Occupy Wall Street

The ever delightful Chris Wallace on breakfastpolitics today gave the title In which I underestimate Occupy Wall Street to Sophie Mirabella's column in The Punch which was really title Protestors occupied with glib, childish, pointless fantasy.

I think Chris is more on the money.

Mirabella is absolutely right that the movement that is "Occupy Wall Street" is just a lot of un-happy campers. It isn't a movement driven by a specific agenda for reform. Mirabella writes;

Protest against a policy, protest against a corrupt Government if you want – but protesting against democracy and capitalism just seems so… well… laughable, pointless and politically adolescent.

In that she shows she is missing the point. These aren't people protesting about democracy or about capitalism - but about the way democracy and capitalism are practised today. She is right they don't know what they want - but they do know they don't want "more of the same." No amount of Mirabella ranting about the current Government not being a "good government" in Australia rebuts the revulsion the public is now displaying for the way politics is conducted.

As my first criticism I'll choose the much vaunted claim that an opposition doesn't need to reveal its policies until an election. That is inconsistent with the idea that it is a representative democracy - I want to know how the candidates will react to the unknown events in the future, not what their manifesto of things to be delivered is. Whitlam failed (in part) by not adjusting the manifesto to the economic circumstance; Howard learnt early the idea of "core" and "non-core" promises.

It is by the party and candidates core beliefs that I would like to judges them as my representatives.

The USA has it far far worse with a Congress determined to spend its life in posturing rather than action. There was a great episode of the West Wing in which Josh stated that he didn't want success in social welfare reform because it was too useful as a campaign tool.

More reasoned commentators note that "Historians like to collect things, to study them later, because to be a historian is to know that no one can understand the present until it’s past." They note with Mirabella that there is no agenda, but they reflect that earlier movements started the same way.

Nineteenth-century grass-roots populism made twentieth-century progressivism possible. Then, the rhetoric of revolution created energy for reform. Whether that will happen here remains to be seen. So far, no one is proposing a set of reforms; there’s nothing akin to the early-twentieth-century reformers who were part of the good-government movement.

A more detailed chronology of the protest concludes;

And not posting clear demands, while essentially a failing, has unintended virtue. Anyone who is at all frustrated with the economy--perhaps even 99% of Americans--can feel that this protest is their own.

That's actually a really good way to plan change - spend the time to understand the problem before leaping to solutions.

To understand the public frustration, understand the failings of the sector that are the centre of the protest - the finance sector. That's why the movement started at Wall Street.

In a recent Washington Post column titled There are no rogue traders, only rogue banks Barry Ritholtz noted;

Banks are supposed to have expertise in preserving capital and managing risk. If they cannot discharge those simple duties, then perhaps they should not be in the business of finance. Most of all, they should not be engaging in behavior that puts taxpayer money at risk.

And therein lies the nub of the issue - no one has confidence any longer than the financial system actually works. And fiddling with Basel III regulation is only part of the issue. At the heart of this lies the very culture of capitalism.

And that is nowhere better represented than in the obscenity that is CEO and senior executive compensation. Writing in the SMH today Michael West challenges the "labour market" view of executive salaries and wonders why when company performance declines executive salary stays high. Actually, the problem is the way the market is structured. The executives are all effectively in higher demand when life is tough - it is harder to manage a firm in bad times than good.

The real issue is how firms have dealt with the conundrum identified by Berle and Means that senior executives manage companies for their benefit, not the shareholders. CEOs like growth because it makes their job bigger, even if the capital being reinvested in the company could get better returns for shareholders if distributed as dividends.

The "solution" to the conundrum, to align the CEO incentive to the investors, fails because of the erroneous assumptions of efficient market theory. As discussed here yesterday there are problems with using market prices of assets as real measures.

But the biggest issue of all is that the bulk of money invested in equities comes from investors seeking long term, not short term, returns. The solution to that is to structure truly long-term bonuses - that is the bonus payments are only calculated and paid five years after the relevant period - including after termination, resignation or retirement. They should be calculated on the basis of total return (dividends + capital growth) over the period relative to either the overall market or a sectoral market.

Government can influence this outcome through the taxation system, by dramatically increasing tax on income paid as salary and reducing it on income paid as long term bonus.

An interestingly different view of the relationship between pay and performance was advanced in On Line Opinion today on politicians salaries. Under the heading "pay peanuts get monkeys" the author states that;

When the ceiling of your earnings is in the mid 300′s (notwithstanding the perks) the appeal of going into public office for this calibre of person is reduced, considering their earning potential in the private sector. Particularly when you consider the impact on their personal life: politicians are away from their family for significant periods of time, missing birthdays, anniversaries and pet funerals in the backyard.

I tend to think the issue is more the overpayment elsewhere rather than the under-payment here. But I also think we erred in the Latham inspired decision to change superannuation entitlements. I certainly didn't like well superannuated pollies going out to make second careers as consultants, but what we need is more a scheme that reduces that tendency. There is nothing more obscene than the current model that sees a political career as merely the pathway to the "higher" career of consultant. Just more salary doesn't solve this - a good superannuation scheme that is diminished by post political earnings is better.

To return to my first target. Sophie Mirabella needs to realise that the protesters are justifiably angry at both the way capitalism is conducted and the operation of our democracy.

It is inadequate of her to respond like Marie Anionette of being informed the peasants had no bread to eat and saying they should eat cake.

Novae Meridianae Demetae Dexter delenda est

London and Norway

So soon after the world has recoiled in horror from the bombing and slaughter in Norway we are confronted by the images of rioting youths in London, and later other UK cities.

I put the two together because there are some significant similarities - despite the fact that one is a mass movement and the other an apparent lone individual.

The similarities I wish to explore relate to the role of global media, the existence of a "manifesto", the exercise in "blaming" and finally the wider context of terror.

Global Media

The events in Norway and the UK aren't, in reality, extra-ordinary. Similar things have happened before in other places. However they feel more real and pressing because of the coverage they are able to receive. The Paris riots of 1968 came to us in news reports that were read to us or that we read in a newspaper. The London riots come to us as repeated footage of real people in real streets with real fires. The damage and spread looks far more extensive because of the way it is shown.

Don't get me wrong - this is a good thing. We can only benefit from having a greater appreciation of what is happening.

but as an audience we aren't yet trained to recognise the distinction between the scale of coverage of an event and the scale of an event itself. Earthquakes and tsunamis in developed countries look more devastating because we see more pictures.

The manifesto

Norways's mass murderer had a "manifesto" that was not explicitly racist but decried muliculturalism. However he had a specific dislike for what he called "cultural Marxists".

Off the back of London we are warned by Merv Bendle about the influence on the rioters of a particular revolutionary tract called The Coming Insurrection. (It is online as a blog and a pdf).

Bendle is better known to me through his rants in Quadrant about the proper place in our history for the (valiant men)/(poor misguided fools) who fought for Australia in World War I. (Bendle is, of course, one of those who thinks only the former should be used and can't contemplate that both can apply). It is no surprise that for him the cause of insurrection is left-wing trouble makers, not something real like disadvantage or entirely social, the kind of thing that will happen occasionally in otherwise stable systems.

My point is that the manifesto is an attribute of the underlying issue not a motivation.

Blaming

When bad things happen, someone or something has to be responsible...right? well that's what the commentators think.

Keith Windshuttle catalogued the claims that Breivik "represented the armed wing of hysterical Right commentary." citing sources such as Aaron Paul for the claim. This is really the counterpoint to the Bendle claim that London is the consequence of leftwing writing. Good to see such diversity of views among the Quadrant set.

It is interesting to note that since many of the rioters are clearly non Anglo (but not all) the cause has not mostly been blamed on multiculturalism - that surprisingly has been reserved for Norway.

More practically Paul Sheehan argues that "widespread policy failures" have bred a "feral" underclass. But Sheehan's cure is less welfare. Good diagnosis but poor cure.

Guradian columnist Zoe Williams opined;

There seems to be another aspect to the impunity - that the people rioting aren't taking seriously the idea it could rebound on them. .... This could go back to the idea that people just don't believe they'll go to prison any more, at least not for something as petty as a pair of trainers.

This perhaps comes closer to the mark. But the issue isn't really about whether incarceration is a real threat or not. The kids rioting have no fear not because they don't see the risk of incarceration, just that doing gaol time won't ruin their lives. They see themselves as having no future to look forward to.

Terror

Norway and London though are both examples of terror. Not necessarily terror as an organised centralised act by an agent like Al Quaeda or the Bolsheviks, or terror by the state as in Nazi Germany, Soviet Russia or the French Revolution.

But it is terror as a political act. And we need to understand terror and its attraction.

Terror is a strategy that makes the powerless powerful. Here we get into the real bowels of discussing a democratic parliamentary democracy - it is meant to be one where no one is subject to the arbitrary exercise of power by another.

But that isn't true of modern "Western" society. Galbraith identified the power of the corporation. More recently we see in Australia the naked exercise of corporate power in ads on policy from tobacco, mining and gambling industries. But ultimately Rob Burgess writing for Business Spectator nailed it, corporations are marketing affluence to the poor.

Novae Meridianae Demetae Dexter delenda est

The US Military-Industrial Complex

It is a long time since the structure of American Capitalism was labelled the "US Military-Industrial Complex." It was used by Dwight Eisenhower in his farewell speech as US President in 1961 saying;

we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex

General consensus is that "we" (meaning all of us - not just the US) failed.

The concept was further advanced by J. K. Galbraith in his The New Industrial State. Galbraith noted that the US was as much a planned economy as the USSR, just the planning was conducted by large corporations.

Yet another Huawei story shows this in operation. Here we have a US embassy official doing his bit to discredit a foreign competing firm.

What is the charge? That the supplier - Huawei - was less than brilliant in following through on a contract.

But let's roll the tape on Senator Conroy's quizzing Telstra at Senate estimates in 2006. He said, in part,

Perhaps I could read to you from a document, a Telstra document marked ‘Commercial-in-confidence’ entitled ‘Alcatel issues’. It is three-pager with an attachment. I will table it. It states:

Summary of Route Causes
In the last 10 years there have been a number of problems with Alcatel projects at Telstra ...
The systematic reasons behind these problems are listed below—

• Knowingly overselling capabilities and timeframes
• Short cuts taken to then deliver sub standard solutions
• Finding clauses in contracts and specifications to avoid obligations rather than delivering working solutions and / or what was sold in the first place.
• Alcatel overcharging Telstra whenever it had the opportunity
• Alcatel Australia inventing specials which then don’t fit in with worldwide Alcatel strategy
increasing the cost of the project and creating a risk Alcatel Australia would exit the project if Telstra did not continue to pay
• Poor software quality and testing—in particular poor exception handling consideration at the
design stage; poor quality processes ie peer review, configuration management and testing
• Poor system integration capability and problems managing projects requiring interfacing to
different components / vendors.

In some respects, issues such as Alcatel’s overselling of their capability in the late 90s were prevalent throughout the whole industry but Alcatel was on the leading edge of this trend.

(The actual document was tabled).

The claims about Huawei being a security threat all seem to be similarly trumped up charges motivated by Western vendors trying to exclude Huawei. To my list in itNews of transgressions by other nations, let's add Ericsson. Why should we trust a vendor from a country that many believe has trumped up charges against an Australian citizen (Julian Assange) to support the US?

Novae Meridianae Demetae Dexter delenda est