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February 17, 2006

Capital departure

Many years ago, the Monk was reading for a degree in Public Administration - one degree course he has never completed - and had to read a number of treatises on the theory of Macro-economics. It was probably this more than anything else that convinced him that -

(a) economics isn't a science, and
(b) those who have lots of money get more, those who haven't get even what they have taken away from them.

This is probably why he upset all the lecturers on the subject. However, one of the many references he was obliged to read in pursuit of this deep and meaningful insight, included in interesting treatise by the Treasurer of Louis XIV of France. This gentleman wrote that all the wealth of the world was finite, and that it tended to be concentrated wherever a countries laws allowed it freedom of use, opportunity to be increased (presumably at someone else's expense) and the taxation system allowed the "owner" to keep the major portion of his wealth intact. He predicted, correctly as it turned out, that the France of Louis XIV would remain a centre for the wealth of the world only as long as those factors were in place - or until some other nation offered a better environment. The reign of Louis XV tried the taxation route to increase Royal coffers and swiftly accelerated a trickle of wealth transfer to something more like a flood - yet it did not really become fully apparent that this had happened until the French Revolution.

One reason that the Russian revolution failed economically is almost certainly because the real capital, the liquid assets of the nation, had gone long before the revolution actually occurred, all that remained were the non-liquid assets which have no value if they cannot be used to create or generate income. This pattern has been repeated numerous times since then, Britain under the various Socialist inclined regimes pre-Thatcher, saw a flood of wealth being transferred offshore, leaving only the "hard" assets which, again, decreased in value as soon as they could no longer be part of the wealth generation process. As soon as the taxation policy changed and the wealthy could have their wealth here and enjoy the full benefit of a system which allowed them to keep most of it, the money came pouring back. But, could the trend be about to go into reverse?

The Monk had this interesting thought as he watched the news a few days ago, on which it was announced that yet another of the countries iconic companies, was being bought out by a comapny in Dubai. The liquid assets - and in this case a lot of "hard" ones as well - have suddenly ceased to be based in the UK and now belong to the "wealth" of a foreign nation. To be sure, the trade and at least some of the employment remains here in the UK, but the real wealth generator, the profits, have moved abroad. The capital, the instrument for wealth creation, is gone, because even the money that came this way to the "sellers" has catually gone into offshore holdings and accounts, very little will be lying around in UK assets!

Looking around, it soon becomes apparent that a very large number of the supposed "assets" that make up much of the so-called "National" wealth are, in fact, foreign owned. Several of the bigger banks are majority owned and controlled from abroad, most of the larger shipping lines, even those that have ships "flagged" in the UK, are in fact owned in toto or in part, by foreign "holding" companies and their assets - the ships - are in fact owned by the banks, which, you've guessed it, are owned by foreign based companies. So, it would appear that the "assets" both of a "liquid" nature, and some at least of the solid ones, are already departing from the control of this government.

Our Armed Forces are being reduced, undermined and further reduced, while the bureaucracy grows apace - a letter in a recent edition of the "Times" certainly points that up. According to it's authors, under the heading of "Regulatory Reform", the government has simply introduced a mechanism for the Government and the Civil Servants to bypass Parliament and impose further restrictions and laws without the traditional tests. The arms industry has been broken up piecemeal, asset stripped, sold off and shipped abroad. Our car industry has had the same thing done to it, with almost all vehicles now manufactured here being built by foreign owned companies. The capital has simply moved away to new "growth" points elsewhere, and as the capital goes, the assets follow - and so do the jobs, the industries and eventually, the commercial activities.

We no longer innovate, we no longer manufacture those few things that we do manage to innovate, the accountants simply sell the idea abroad - and ideas are a form of capital as well. In the 18th Century only a complete fool would have considered spending the money they held as "capital" in liquid assets earning income, now it seems to be almost commonplace to do so and one wonders why we are encouraged to do so, unless it is simply a way in which we can be encouraged to part with what little capital we do possess in order that some offshore holder can move it abroad. Perhaps the 17th Century Treasurer to Louis XIV was not so far off the mark after all. Europe is no longer a place where wealth can be accumulated - so it is moving abroad.

No wonder the "unemployment" figures keep rising. And it is probably too late to even attempt to stop it - and no one has yet succeeded in doing so. Enlightened self interest among the wealthy, the powerful and those in possession of the wealth take good care to make certain that any attempt to do so is doomed to fail.

If I am right, it may well be an interesting world in the next decade or so!

Posted by The Gray Monk at February 17, 2006 03:08 PM

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