Like most, I believe in democracy. But I also believe in capitalism, and though the two have usually been seen in the West as a good fit, of late I'm having doubts.Every society has to use some system for organising production and consumption, and I know of none better than leaving it largely to private enterprise.
For the most part, markets work well in bringing buyers and sellers together and satisfying their respective needs. Markets' reliance on people pursuing their own interests does a good job in encouraging efficiency and innovation.
The funny thing is, when capitalism is working well it's the capitalists themselves who get taken advantage of. They keep coming up with new ways of making a fortune - railways, electricity, motor cars, the telephone, radio, television, the internet - but in the end competition causes most of the start-up companies to go broke and leaves most of the benefit not with the capitalists but their customers. It comes in the form of access to affordable transport, power, entertainment or communication.Advertisement
Of course, as the global financial crisis so painfully reminded us, markets are far from perfect and it's folly to leave them inadequately regulated. Markets are actually a creation of government, and governments have to continuously supervise them to ensure they don't run off the rails.
It's this need for continuous government involvement that can cause problems. Can we be sure government intervention is always aimed at benefiting customers rather than making life easier for the few big companies that dominate many of our markets?Then there's democracy. What if it becomes too easy for capitalists to take advantage of the institutions of democracy to get the rules of the game bent in their favour? Of all the columns I wrote last year, the one that drew the biggest reaction was called ''The four business gangs that run America'', quoting a book by Professor Jeffery Sachs of Columbia University. Sachs wrote that four key sectors of US business exemplified the takeover of political power in America by the ''corporatocracy'': the military-industrial complex, the Wall Street-Washington complex, the Big Oil-transport-military complex and the healthcare industry.I ended the column by saying that ''fortunately, things aren't nearly so bad in Australia''. It's true, they're not. But, in a paper to be issued on Wednesday, ''Corporate power in Australia,'' by Dr Richard Denniss and David Richardson, of the Australia Institute, we're reminded that things here are far from ideal.
The authors argue that ''big business exerts influence through campaign contributions, influence over university funding, sponsorship of think tanks and in other ways''.The four most disproportionately influential industries in Australia, they say, are superannuation, banking, mining and gambling.
Employers in Australia are required by law to remove 9 per cent of employees' pre-tax wages and deposit it in a superannuation account the employees can't touch until they retire. The industry has now persuaded the Labor government to gradually increase this to 12 per cent.Thus the government has compelled almost all employees to become the customers of a particular industry.
The average management fee paid by Australians with a retail super fund is about 2 per cent of their fund balance each year.
So someone with a balance of $100,000 is paying a fee of about $2000 a year, or nearly $40 a week. This is more than the average Australian pays for electricity. After the compulsory contribution rate is raised to 12 per cent, these annual fees will have increased by a third.To be fair, the government is working to oblige the super industry to give its captive customers a better deal. But it is encountering - and yielding to - much push-back from the industry.According to the authors, our big four banks are among the eight most profitable banks in the world, with the International Monetary Fund saying we have the world's most profitable banking
system.
Over the years, the big four have been allowed to acquire or merge with 15 of their rivals, with the authorities continuing to insist the industry is competitive.Since the global financial crisis, the big four's market share has risen from 74 per cent to 83 per cent, the authors say.
Both sides of politics profess to be highly disapproving when the banks seek to protect their profit margins by failing to pass on all of a cut in the official interest rate.But the pollies rarely match their words with deeds. Their efforts to increase competition are quite timid and some measures actually make life easier for the banks.
Last year the mining industry accounted for more than a fifth of all the profit made in Australia, even though it had a much smaller share of the economy. This was mainly because the royalties charged by the state governments failed to capture enough of the market value of the minerals the largely foreign-owned miners were being permitted to extract.
When the Rudd government tried to correct this with a resource super profits tax, the industry set out to bring about its electoral defeat, Tony Abbott saw his chance and sided with the industry, and Julia Gillard backed off rapidly, settling for a new tax that seems to be raising little revenue.
Read more: http://www.smh.com.au/opinion/politics/the-four-industries-that-rule-australia-20130205-2dwew.html#ixzz2KBGnhDtK
The Question You Should Be Asking About the Stock Market
By CARL RICHARDS
Carl RichardsCarl Richards is a financial planner in Park City, Utah, and is the director of investor education at the BAM Alliance. His book, “The Behavior Gap,” was published last year. His sketches are archived on the Bucks blog.With the stock market up more than 100 percent from those scary days in early 2009 and up 16 percent in 2012 alone, we’re now hearing plenty abouthow small investors are getting back into the market. Andrew Wilkinson, the chief economic strategist at Miller Tabak Associates, referred to it as a “a real sea change in investor outlook.”It seems we’re in danger of repeating the same old cycle of swearing off stocks forever during scary markets, missing a huge rally and then deciding it’s time to buy when stocks are high again. On the flip side, I’ve had a number of conversations with Main Street investors who are asking if now is the time to sell because the Dow Jones Industrial Average is hovering near 14,000 and the S&P 500 stock index is around 1,500 again.So which one is it? Should everyday investors be buying or selling?Do you see the problem here?If we’re investing based on what the market has done, it’s a recipe for disaster. Recent market performance tells us almost nothing useful about what the market will do in the near future. Logically it seems like it should, but a quick review of the market’s performance during the last six years should be evidence enough to convince us that it doesn’t.Remember how you felt in March, 2009? I bet you didn’t feel like investing, and you weren’t alone. Almost no one did. It was a scary time. But it turns out that it would have been a brilliant time to invest. Again, not because of what the market had done, but what it was about to do.But there was no way to know that in March 2009.Did anyone expect (or feel) like 2012 was going to turn into a 16 percent year? In fact, almost all the unfortunate souls that make their living predicting the markets got 2012 wrong.Here’s the thing we need to remember: we have no idea if now is the time to be buying or selling. But the good news is that it’s not even the question we should be asking. Instead we should be asking, “How can we avoid making the big behavioral mistake of selling low and buying high (again!) in the future?”Instead of worrying about getting in or out of the market at the right time, take that time to focus on crafting a portfolio based on your goals. Start by taking out a piece of paper and writing a personal investment policy statement that addresses the following:- Why are you investing this money in the first place? What are your goals?
- How much do you need in cash, bonds and stocks to give you the best chance of meeting those goals while taking the least amount of risk?
- What actual investments will you buy to populate that plan and why? Make sure you address issues like diversification and expenses.
- How often will you revisit this plan to make sure you’re doing what you said you would do and to make changes to your investments to get them back in line with what you said in number 2?
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