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Financial Crisis 2008 (Chaos): Underlying Reality: Ownership and Management


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Financial Crisis 2008 (Chaos): Underlying Reality: Ownership and Management

Includes extracts from previous themes about the financial crisis 2008

From General Interest Rates, Share Prices and Pensions    (21 Sep 2008)

Increasing the general interest rate reduces share prices, and reducing the general interest rate increases share prices. The return from shares (dividend payment as a percentage of share price) tends to move towards the new interest rates.

So share values may increase steeply, and may be kept up artificially, by reducing interest rates and by keeping interest rates low.

From National Accounts: Balancing Income and Expenditure    (26 Sep 2008)

When interest rates increase, then share prices fall. Hence government is under pressure to keep interest rates low.

However, if the country is failing to make ends meet, then short-term borrowing is a convenient way of raising the required funds for paying one's debts but interest rates increase accordingly.

Share prices then drop and the house of cards consisting of fictitious share values may then be severely dented, may even face collapse.

And governments are not informing their populations of the enormous costs of importing sources of energy, are apparently trying hard to keep interest rates level or low, are attempting to balance national accounts by means other than short-term borrowing.

Means corresponding, for example, to selling the family silver or taking out a mortgage, like selling ownership or majority control of one's major productive and service assets into foreign control.

From Comments and Considerations
(Includes: Capital and Wealth, Owners and Population, Charging Customers, Conclusions)    (19 Oct 2008)

Shareholders would not consider handing their moneys over to a corporation without in return becoming an owner of a corresponding part of the corporation, without getting a corresponding number of shares in return.

Customers are not given a choice. The corporation (its owners) simply take their customers' moneys
  • for getting back money already spent on the business and
  • for expanding the business
without giving the community corresponding ownership rights.

If the government's, and this means taxpayer's, that is the community's, support is now needed, then it should be given directly to those individuals who lost their savings. And should presumably not be placed under the control of those whose seeming lack of foresight or management appears to have caused the present crises, and who are now going hat in hand to the 'government' (that is, the community) wanting, requesting and demanding, more and more money from the government at the expense of the community.

Directors, top-level financial managers and advisers, should be held accountable for the present crises, for the decisions they took or should have taken, should be accountable for the problems their seeming lack of foresight caused and is causing for citizens.

These, and those whom they consider to have been responsible for these events, should be publicly held to account.

The government will presumably have to borrow the very large sums of aid-moneys which are now being requested by banks, public bodies, professional institutions and private companies. And the government would presumably have to pay interest on the moneys it borrowed, possibly even borrowing back moneys it had had to pay to countries from which it imported sources of energy.

Remember that the banks (and other recipients) of 'aid', that is of government funds, would be paying to the government the interest due on these aid-moneys. And that they would most likely first collect these payments from us, their customers, before paying them to the government.

So we are apparently mortgaging our national future by borrowing the large sums which are to be handed out as 'aid', and would also in effect be paying the interest payments demanded from recipients of 'aid' moneys.

From Unacceptable Costs and Risks
(Includes: Profit Motivation, Real-world Problems, Social Responsibility and Social Accountability, and the LHC operations at CERN)    (26 Oct 2008)
Essential Principles of Economics: Purpose of any Enterprise, Profit Motivation, and Real-world Problems

The purpose of any enterprise is to satisfy the community's needs by providing high quality goods and services at reasonable prices.

Those who can satisfy its needs are motivated by the community towards doing so by the reward, that is by the resulting profit. This process is generally referred to as 'profit motivation'.

But enterprises which may be badly managed or which offer inferior products, become uncompetitive and cease to trade in this product or service.

In this way the community attempts to ensure that its needs are satisfied at reasonable prices, that it gets good value for money.

Social Accountability

But how can one ensure that those in important positions become aware that they are accountable to the community and how can one make them accountable to the community?

The phrase 'the polluter pays' sums up popular feeling about how to right past wrongs, about how to hold to account those whose profits are made at the expense of the community and those who benefit from antisocial activities.

In reality, it is the customer who is made to pay because enterprises recover any cleaning-up costs and compensation payments by increasing their prices.

The owners appoint directors to take decisions on behalf of the owners, with the directors in turn appointing senior managers to have the decisions carried out. Hence it would seem to be the owners and/or directors who should be held accountable, who should pay, and they should not be permitted to pass cleaning-up costs and compensation payments on to the community or to their customers.

After all, if one does not evaluate performance then how can good and outstanding performance be rewarded appropriately?

Those who took the decisions which caused the damage, or who failed to take decisions which could have prevented damage, should surely suffer the consequences. It is they who need to be exposed and punished for the decisions they took or failed to take.

From Community (Public) Ownership and Privatisation    (23 Nov 2008)
Banking: Trustee Savings Bank
Making Cars: British Leyland)

Making Cars: British Leyland   (BL)

Between 1968 and 1982, about £2.2 billions of taxpayers' money were poured into BL in the form of new share capital.

However, time taken from drawing-board to consumer had increased from three to five years and, in 1981, BL launched a model built under licence from a foreign company.

What had gone wrong?

Market share can be defined as the sales achieved by one enterprise in an industry, expressed as a percentage of total sales in that industry. It is an indication of relative success between competitors and roughly independent of the state of the economy.

Now consider this. In 1968, BL's UK market share was about 40 per cent. From 1972, BL's UK market share dropped until ten years later it had fallen to 19 per cent, and this process continued.

The market share dropped and continued to drop, for ten long years. This situation surely requires an explanation.

How come the informed press and media failed to get across to the general public what was taking place and the points being made here? To the general public which was paying what were enormous sums to keep the company going and who surely had the right to know how their investments were being applied, how the company was performing, about how well or how badly the company was being directed and managed.

What is needed is direct accountability to the community for performance in achieving the community's aims and objectives.

From Community (Public) Ownership and Privatisation    (30 Nov 2008)    
Accountability to the Community
Public Utility: Gas Board: Price Increases above Inflation
Profitable Service: Remploy: Social Benefits and Social Costs
Multinational Summits and Agreements,
Top-level Decision-taking and Democracy)
Accountability to the Community

Planning and control of activities and performance are matters in which community-owned enterprises do not differ from other enterprises.

Directors and chief executives of community-owned enterprises or industries are appointed by the government of the day.

The Board of Directors is responsible for the day-to-day operation of the enterprise or industry it controls, and the directors are generally accountable for the quality of their work to those who appointed them.

The Minister who appoints them lays down the overall policy which they need to adhere to, and in the end have to adhere to, if they wish to be reappointed. In this way the Board's role becomes that of putting into effect the politically biased policies of the government of the day and so the government's policies are imposed on the community-owned enterprise or industry.

In practice the Minister can blame the board for the resulting problems but they are unlikely to be able to criticise the policies of the government which appointed them.

It might be argued that the appointees are responsible through those ministers who appointed them, and thus through the government of the day, to the policy-making delegate body such as Parliament.

But this method of accountability is so remote from what is actually happening in the enterprise, and so distant from the voters, that it does not work effectively.

Multinational Summits and Agreements, Top-level Decision-taking and Democracy

Hence the community's (the public's) concern when the bureaucracy (politicians, officials and managers) attempt to move decision-taking upwards and further away from citizens (voters), distancing the decision-taking further away from the population or the workforce.

That is, when politicians, officials or managers attempt to bypass or negate democratic decision-taking so as to replace it with more remote centralised decision-taking, with greater authoritarianism.

A process which appears to be taking place in the European Union at the present time, with politicians apparently discouraging or bypassing the holding of national referendums about proposed changes to top level decision-taking.

Financial Crisis 2008 (Chaos): Underlying Reality: Ownership and Management    (07 Dec 2008)

Without being given an even reasonable-seeming clear analysis or statement of the real causes of this so-called 'financial' crisis', our communities are being pressurised, to a considerable extent by government, into handing over enormous sums as 'aid' and 'support' to privately-owned and controlled enterprises.

In return for community 'aid' and 'support' to these rich and powerful enterprises or organisations, there needs to be a corresponding transfer of ownership rights and of corresponding direction, management and control, to the community.

Social responsibility needs to be combined with social accountability, for direction, management, control and performance.

The record shows that only by making an enterprise's management accountable to its workforce, can effective management and control be achieved on behalf of the community.

And Manfred Davidmann's works include a comprehensive report 'Co-operatives and Co-operation: Causes of Failure, Guidelines for Success' which details and describes the essential ways in which enterprises and governments of all shapes and sizes, need to be managed and safeguarded to ensure their success, to ensure the prosperous and secure existence and future of our communities.

See reports
Co-operatives and Co-operation: Causes of Failure, Guidelines for Success
Community and Public Ownership
Multinational Summits and Agreements, Top-level Decision-taking and Democracy

Short Descriptions

Title   Description
Co-operatives and Co-operation: Causes of Failure, Guidelines for Success   Based on eight studies of co-operatives and mutual societies, the report's conclusions and recommendations are relevant and cover fundamental and practical problems of co-ops and mutual societies, of members, of direction, of management and control.

There are extensive sections on Style of Management, decision-taking, management motivation and performance, on General Management principles and their application in practice.   See 'Press Notices'.
Multinational Summits and Agreements, Top-level Decision-taking and Democracy     Describes how secretive top-level multinational meetings and agreements (such as GATT and MAI) negate democratic government and decision-taking. Shows that publicity about what is being planned or taking place is an effective deterrent.
Community and Public Ownership   This report objectively evaluates community ownership and reviews the reasons both for nationalising and for privatising. Performance, control and accountability of community-owned enterprises and industries are discussed. Points made are illustrated by a number of striking case-studies.
Included in this report are these case-studies:

Rescuing an Important Industry   Rolls-Royce   Cars, aero-engines
Imposing the Will of the Government   Coal Board   Closing-down an industry
Profitable Service   Remploy   Social benefits and social costs
Benevolent Monopoly   British Oxygen   Controlling monopoly power
Price Increases above Inflation   Gas Board   Public utility
Unprofitable Industry   British Leyland   Making cars

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Manfred Davidmann

Manfred Davidmann is an internationally well-known and respected scientist and author of a number of books and reports which have had and are having considerable impact. His work usually breaks new ground and opens up new understanding and is written in meaningful and easily understood language. Outstanding is that his work is generally accepted as factual, objective and unbiased.

Other Subjects; Other Publications

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