Profit Bludging and the Long Chain Economy

To attack economic inequality at its source we really need to take on what I like to call ‘profit bludging’.

There are some businesses out there that have a great idea, and find a way to turn cheap resources into a product people really value. These are the wealth creators in our society. They make a healthy profit, and so they should. They have made a contribution to our collective well-being.

But then there is our anti-hero. The profit bludgers.  These are the businesses that boost their profits in ways that don’t add to our wealth at all. They are not making the pie bigger, they are just taking a larger share of the pie. Continue reading “Profit Bludging and the Long Chain Economy”

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Free markets or long chains? The real driver of wealth

We often describe ourselves as a free market economy, but is the free market really what is driving our wealth? Or are markets just a small part of the picture, obscuring the much bigger driver of our prosperity. Continue reading “Free markets or long chains? The real driver of wealth”

Govt pays 6 times the price for PBS drugs – is dark money the reason?

Govt pays 6 times the price for PBS drugs – is dark money the reason?

In the wake of the Dark Money report, Martin Whitely, a former Labor MP and Executive Director of the Health Consumers Council, got in touch to explore whether political donations could be behind an extraordinary anomaly in our health system.

Martin pointed to a Grattan Institute report which found that the Pharmaceutical Benefits Scheme (the program that purchases our drugs and provides them to us at subsidised prices) is paying up to six times as much for the drugs as the Kiwi govt across the ditch. They also pay more than many other state government bodies who also bulk buy drugs.

In the wake of all the noise we have heard about ballooning health costs, it is extraordinary that one of the most expensive items in the federal budget is being allowed to balloon out like this. If we are facing a health funding crisis, why are we cutting nurses rather than cutting the fat we are paying the big pharmaceutical corporates?

Is dark money to blame? Don’t know yet – but it certainly a fascinating issue that we will be looking into.

 

Donate $20 million with no disclosure – pay on different days

Hi All,

In the Dark Money report I argue disclosure is entirely optional because payments as large as $20million can be concealed through donation splitting. Ie breaking large amounts into small payments that individually come in  below the disclosure threshold.

This claim is often made about payments of $100,000. This based on making payments to separate branches. However the reality is worse. Payments made on separate days do not have to be aggregated. So you can pay $10,000 a day, 5 days a week, 50 weeks a year to eight branches and pay $20m without having to disclose.

My evidence that this is permissable is from AEC guidelines to political parties on how to complete their returns

. http://www.aec.gov.au/parties_and_representatives/financial_disclosure/guides/political-parties/information.htm#part2

Check it out for yourself! They even give an example.

 

 

 

 

The Chain Economy

The Chain Economy

The image that springs to mind when we think of the ‘economy’ is perhaps the most powerful idea in the modern age.

If you are an economically trained policy maker, the image will be a graph of demand and supply.  It is a graph with two lines intersecting, reflecting a natural tendency towards equilibrium.  It tells the story of a self correcting mechanism that self directs towards the best of all possible worlds.

It is interesting that this is the dominant imaginary of the economy, because it doesn’t provide us with a way of thinking about either of the most important economic questions – how do we achieve growth and what is the impact on equality.

The model of demand and supply tells us nothing about growth. It is what is described as ‘allocative statics’, that is assuming technology, labor and  capital are all constant how do we allocate what we have right now in the best way possible. It doesn’t tell us anything about how economic development and growth occur.

It also doesn’t tell us anything about equality. The demand and supply curve aggregate individual choices in a way that assumes we are all the same, and which makes it impossible to separate different social groups.

To address either of these major economic questions, we have to move away from our dominant imaginary of the economy and develop entirely separate models and tools that have nothing to do with our central image.

Recently I was asked to give a first year lecture on the global economy and introduce students to ideas of economic growth, inequality, the political struggles over economic models and the impacts of globalisation. It was an immense brief and not one that you could give using the usual models.

I looked for a unifying image of the economy that I could set up and hang all of these issues on.  The image that I settled upon was the production chain.

I explained Adam Smith’s original ideas about economic growth springing from the gains of specialisation.  I explained how being a jack of all trades that made our own houses, sewed our own clothes and grew our own food made for a pretty poor standard of living.

However, by specializing we were able to develop skills and tools that made us much more efficient at a much narrower task. We could then use our surplus produce to trade with others who were also specialized, increasing our combined total wealth.

I explained how the process of economic development was a process of specialization and  lengthening production chains. It began with cottage industries, grew into the early factories, and today is made up of global value chains that employ thousands and reach around the globe.

Using this image we were able to talk about equality as the distribution of wealth along the chains. Wealth was created by this process of specialisation, but it has been hotly contested where that wealth should manifest along the chain. We could talk about Marxism, unions, and the long political struggles about how the wealth should be distributed.

We could talk about the growth of the welfare state and the century long political struggles that saw the chains regulated to create minimum wages, OH&S and environmental sustainability.

We were also able to talk about globalization, and how as the chains began to cross international borders, democratic governments lost the ability to dictate the rules on the chains. How the victories achieved began to be eroded as governments competed to keep as much production in their own countries as possible.

 

Thinking about the economy in terms of chains not only offers a way of connecting up how we think about the major policy challenges facing us, it also invites us to think about a whole range of new questions.

More on that next time.