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View the article online at http://citywire.co.uk/wealth-manager/article/a750603

Stewart Cowley: Manchester United 1 – Capitalism 0

by Stewart Cowley on May 13, 2014 at 14:10

Some have extrapolated from Pikkety’s work to say that there is a socialist revolution just around the corner – a sort of societal encampment outside St Paul’s Cathedral, forever. I think the eventual reaction may be somewhat more mundane than that; one day there will be a call for an eye-watering level of inheritance tax that redistributes wealth via the state.

Income tax could become the rallying cry – something that UK Labour leader, Ed Miliband, should pay attention to – but the globally mobile super-rich would merely trip the light fantastic should anyone try to impose it. 

Besides, you can think of the inequality gap as being the result of the growth of debt in society. As the wealth gap has increased so have our debts, both public and private. Karl Marx equated all profits as being the result of someone somewhere in the system paying for them by borrowing.

Closing the gap

The increase in debt is merely the vehicle by which capitalists transfer wealth into their hands.

So if we want to close the financial inequality gap then we need to do several things; 

  1. Both the public and private sector need to stop borrowing and halt the transfer of profits to the wealthy via debt
  2. The returns on investment must be lower than corporate earnings growth
  3. The return for working must be higher than returns on investment  

In other words the world needs a massive pay rise, with a far greater proportion of company profits distributed to the workers and not the investment risk-takers.

The Man Utd model

All companies should look like Manchester United; it makes nearly no money because it gives all its earnings to its workers and invests the rest in renewing the means of production whilst keeping its creditors happy.

Essentially, all financial theory, as we have known it, must be turned upside down to fulfill this new societal model. 

For investors (and by that I mean pension funds and ordinary savers primarily) this is a grim prospect. Interest rates will be below economic growth and even inflation, bond yields ditto and equity markets will grow neither in capital terms nor will there be sufficient dividends to distribute.

Cash will more than likely return less than inflation. All this will be a function of supply and demand – too much capital lying around doing nothing suppresses returns. 

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1 comment so far. Why not have your say?

faep

May 13, 2014 at 15:40

Time to brush up on some Fritz Schumacher, perhaps?

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