the rest of the economy. Brunei, Alberta and much of the Arabian peninsula States for instance have been famous for low to no tax rates made possible by their Oil revenues. Most countries however are not so lucky, the burden cannot be passed off so easily. In order to finance their spending agendas governments need to siphon off a percentage of their countries GDP. There are several problems with that of course. What percentage, from where, and spent on what? The damaging consequences from poor decisions about any of those points is critical really because no society has so much wealth that they can afford to piss it away on mistakes and errors. So if your country is one of the normal ones, that can’t avoid general taxation, then there must be taxes and the more intelligently they are designed and applied the better.

What would an intelligent tax system look like? Sometimes it is easier to get at that by defining first what it wouldn’t be. Just recently I have been listen to some of the debate here about road user charges and how heavy vehicles and diesel vehicles should be rated so as to contribute their fair share to maintaining and developing the roading system. Talk about arse-about-face arguments, proposals and thinking. What much of the status quo agenda came down to was ensuring that the bureaucracy didn’t have to stir itself in order to make a fair and equitable system work. It was preferable to pass through the costs rather than have the system take the trouble to work at facilitating ease of use for the consumer. Basically it is a case of bureaucratic capture of the system, with a subtle overlay of marginal and peripheral sectors, albeit politically influential sectors, distorting the system to retain their perks and privileges. Specifically in this instance, it was that diesel fuel instead of simply having a sales tax on it, as is the case with petrol, has to labour under an asinine system of road user charges. The cost are laid off onto individuals so the system doesn’t have to worry about them, and sectors like farmers can avoid having to pay the tax at all. It is this sort of thing that creates the distortions and incentives to create or exploit loopholes. Once you start down that track you are doomed to a slippery slope and are liable to unintended consequences as well. The simpler the system is and the more universal it is, then the less incentive and opportunity there is for fraud, evasion and avoidance of taxes. Not only does that sort of behaviour mean the burden on everyone else goes up when some-one cheats the system, but even when that avoidance is completely legal and within the rules, how much time, effort and resources are soaked up with finding, creating, exploiting or auditing a dodge? The instant you start designing in exceptions you are creating the opportunity for a domino effect of downstream problems. Certainly if you were designing a tax system from scratch now, you wouldn’t do it the way it currently “works”.

So lets do that, design a system from scratch to achieve something that actually works. Cognisant always that the objective is not to generate the revenue that the government may arbitrarily decide it wants, but to take a percentage of the nations GDP that is economically sustainable. As I said earlier, it comes down to how much, from where and spent on what. The “what” is another subject, but the “how” and the “where” are absolutely relevant. (one small caveat first, local government is a subject I will also deal with in another separate Post, that will include local body and water rates etc) I am interested here in the national structure and systems for the central government. And at this point I will acknowledge the one significant system that does substantially work, GST, our VAT style sales tax. Yes there are plenty of people ready to complain about it in one way or another, and they are wrong. It may have aspects that you may chose to debate or argue about, but it is far and away the best system in comparison. In it’s implementation here in NZ it has the benefit of simplicity and of being substantially universal. Where there is a failing in the tax system it isn’t so much with GST, it is with the other older types of taxation that still remain on the books but have outlived their usefulness and distort the economy. Pretty much the lot of them can be eliminated forthwith. But before anyone starts getting too excited about that idea, there would still need to be a good number of new and sympathetically integrated taxes

So, GST stays substantially as is. But PAYE income tax should be eliminated. It is inefficient, it is distortionary and it is the government getting between an employer and an employee in a manner that simply cannot be justified. It is what it is for a whole bunch of historical reasons, none of which stand up to analysis. The deficit to government revenue caused by the elimination of income tax could be made up by an increase in GST. GST already supplies the substantial majority of government revenue anyway, income tax is increasingly marginal and could be very easily swapped for additional GST income. GST has head-room to be increased in the absence of income tax, from the current 12.5% to 18%. It could even go as high as 22% if necessary. Albeit at that point there starts to be problems of marginal utility. I don’t personally believe it would need to go higher than 18% if it is part of a comprehensive tax package. So then there are the other elements of a proper tax system that need to be properly considered: User Charges and Business Taxes.

User charges, or user pays, is simple enough in concept. What’s more it is right in practice too. However the devil is always in the details. In theory, governments could charge for absolutely everything they do and in practise it could be argued they already do. What services or outputs any government department might charge for, and at what level simply is not amenable to quick and easy guidelines. Should the government charge for issuing a passport? It is a right of every law abiding citizen to have one, so why should you get charged for it? What’s more, do you then get charged GST on top of the fee as well, a tax on a tax? If the fee is only nominal to recover some part of the costs, is that OK, and what % of the costs is reasonable? Is there some way of determining what services the government offers or provides to all citizens as a universal right and therefore will not charge for, as opposed to everything else which might attract some part or whole charge? Perhaps it can be argued that in order for some services to be available, beyond a few core government responsibilities, they will have to be charged full rate for? Maybe if income tax is abolished and GST is held low, then that would in any case provide for a situation where everyone had sufficient resources to be able to pay as required. Much of this you could only ever determine as a consequence of what impacts and results come from any changes. In other words, it all depends! So until you start, and try, and let the system evolve, you wont know what can be achieved or what is necessary. All you can do is create a system that is as flexible and responsive as possible, and be prepared for a lot of arguing.

Business taxes are the area that is going to provoke the biggest controversy. There are so many factors intertwined it could make a grown man cry. Perhaps the aspect that provokes the biggest controversy is the situation where a company can make huge profits and yet still end up paying no taxes. That is a situation guaranteed to provoke the ire of regular tax payers. But it isn’t as simple as that of course either, although there is enough truth to it to warrant concern. Mostly it is all about having a tax system that is so convoluted and contradictory that it generates preposterous results. Mostly it is an accounting fiction, but one made necessary by the systems that businesses have to operate within. Compliance costs, ACC, insurances, withholding tax, depreciation, staff liabilities, the list just goes on and on. None of these things adds to a company’s profitability and little of it realistically contributes to any wider well being either. In the background is always the possibility that if you make things too hard, then businesses will either simply fold or more offshore to a more benign regulatory environment. That is the reality of globalisation, competition and international arbitrage. There are governments out there that will effectively bribe “your” companies to go and set up shop in their countries instead. You may well have to swallow your pride and accept that the price of having a business operating in your country and paying wages to your people is that you have to offer a very low tax rate. Or not. It may not be as bad as all that, there are often a whole lot of reasons a company may stay or go. A well designed system of tax and regulation may work in conjunction with good infrastructure and skilled employees to make the equation work for you. Again, it all depends. But one of the things you can immediately and effectively do is simplify the taxation environment. Businesses will appreciate a simple and equitable tax system more than just about any other single thing. Things like ACC, Kiwi-saver etc, etc, are all good and worthy ideals I am sure, but the effect they actually have at the coalface is to load more administrative costs and work onto a business. When that happens, you know then that these programmes have missed their mark. The aim is to not interfere with a business doing its core business. Let them get on and attend to their knitting.

Yes you can tax that business, but it is possible to do that in a way that means that it can be a straightforward calculation to be handled at the end of the business process, not during the middle of it. I wont go into all the contemplations I have had on the matter here, but suffice to say taxing on a final profit is a bit of a doomed exercise, businesses will always find some way around that. And charging a pre-emptive withholding tax is simply unethical on the part of Government. Those twin dynamics of trying to either chase up a dodging target, or the flat out arbitrarily extorting of money is a recipe for evasion and diminishing returns, let alone other considerations such as capital flight. In fact we need to take a very close look at the morality and philosophy of any taxation proposals. What exactly are we getting involved with and interfering in? Yes, businesses just like anybody else need to make a fair contribution to the society they operate in. And in a way it can be argued they need to make a bigger contribution because of the bigger rewards they extract, but we need to be very careful too. If a business makes a profit by having the opportunity to conduct its business within a community, then it is right and proper that some reasonable part of that profit is returned to the community. The businesses opportunity exists as a result of the community providing an accommodating environment. The relationship needs to be reciprocally beneficial and the how of taxation in this context is important, but can get very complicated.

One level of taxes on businesses can be user pays, and that is simple and fair enough. For a business, that needn’t be any particular calculation, it is just an invoice item for something they use or purchase. Just so long as the costs added to businesses do not run away out of control. Other forms of taxation though can intrude into relationships where they really shouldn’t. A capital investor in a company is using their own tax paid up dollars to finance a productive enterprise, there is at no point in that transaction any morality in extracting a % from that capital flow, either in or out. Likewise, the company paying an employee for their labour does not warrant the State putting its hand out and extracting a % of that transaction either. The materials and services that a company purchases will already attract GST, so there is no rational for any further taxation there. Finally, there is the profit that a company makes from its endeavours. Profit is a bit of a gnarly concept to nail down, is that before or after X, Y and Z expenses. Does the investor’s return on investment come before or after a company’s statement of profit? What is fair and reasonable in respect of taxation of investment returns, or on capitol gains? For my part, I think that there should be an income tax on investment returns, equivalent to the GST rate, but there should be no tax on capital gains. I will have more of a look at Profit/Tax in another Post on Business Taxation soon.

As an aside, ACC is another whole system that needs to be addressed, but which I am going to take a pass on. Realistically it is part of the medical and healthcare system, so why it was ever separated out I am at a loss to explain, but without knowing the complete history of this, there isn’t anything anyone, including me, can intelligently comment on or contribute to the debate. Unfortunately it looks like it has already imploded under internal contradictions and will devolve into a discredited rump. But the collection of monies and the disbursement of benefits will inevitably continue in one fashion or another. I have no doubts it will be unrecognisable in five years time regardless, whether we have a revolution or not. I merely fear that we will continue to pay higher and higher levies in the meantime while getting less and less service, that has become the standard we have become accustomed to. We shouldn’t accept that of course, we should do something, but where are the protests or demonstrations on the street? Apparently no-one really cares that more and more money is being sucked up and yet less and less service is being produced.  There is a corruption in the heart of the system, a sickness that will not fix itself and it is time for an intervention. I am just not the qualified person to advise on it.

So yes, tax revenue needs to be raised for the good of the community and the resourcing of social programmes. There are good ways and means of doing that. A few comprehensive and universal taxes can cover everyone equally, they will be equitable and more importantly, they remove the incentives to waste resources trying to avoid them. The constant corollary is always that the government needs to be responsible and in control of its own spending. At the moment the government grasps greedily at any sources of revenue it can, in the process it stifles growth and commerce and yet is still never satisfied with the available revenues. Government can in fact get by on less, it is simply a question of prioritising what is important and living within the available means. Also, every dollar that the government takes away from the rest of the economy is only ever useful if that dollar can be at least as usefully employed as it would otherwise be. Unfortunately for every dollar taken in tax, far to often only some 25 cents of value ever makes it out the other side. The best tax this country could ever raise would be the recapture of that value lost within the government systems. A 25% improvement in efficiency would equal a 100% improvement in services. Realistically, it isn’t that there isn’t the money necessary to do the things we want and need, it is that we are essentially incompetent at managing the money we have. Tax revenues at any amount can’t save us from that.

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pyramids

Experts and laymen alike have looked upon the pyramids of ancient Egypt and wondered at their size and precision, impressed with the engineering involved. However I don’t think the miracle lies so much in the laying of blocks one upon another, as much as it is in the organisation of manpower and resources required. The pharaohs were able to channel huge amounts of intellect, equipment, labour, and rations – into piling up a giant heap of rocks. The size of those piles still impresses us today, so we are not talking small beer …so to speak. The crux of all this though, is that all the resources that went into building the pyramids had to have been a surplus over and above what it took to just keep their society running.

Today, we have far more people, far more food, far more technology, knowledge and power. So theoretically as societies we should have far more surplus available for national projects, and in fact we do. Twice in the last hundred years we have had world wide wars. Apparently there was so many spare resources lying around there didn’t seem to be any particular reason not to just burn them off in an orgy of destruction. It was the equivalent of burning money because you can. Except it wasn’t just money, it was fuel, buildings, ships, planes, munitions, food and lives. It would seem there was too much of all of them, so it was necessary to eliminate the surplus. It could be argued that there were other and better things that could have been done with that surplus, but apparently not, or they wouldn’t have gone and done it all again a second time, only bigger and better.

The proof of just how productive modern societies are and how huge the surpluses they can make is the examples of Germany and Japan (should we call them Deutschland and Nihon?). Both of these countries were bombed back into the stone-age, and yet miracle of miracles, within 30-40 years they have returned as world leaders of economic power. Hmmm…! That’s half of a human lifetime, from destitution and rubble to power and prosperity. Apparently if you put your mind to it and have a clear plan, you can move mountains, or build one and call it a pyramid. So how come we don’t seem to be able to come up with a plan and the resources to make the health system, education, or ACC run properly? How come the pension system is crumbling and unsustainable? What is the actual problem here, is it the resources available, or is it the organisation and planning?

Well, it is the organisation and planning of course. There is no question about that. The only question is: organisation of what, planning of what? And here’s my answer, it is about the organisation of our whole society and the planning of our whole financial system. Communism had a bit of a grievance with all that too, and had a bit of a go at reorganising it all in order to create the ideal workers paradise. Lets just say that it wasn’t a conspicuous success. Apart from the fact that surpluses, such as they were, got diverted off into competing in an arms race with the capitalist societies, communism never really got the hang of encouraging people to strive and endeavour to achieve and succeed. Capitalism works far better in that regard. When Japan and Germany were struggling to rebuild, there were incentives and rewards for individually and collectively contributing to the cause. During that whole reconstruction phase, capitalism worked really well. It doesn’t seem to work so well when it’s a mature system though, somehow the rot seems to set in and the focus and utility gets lost.

Actually, that’s probably not too hard to explain. Rebuilding your society from scratch means that there is pretty much a lack of everything. Anything you build is going to be needed, and all the industry sectors, big and little, will have a crying need for capital investment. Investment, labour and planning all flow into recreating the essential infrastructure and services that a modern, technical society needs. There is no particular intellect required to see what needs to be done and no particularly sophisticated financial planning needed to balance and sustain a complex and mature system. But once you have rebuilt all the basics and a lot of the luxuries, what is left to do and where do you go next?

That actually requires some very serious thought and planning. Otherwise the money-go-round will start to get distorted and corrupted. Money chases after spurious projects and schemes in order to maintain the desired return, and inevitably it morphs into a bubble economy. Too much money chasing not enough to do and consequently serially inflating the prices of one asset class after another. The economy falls into a boom bust cycle and everyone’s lives gets whipsawed backwards and forwards by the tidal waves of too much surplus resources surging around looking for a home. Those surpluses need to be managed intelligently, channelled productively, utilised efficiently and distributed equitably. In other words, exactly what is not happening currently. The control of society’s surpluses is incrementally being restricted to fewer and fewer people and institutions, that have no interest or idea what they are doing, beyond increasing and maintaining their wealth and position.

Ponzi schemes, outrageous wealth for a privileged few, and waste, have become the motif of our age, and no-one seems to have a plan or conception of what to do about it. Our very wealth has created the problems we now face. Ironically we are going to starve in the midst of plenty because our systems and organisation are so right royally screwed up. At this point I don’t think there is any option other than revolution, because the “powers that be” are simply not going to give up their control or amend their habits when that has been so immensely profitable to them. The system works – for them – for the rest of us it is an oppression and a torment, a leach and a trap. The tragedy of it is that it doesn’t need to be at all. All our wealth and power as societies could be put to so much better effect. And in the macro sense, it isn’t a difficult fix at all. There would have to be a reorganisation of power for it to work, but the thing that would make our societies work properly again is straightforward enough.

Investment needs to flow into productive and useful enterprises.

Real estate speculation, condominium developments, casino’s, Banks, financial schemes and hedge- funds are NOT productive and useful enterprises. They are just very profitable ones when they are operating within a corrupted and misguided economic system.

To that list you can add, entertainment networks, professional sports teams, luxury hotels and resorts, tourism, haut couture, jewellery, fashion handbags and shoes, supercars and superyatchs, private jets… These are all things you have and do when you have too much time and money on your hands and not enough real work to do.

So, what are productive enterprises, what should we be constraining capital flows towards and into? Well, I can think of a few things, and education would be fairly high on that list, but I don’t need to lay out a prescription here for you. Use your own imagination and common sense. What would YOU invest money, our surplus resources, into in order to create something better for the future.  ~ and don’t say a pyramid, LOL 😉

For in the end, the decision and the future IS going to be in your hands, so it behoves you to think about what you want to make of it. The resources are there, we just need to apply them intelligently and wisely to useful endeavours.

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giza-500

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Surfing the internet can throw up some very interesting things now and again.

Here are a few things I found today.

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Charles (Oftwominds) has another interesting piece.

Here’s the link.

And here’s the chart I found particularly interesting.

The Dow Jones – inflation adjusted

DJI-inflationa

Charles was drawing the comparison between the 1960’s and the recent bottom.

I was rather more interested in the fact that projecting back to the 1920’s, the peak just before the great crash is about where we still are some 80 years later.   Hmmmm….

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The Lost history of Helmand Afghanistan

~ By Adam Curtis

Hmmm…

So, whats the difference between a waste of money and a gigantic waste of money?

The answer here.

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Still on Afghanistan, but taking a distinctly different approuch to the issues. A fun read whether you believe or not.

~ by  F. William  Engdahl

The geopolitics behind the phoney US war in Afghanistan

Link here

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(what to change)

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Commercial work – meaning what exactly…?  Well I am talking about all the people and work that is involved in the private/commercial sector.  Meaning not government, not voluntary organisations and not any work that gets done just for yourself or your family. I am talking about work that gets paid in wages and salaries. I am also trying to limit this discussion as tightly as practical, because there are aspects of this part of the economy that deserve special attention.

Firstly I want to explicitly acknowledge the strengths, benefits and issues of the private commercial sector. The commercial sector is the heart of the economy. It is where the entrepreneurial energies and ingenuity are found most predominantly, particularly in small businesses. Small business is the seeds of large businesses. Small businesses provide most of the employment in the economy – or at least that is what is always claimed and depending how you are measuring it, yes, it is substantially true. Small businesses are started and run by brave people who put huge hours and passion into making their dream come true. Often against huge odds and pressures, such as bad staff, unethical interference from larger competitors, unnecessary bureaucratic burdens by various levels of government and economic cycles that are beyond their control. Every year, thousands of new businesses are started and thousands fail as well. The general business environment is pretty hostile and it takes a lot of things to go right for a business to succeed. Those that do survive and succeed deserve their success. They have the opportunity also to grow bigger and even become the next big corporate success. Exploiting their niche and talents to become more than a business, they can become institutions. That is a pretty rare thing though and we could definitely do more to aid and encourage businesses to succeed.

It is all a fine balancing act though, between encouraging enterprise and restricting unwarranted and undesirable activities. Certainly business and commerce is often prepared to exploit any opportunity to make a profit, be that pollution, fraud or crass exploitation. Businesses are run by regular normal people, so they are liable to the same sorts of bad behaviour. However, on the flip side they are vulnerable to those same problems too. Businesses need employees in order to operate, employees who can as often as not be incompetent, lazy or just plain thieves. As things currently stand we have regulations up the wahzoo to prescribe all parties rights and reasonability’s in any commercial relationship. And where there doesn’t exist a rule already, there are courts and parliament to make a new judgement or ruling as necessary. Sometimes that even works as intended, although too often there are losses that just have to be absorbed without any effective comeback.  In this essay, I am going to try and stay away from the technicalities and legalities of commerce and look at some more holistic issues that deal with work as it impacts us on a personal level. The other stuff I will try and address in other posts that are more specifically directed at business, commerce, money, tax’s and government regulation. Here, this is about what work means to us personally.

There was the comment made under communism that they pretended to pay us and we pretended to work. Interestingly enough, it’s not so different under the capitalist system either. Yes there are plenty of people who make out like robbers and still others that manage fine just thanks. But there are also huge numbers of people who get paid really crap money. Unsurprisingly, a lot of people don’t particularly feel a lot of commitment to their work, or put a huge amount of effort in either. Realistically, paying people to come to work is about bribing people to do something they wouldn’t even consider doing otherwise. It is also about paying them the least you can get away with. Any dollar you pay to an employee is a dollar taken away from the bottom line profit. Anyone who has slogged their guts out starting and running a small business has experienced cost control and other issues the rest of us have probably never even thought of, in trying to get the business to pay them back something. Compared to the amount of work that an employee puts in, the business owner is going to feel that their efforts deserve reward ahead of anyone else. Of course it is all about balance, but where does the line get drawn?

Well as it happens the line has already been drawn somewhere and there is a whole dynamic involved. It involves the State, social culture, business constraints and practices. For the sake of argument, consider this scenario:  If the state paid $500 per week as a cost of living allowance (an unemployment benefit) to anyone who asked for it and wasn’t working, how many people do you suppose would just not ever bother getting a job at all? If you take that $500, add on another $100 for what will be taken straight off in PAYE tax anyway, and then add a little more, say another $100 per week, you are already up to a $700 per week gross income. $700 x 52 = $36,400 per annum. There are a lot of people that already only earn about that much at their jobs. So for an extra $100 a week, why would you put up with the crap involved in having to go to work? A hundred dollars that would probably get swallowed up in costs like your transport in any case. I suspect most people wouldn’t bother. I also believe that says much more about work than it does about people. I don’t believe most people are bone lazy, but I do think it means that most work just totally sucks, it is about the jobs and the workplace having become horrible places to be. It is also about how we have set up our society in a way that means the money runs everything. If you aren’t working and earning a wage or salary you will end up pretty well destitute. If I had confidence there was indeed some rational logic to the whole system then I could live with that, but that’s not how it works. The connection between what you do and the rewards you get are tenuous at best. I am not going to bother arguing that point directly with anyone, either you believe it or not, and I am not here to change your mind. Except to say that a sports star or musician can make in a week what most people make in a year. Hmmm, because they are worth it… I don’t think so. Certainly they can demand it within our current system, but that’s a whole other kettle of fish.

If anybody that wanted it could just opt for taking a $500 a week social security allowance instead of having to have a job, then a commercial enterprise paying any less is just not going to be able to attract employees. The nett result is that the amount that the state sets as the unemployment benefit, become the threshold for incomes. If a business cannot afford to pay above the threshold then it is likely to be out of business. So it becomes an interesting exercise between the government and the commercial sector setting the bar to take account of a number of factors. It’s a balancing act between: a benefit sufficient so that people are nominally provided for when unemployed, is low enough that people don’t want to stay on the Dole because it isn’t really sustainable, and that doesn’t compete with market wages or cost the govt too much. Leaving aside the cost to the govt, if the dole was set up at the $500 amount suggested, then how many businesses would collapse because they couldn’t or wouldn’t pay sufficiently more than that to attract workers. Quite a lot I suspect, but maybe we should just let them collapse. Are they really adding that much to the economy and society in the grand scheme of things? It is a tricky thing having society and the state get between an employer and an employee. There is a terrible potential for governments to destroy the economy. On the other hand a commercial, particularly corporate, sector that has driven incomes down to the point that a “normal” family life isn’t achievable is also destructive to society. When both parents have to work full time jobs just to be able to afford to exist, it means that something has gotten out of whack. Particularly when 50 years ago a family could manage to get by and even get ahead on just one income. There are a lot of extenuating circumstances to that situation of course, but the trend is clear enough, relative incomes have collapsed. Something is going to have to change soon because if this trend is going to be turned around then incomes need to start rising. If part of that means setting the environment so that businesses that pay very low wages to employees find they cant get anyone to do the work, then they would either have to raise pay or go out of business.

I a general sense I have no problem with companies going out of business, there would of course be significant cost involved with widespread occurrences of this, but on the other hand it also opens up opportunities for someone else to move in to meet the demand. The situation would also be vastly helped by moves on other fronts to stop miss-investment of money. This is really a subject for different post, but I will quickly say this: of the sum total of money in the economy, if we didn’t have so much sucked off by big commercials, corporations and monopolies, then there would be more money to spread around amongst the whole of the population. Since it is the working class that buy the things that these large corporations are selling, it makes no sense to impoverish the working class, Henry Ford understood that.  He determined when he started making cars that he needed to pay his workers above average wages, because they would be a big part of the customer base for his products. It was all a big money go round that needs everyone to be involved and succeeding. But the current money Barons couldn’t give a stuff about any of that, they just want maximum returns. The money games and the rules and practices are not designed to keep things equitable, they are designed to bias the playing field, to get the highest return possible. That wouldn’t matter so much if investment was into the productive economy, but unfortunately that’s not what has happened, instead investment has flowed into the bubble economy.

While I am no Marxist, he did make the pertinent comment that ‘Capital is dead labour sucking the life out of current living labour’. The accumulated capital from past endeavours is invested with the view to getting that regular quarterly profit and annual % rate of return. Unfortunately it doesn’t really care how and where it finds that from as long as it does. Hedge-funds and the like will look at a business plan and say, unless you can return me in excess of 17% return and give me a controlling stake so that I can buy, sell and configure your enterprise as and how I see fit to make me the most money I can possibly squeeze out of it, then I am going to take my $millions and put them elsewhere. Like into finance companies for instance, and look how well that has turned out. Worse actually because the terms of such investments often include provisions that the big-shot investor has priority in getting their money back first in any situation. Its not an accident that these types of people and organisation have ended up with mountains of cash, they screwed everyone else over in every deal they ever did.

If you are a farmer, you just have to accept that one year out of every five you are going to have a problem; drought, flood, frost, low prices, higher cost, whatever… something is going to mean that you wont be making any money that year. Therefore during the other four years you need to be prudent and make allowances for that. Your work is on average going to return you a profit but it is never guaranteed any particular year. OK that’s fair enough, farmers work their businesses with the understanding that’s the case and get on with it. And yet for some reason nobody else in business want to have to accept that sort of situation. If they can possibly wriggle out of any such problems they will try to. Instead of investors in a company saying “ohh we made a loss, that will have to mean we don’t get a dividend this year”, what happens instead is that the dividend still gets paid (because the investors are the most important people in the enterprise after all, Ja?) and the cost and loss instead get passed on to someone else. Normally that’s the employees in the company, either people are made redundant, wages are cut, or some other mechanism is found to get more and more out of the workforce. It wasn’t the employees that caused the problem, but they are the first to take it in the neck if there is a problem. Generally, problems in a company stem from management, or should that be mismanagement, but they are the last to take any pain. The top bosses have fabulous salary packages with bonuses and golden parachutes, and they in conjunction the boards have everything wrapped up so that they are Alright Jack, whatever the outcome. Even if the company collapses, often there is zero accountability to the small people, be they workers or the retail investors, but the management and major investors somehow manage to walk away with a tidy profit. Amazing how often in fact a company can be leveraged to the hilt, run into the ground, then left to die as a hollowed out husk. With that sort of dynamic permeating the commercial world, is it any surprise that labour/management relations get so bitter.

So workers get disillusioned and burnt out, or swap jobs casually. There is no value in the work they do, they are paid badly, working conditions are hostile, they are asked to treat other people in ways that are reprehensible, and the product they sell is overpriced hype. What are the rewards that would make you engaged and happy to come in to work in the morning? Not all jobs are like that of course, but too many are. How many people would say they would jack it all in if they had a choice, if they didn’t have to make the mortgage payments, pay the school fees, or service the car loan? There is also just plain inertia, they are doing what they are doing because they are doing it and what else would they be doing. Actually on that last point they are right, there really aren’t that many options. If you work in a bank for instance, what are you going to do if you leave your job? What you are trained and experienced in is banking, it is a seriously formidable hurdle to re-train as anything else, and if you move to another bank all you have changed is your seat, it is still just a clone of the original, nothing has really changed. So if work isn’t about fulfilment and other things like personal development, what is it about? Well, its about the money and we have made money the alpha and omega of everything, it has become a God around which everything revolves. We have houses that have to be paid for in a way where we never win, either from rents or mortgages that are pitched right up to the limit we can afford. Our homes are in suburbs miles from our work so the only option is to own a car and commute through rush-hour traffic and park at extortionate cost. Taxes on everything suck a little here and a little there and yet still they find something new we have to pay higher fees and rates for. Structurally induced inflation means that everything costs a little more every year, but incomes continue to stagnate. There is no longer anywhere you can stand where you are not getting taxed or charged. Our whole built environment reflects monetary objectives over humanistic ones. In order to survive you have to run your life away in the rat race wheel.

We get sops to keep us distracted and hopeful; Lotto, a pay rise, American idol with dreams of striking it rich and famous. It is all nonsense of course, for all we may fantasize about highly paid sports and entertainment stars, they are the exceptions, just noise at the statistical fringes. Our lived reality is that none of us are ever going to escape the trap, we are minions and wage slaves and we always will be. The commercial world and capitalism do offer opportunities, but it can’t be for everyone, it can only ever be for a select few. And if the system can be gamed to keep it an exclusive club for the hereditary elite then so much the better. There doesn’t need to be any specific restriction, it just needs enough obstacles and high enough hurdles that it is practically not possible for more than a few to make any progress. Some of that is just life and the nature of the universe, but some of it is things we actually can change. We do enough stupid things to ourselves as a society with our rules and regulations that there is room for dramatically improved results if we were working in a coherent and rational direction, but we are a long way from that currently. We have problems that need addressing and yet we are not only not addressing them we are effectively pretending they don’t exist. If we think happy thoughts and sing LaLaLa loud enough, perhaps we won’t notice we are spiralling into the toilet. It is a death of a thousand cuts, or alternatively it is the frog slowly being boiled. Either way, do you really want to live this way. If work sets you free, you wouldn’t know it from looking around the prison we have put ourselves in. What it mostly does is chew us up and spit us out when we have nothing left to give.

So lets start the revolution, we have nothing to lose but our chains. Yes, work is necessary, as is money, work can indeed be the route to a better future. It will take a lot of work just to reset our systems, let alone building and creating the wherewithal to improve our lives and society. Nothing is going to get done without a lot of disagreement and debate either. The pathway to better working situations will have to evolve, there simply won’t ever be a complete blueprint for the workers paradise. But if you enjoy and find satisfaction in your work, if you are getting sufficiently rewarded financially that you can get ahead, then things will be heading in the right direction. If you hate work and there are no good options available, then we can conclude that likely things are not changing in the ways they need too. There is going to have to be an intense philosophical and economic debate on how the economy will need to be reformed if we are to achieve the goals we desire. There is no point in delaying getting started either. I am limited in what I can usefully contribute to this endeavour, but I know it needs to be done and will advocate as strongly as I can for it. I will also try and write further commentaries, Posts and assays on the topic as and when I have something specific and helpful to add. In the meantime, if you have any thoughts or comments, then I would encourage you to express them. Many hands make light work.

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Addendum

Here’s an interesting article that has some pertinant related points.

Do Businesses hate their workers?

From the Blog “Naked Capitalism” 10/11/09

In America, it isn’t hard to answer the question in the headline “yes.” The oft recited, “Our employees are our greatest asset” is pure Orwellian prattle; most companies treat employees as liabilities, doing everything they can to minimize labor costs, getting rid of workers whenever possible. And this now extends well up into the management ranks, with most people who are still on the corporate meal ticket assigned responsibilities that would have constituted 1.5 to two jobs a decade ago…

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This is a “What to change”, just not one of mine. But it is so good I couldn’t pass it up.

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So – from “Mustn’t Grumble” ~ by Joe Bennett:

” When I become President of the World I shall hire someone to invent a shower control that a baboon could understand. It will have a single dial. That dial will say warm on one side and hot on the other and the distance between warm and hot will be substantial. There will be no ‘cold’ because on one takes cold showers except Mormons and I am happy to annoy Mormons. I shall have this shower control installed in every rentable room in the world. ”

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This would be one of those moments when you read something and go – yes, yes, exactly!!!   🙂

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October 19th, 2009

I was sitting down by the shore this afternoon enjoying what was one of the nicest and sunniest days we have had for a while. We are just moving into spring here and it has been pretty changeable. But today was lovely. Lots of big blue sky, warm sunshine and enough little fluffy clouds to make the picture.

IMG_2404. Auckland harbour and Rangitoto Island

As it happens, whenever I see a sky like that I am reminded, I know not why, of the skies over southern England in late summer 1940. Maybe I lived there in another life, maybe it is evoked by a movie or some such thing. This was the time when the Battle of Britain was raging at its height. Other writers have commented on how the bucolic scene was in such stark contrast to the life and death struggle that was being fought out amongst the clouds. Certainly I have read many accounts of the Battle that have stated what a wonderful summer it was, in respect of the weather at least.

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And then this afternoon the sort of thing happened that can only really happen in real life because no-one could script it or believe it in fiction. I heard the rumble of a big V12 aero engine out over the harbour and a plane speed in from the east over Rangitoto island and proceeded to put on an aerobatic show for the next 10–15 minutes. He was too far away for me to identify the plane, but the performance and plan-form was definitely that of a WWII fighter.

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Amid all the barrel rolls, loops, split S’s and reversals, I sat there entranced by this knight-errant of the sky, zooming to and fro, battling his phantom foes. Dog-fighting with the long departed of a far distant battlefield on the other side of the world. United though by a sky that echoed strongly those distant days and a plane that even now can stop a observer in their tracks and inspire wonder of the man and his machine.

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Whoever was flying today must have been having a ball. A perfect day, an aerial thorough-breed and a whole sky to throw it around in. I have done aerobatics before and it is not for the faint of heart, or of stomach either. So in many ways I was perfectly happy not to have been up there in that plane, but that small boy who still lingers deep inside me, who read all those comic books about the Battle of Britain, still thrilled today to the spectacle.

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I knew there was a reason I always try to keep my little pocket camera with me. You never know what amazing and wonderful things the world will spring on you if you can look up from the ground in front of you and take the time to see. I was given a rare threat today.

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I was told yesterday that it was most likely a Zlin.

So not a WWII fighter, and not a V12 either… Duh!

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