Tuesday, 2 September 2014

Privatisation, Taxation and Monopoly

Returning to the Grauniad Privatisation piece and our discussion of a couple of weeks ago: one of our commenters, Andrew, picked up on the writer's summation, which revolved around a point about taxation.  Here's a key extract from the end of the essay. 
A tax is generally thought of as something that only a government can levy, but this is a semantic distortion that favours the free market belief system. If a payment to an authority, public or private, is compulsory, it's a tax. We can't do without electricity; the electricity bill is an electricity tax. We can't do without water; the water bill is a water tax. Some people can get by without railways, and some can't; they pay the rail tax. Students pay the university tax. The meta-privatisation is the privatisation of the tax system itself ...  The commodity that makes water and power cables and airports valuable to an investor, foreign or otherwise, is the people who have no choice but to use them. We have no choice but to pay the price the toll-keepers charge. We are a human revenue stream; we are being made tenants in our own land, defined by the string of private fees we pay to exist here. 
Well.  Firstly, his list is silly, mixing categories that should be kept separate. If can't do without it is to be a criterion, what about food then ?  From first-hand experience, the public bakeries in Russia were pretty awful: everyone tried to get their bread elsewhere.  The only tax involved in food provision is VAT (if any, generally not) and perhaps a payroll tax if it hits supermarkets particularly.  The margin extracted by Mr Tesco is subject to competitive pressure.  So can't do without it isn't right; and to include electricity in with the rest is only fair if you've proved or decided that competition is impossible in that sector.  I say it's entirely possible - though also entirely fair to debate (as we often do) the regulatory shortcomings we currently suffer from.  Is he proposing 'electricity-free-at-the-point-of-use', like health services ?  We know where that leads.  Airports shouldn't be included either: his list only makes sense if it sticks to genuine 'natural monopolies'.  

Secondly, we all agree that monopolies need toughing-up rigorously on all occasions (see earlier post).  Everyone knows that monopolies are what every evil rent-seeker desires above all else - they have changed hands for large sums of money or other consideration at every point in history. What's that got to do with privatisation?  Again, it's a debate about regulation (and perhaps social subsidies for impoverished energy users etc), not private ownership.  Any 'authority' in charge of a true monopoly service, however 'owned', is prone to charging too much - call it tax, rent or whatever you like.  Why does the writer assume publicly-owned monopolies will be the more likely to act 'progressively'?  It  might be true if they are state-subsidised, or have a 'progressive' pricing policy - but again, this has little to do with the main thrust.  More significantly, experience - see that earlier post again - is that they charge wildly too much in absolute terms because they are so staggeringly inefficient.

(Historical note: British Gas had its de jure monopoly taken away some years before it was privatised.  this altered precisely nothing.  It was then sold off with its de facto monopoly intact: again, this achieved nothing - at first.  It was only when the regulator took the gloves off that the glacier started to melt - with very striking and highly beneficial consequences for consumers.  By the way, the old BG did indeed have a 'progressive' pricing policy, entirely of its own devising and with no statutory mandate.  It decided that medium-sized industrial customers would subsidise both the very largest industrials, and the residential customers.  But it charged everyone more than was necessary, as eventually became evident.)

So - we will be 'taxed' by monopoly services however they are owned.  Minimising the tax is the name of the game.  If you want some examples of really outrageous 'taxes' on which no-one ever gave me any choice, how about:
  • the extra amount on my home insurance to cover the activities of burglars
  • the extra on my car insurance to finance the 'crash-for-cash' and 'imaginary whiplash' brigade
  • the extra on my general tax bill to pay for treating pie-munchers on the NHS 
  • [ ... your favourite example here ... ]
The taxation argument is entirely spurious.  The essential services will get paid for anyhow, and the primary issue is to find whatever keeps the costs lowest.  All empirical evidence points to nationalisation being a very poor approach.


Monday, 1 September 2014

Donetsk: Putin Speaks

The city was founded in 1869 by a Welsh businessman, John Hughes (sic).  In 1924 it was renamed Stalino.  

- Wiki

You learn something every day.


The coursing damage of oil money

Norway, the only Country in the world ever not to have totally squandered its oil wealth. Virtually every other country has become exceedingly corrupt on the back of oil wealth, although how much of a contribution it makes to the overall economy has a great bearing too.

I note the US has bouts of being unduly affected by major oil and gas effects, from way back in time with Standard Oil, to the Halliburton of today. But oil is not the sole contributor to the US economy, so although effective in pushing foreign policy agendas and such like, it is rarely totally dominant.

Other countries fair less well, the states of Africa become kleptocracies for decades and only finally now are making some progress, having learned the hard way from Chinese intervention and constant civil war. But the greatest oil state in Africa, Nigeria, is still very corrupt and hosts Boko Haram - the south of the Country, Imo, is poisoned beyond recognition and resembles parts of China more than Africa's beauty.

The main threats, rapidly growing, in the world today focus around the Sunni sponsored growth of Whabbist Islam, Shia countering sponsored by Iran and Russian attempts to re-create Greater Russia.

All of these are funded, not so much directly but States (Iran being the exception), but by wealthy oligarchs. Naive Qatari and Saudi shaikhs channelled the money to build Al-Nusra in Syria which in turn spawned IS. They still do, the army of IS being paid for by these funds in the main and the mercenaries fighting for them (its never all about religion is it, remember the crusades) being paid up to $10,000 a month to fight. No wonder IS managed to amalgamate all the disparate Syrian and Iraqi forces - the side with the richest battalions wins.

Outside of the Syria-Iraq disaster, but sadly forgotten on the sidelines, is the sad case of Libya, with warlords fighting over key resources and the key oil terminal at Ras Lanuf for funding. Libya has entered firmly into failed state category. the only saving grace for the world is that the Libyan population is small - half the size of London and similar to Scotland, so the effect of a rapidly growing diaspora will be minor.

In Ukraine, Oligarchs were first responsible for raping the country, then fighting to get their placemen elected and thence now to defending or attacking Eastern Ukraine. Some of the oligarchs are Russian and some are Ukrainian. Their money and power,  mainly taken from either oil or coal mining, allows them more power than State actors. Putin himself plays the role of the Oligarch personified as a State actor, having subsumed the nascent democracy of Russia.

So much of the difficulty of ending the conflicts at the moment is to do with the funding and support for them. Much as Israel/Palestine has always had backers on both sides, wars that continue this way mean money for the those involved. They are harder to end than more conventional state wars because the financial conduits are hard to close.

Moreover, the rich men who support the wars have little stake in the post-war settlement. They care nothing of the country or people whom they fund to fight (like Gaza these past sad years). being removed, personally they are at no risk.

All of these men became able to influence through the immense power of controlling oil resources. I am no leftie nor greenie, but the world is a harder, sadder place for this and with resources running out over time the fighting over them and with their riches will surely only become tougher.

The world was a better place when they wasted their money on wine, yachts and women.

Saturday, 30 August 2014

Ukraine, Russian Truck Convoys and Russian Doctrine: It Helps To Know

Pontificating from my retired officer's 'strategy' armchair, having dusted down my fading memory of Soviet military doctrine (studied professionally and in earnest some decades ago), I have a feeling it offers a handy pointer as to what may be expected in the weeks to come.

Recap: at the highest level, the GSFG was geared for a lightning strike across the whole front from the Baltic to Austria, aiming to gain as much westerly mileage as possible before NATO could mount a serious blocking action (assumed to be dependent on massive US reinforcements arriving even further to the west).  It was always recognised by the Russians that at some point NATO's position might become so poor that recourse to nuclear weapons could ensue, buggering the whole thing - a good reason why they never gave it a crack.  This said, they also reckoned that another plausible scenario would be that NATO would hold back on this provided Warsaw pact forces halted in their tracks at some point and offered to parlay.

At the next level down, Soviet doctrine for a lightning attack entailed by-passing awkward things like towns and also points of strong resistance, a very real contingency given that Soviet kit was light and easily brewed up by the well-positioned Leopard tanks and Milan missiles that existed in large numbers (manned by some very well-trained, well-led and highly motivated West Germans).  Doctrinally, strongpoints were to be fixed, enveloped and passed by, to be mopped up at leisure by second-echelon forces and/or artillery.  This enabled the first-echelon columns to make maximum forward mileage, scavenging supplies as they advanced (quite easy in W.Germany for everything except ammunition).  In order to do the by-passing, all Soviet units were very well-equipped in the field-engineeering and bridge-building departments.

The consequence of this would be that at a given moment after firing the starting-gun, the 'front line' would be a very jagged affair - a long string of irregular salients (some of them potentially very deep) broken up by the by-passed NATO strong-points and isolated towns.  If at a point in time everything was stopped in its tracks pending 'peace talks', the Russians would stop fighting, and rapidly consolidate whatever of the newly-occupied 'shape' was most easily held - some really isolated forward gains might be abandoned - with the expectation that a dazed NATO could be be satisfied with nothing more than just cessation of hostilities, i.e. no relinquishing of any consolidated new gains.

Then wait for another 20 years and try the whole thing again. 

(This doctrine was sometimes likened to attacking something with a very heavy club studded with long sharp nails.  You smash it into the target with maximum force, and it becomes embedded - very difficult subsequently to get it withdrawn.)

Now to 2014.   Such maps as we see of what's going on in Eastern Ukraine show a very amorphous 'front line' studded with all sorts of salients and embedded bits and pieces.  Nothing would be easier than for the Russians quickly to pour across the border, go as far west as they could manage in (say) 24 or maybe 48 hours (Labor Day - 1st Sept! - or Thanksgiving would be obvious dates to choose), call a halt, and declare: what we have, we hold.

Oh, and how did the Soviets prepare for their lightning attacks?  By sending tank commanders, disguised as truck drivers, on recce missions across West Germany.  They knew the lie of the land almost as well as their enemy.

Truck drivers ?  Ring any bells ?  Let's hope little Volodya is ultimately as circumspect as his Soviet predecessors.