The Dim-Post

August 20, 2011

Galtian overlord watch

Filed under: economics,finance — danylmc @ 11:16 am

Via Stuff:

Top chief executives are being paid up to 50 times as much as their average employees – and the gulf between boss and worker is widening.

The first annual survey by BusinessDay of pay rates at NZX-listed companies also found that the best-paid boss was receiving more than $4.7 million.

A workers’ representative has dubbed the widening pay gap the “moral question of our time”.

I’m in favor of much higher taxes for these high income earners – but we’re still a capitalist economy, and companies can pay their CEOs as much as they like.

The question is: are these people worth it? Some clearly are. Apple is now worth more than all the European Banks combined. Whatever they’re paying Steve Jobs, it’s worth it. But is Paul Reynolds worth $4.7 million dollars a year? Here’s Telecom’s share price for the last few years, the black line indicating when Reynolds took office:

This is actually pretty typical – plenty of academic studies show that large companies run by over-compensated CEOs under perform, and that the CEO labour market is broken:

The [Stanford] study, which reviewed CEO pay and economic performance between 1991-2002, found that in small firms, highly paid CEOs generally are more skilled than their industry counterparts. The correlation is even stronger if the firm has a large shareholder or if the CEO has been paid largely in stocks and options. Conversely, pay is more likely to be negatively related to skill in larger firms. “In many large firms, the highest paid executives actually performed the worst,” said Daines.

This was especially the case when the business was bound by what Daines called “environmental constraints”: regulations, limits on capital spending, or a very competitive climate. “Some CEOs have a lot of options to consider while making investments and other strategic decisions. Others are more constrained,” Daines said. The lesson there? “When managers can do less to affect firm outcomes, there’s less reason to pay them high salaries,” said Daines.

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71 Comments »

  1. Maybe Paul Reynolds should upstain from sex until the share price rises again to previous levels

    Comment by Eszett — August 20, 2011 @ 11:28 am

  2. Steve Jobs is famously paid $1 a year by Apple – his fortune comes from stocks in Apple and Disney.

    Comment by DMTD — August 20, 2011 @ 11:39 am

  3. Hater! Politics of envy!

    On a related note, I see crackpot Galtian billionaire Peter Thiel, who has for some unaccountable reason chosen to pick on poor little New Zealand, wishes to retire (presumably with all the other Galtian billionaires) to some sort of mobile ocean city. I can only imagine that he has some secret technology that will keep his aquatic dream afloat when the submarines of the vengeful proles come hunting…

    Comment by Sanctuary — August 20, 2011 @ 11:44 am

  4. Paul Reynolds has proven to be thoroughly useless and therefore I must recommend that he is paid fifty times less than the average Telecom employee. Thank God for people such as Teresa Gattung, who know when the ship is sinking and abort it promptly instead of continuing on in a farcical attempt to try to ‘restore it’.

    Comment by Bets — August 20, 2011 @ 12:11 pm

  5. In the NY Times. Warren Buffet says “stop coddling the super rich.” He concludes his op-ed piece by saying “It’s time for our government to get serious about shared sacrifice.”

    Now this is guaranteed to confuse those rather dim government officials all over the world whose only response to ever-more-urgent crises is “go easy on the wealthy. They’ll sort it all out for us.”

    Comment by Neil — August 20, 2011 @ 12:49 pm

  6. Maybe Paul Reynolds should upstain from sex
    According to the boxer who whupped David Tua recently, the word is “substain.”

    Comment by Neil — August 20, 2011 @ 12:53 pm

  7. some sort of mobile ocean city

    What I found most interesting about Thiel’s spiel was the factors he named as being most attractive about the society he wanted to create on Galt’s Galleon.

    Looser building codes, no minimum wages and ready access to guns.

    How is that anything other than a recipe for a rapidly approaching doom?

    Comment by Pascal's bookie — August 20, 2011 @ 1:10 pm

  8. Maybe Paul Reynolds should upstain from sex until the share price rises again to previous levels

    Surely according to Telecom logic, we should abstain to make him perform better?

    Which shows us what the real problem is. Its not that Paul Reynolds is useless, it’s that the rest of us have been having too much fun.

    Comment by Idiot/Savant — August 20, 2011 @ 1:25 pm

  9. Whatever they’re paying Steve Jobs, it’s worth it.

    $1. Probably worth it.

    Comment by Tove — August 20, 2011 @ 1:49 pm

  10. “But is Paul Reynolds worth $4.7 million dollars a year? Here’s Telecom’s share price for the last few years, the black line indicating when Reynolds took office:”

    To be fair to Reynolds he took over just before the Great Financial Crash, his company lost its monopoly and remained stuck with the Kiwi Share. In addition, the previous CEOs spent their time protecting Telecom’s monopoly, sticking to copper (Kiwi Share), clobbering the opposition and generally trying to hold back innovation and improving technology to remain competitive.. in this the Govt was its partner.

    For all I know Reynolds has earned his pay keeping the ship afloat in a very difficult period.

    However, I do think that high paid CEOs should have more of their pay at risk in shares in the companies they run.

    Finally, I have little but contempt for high fliers like Buffett and the Morgans here who complain that they were undertaxed.. I have a suggestion.. lets see them publicly pay the IRD/IRS retrospectively for their ill gotten gains; they wont, because to a man they believe they can use the money better than the Govt.

    JC

    Comment by JC — August 20, 2011 @ 2:47 pm

  11. You’re such a tireless, if turgid, defender of the establishment and privilege JC. Why is that?

    Comment by Guy Smiley — August 20, 2011 @ 3:04 pm

  12. @11,

    Probably because the establishment pays the bills, and because for the Smileys of the world, “privilege” is code for someone who works harder and better than them.

    JC

    Comment by JC — August 20, 2011 @ 3:14 pm

  13. JC’s point about the TEL share price and GFC is a valid one, and you would expect to see most stocks show a simialr decline over that period.

    More impotantly however, is that Danyl’s chat shows the “raw” stock price, not accounting for the, quite substantial, dividend stream telecom pays. You’ll find that most holders of TEL from ’09 to ’11 will have done quite-well-thank-you-very-much.

    Comment by Phil — August 20, 2011 @ 3:17 pm

  14. Get off your knees JC. It’s undignified.

    Comment by Guy Smiley — August 20, 2011 @ 3:23 pm

  15. Probably because the establishment pays the bills

    Bullcrap. We do, every month, haven’t you noticed. We also do all the work. That “better and harder” work that your privileged heroes perform consists of nothing more than inflating those bills well beyond what those services are worth (i.e. stealing), and then trying to convince us that the more they can steal, the more they deserve for themselves. A few sad sacks actually fall for it and even denigrate those who demur, but they’re mainly ignorant loons clinging to an insane belief in some fabled invisible hand – or pink fist, or was it a trojan horse this week, I forget.

    Comment by ak — August 20, 2011 @ 4:12 pm

  16. What I found most interesting about Thiel’s spiel was the factors he named as being most attractive about the society he wanted to create on Galt’s Galleon.

    Looser building codes, no minimum wages and ready access to guns.

    No, that’s how the journalist in Details described it. I know reading comprehension isn’t one of your strong suits.

    Comment by Quoth the Raven — August 20, 2011 @ 4:19 pm

  17. Hehe, here comes the resident libertarian to defend the honour of his favorite Sealand-style libertopia. Let us know how it goes if/when you end up being one of the “millions” of people who are meant to end up living on his abandoned oil rigs sometime in the future bro

    Comment by Hobbes — August 20, 2011 @ 4:36 pm

  18. Hobbes – I don’t really care about his project, but thanks Hobbes once again you’ve really made me think with your evidence and logical argument rather than just snarky comments with a presumptuous and condescending tone.

    Comment by Quoth the Raven — August 20, 2011 @ 4:58 pm

  19. I see you have fallen into the trap of the dishonest graph, danyl. If you don’t show the zero value for the Y axis, the magnitude of the changes is exaggerated.

    Honesty in Data Visualisation.

    Comment by DavidW — August 20, 2011 @ 5:35 pm

  20. If you want tomeasure how well Reynolds has doneover his tenure as the head of TEL, forget the SP and look by quarter at;

    1. Mobile share
    2. EBITDA
    3. Operational spending as a proportion of revenue

    Comment by Gregor W — August 20, 2011 @ 5:37 pm

  21. The Telecom price is now $2.70 and looks headed to back over $3 – the main reason for the decline was of course the risk of being excluded from the broadband roll-out and being reduced to a cheap price fast copper network alternative.

    Reynolds was chosen because of his experience with the British telecom split, part of the criteria for Telecom being part of the broadband roll-out. His appointment was to save the company from the possible consequence of .its past strategy, dependence on a contining cosy relaltionship with government as the Kiwi Share company with a network monopoly and some protection from full opening up to market competition (until late in Labour’s 9 year term).

    It now appears to secured itself as blue chip stock (long term future with a steadily rising share value and good dividend flows) rather than remaining a past institution in decline.

    Comment by SPC — August 20, 2011 @ 8:31 pm

  22. @19

    It is a fallacy that honesty in data visualisation requires that all axes start at 0 (even for interval variables that have a meaningful zero point).

    See this: http://mule.posterous.com/should-zero-always-be-included-on-the-scale-o
    Scientific journals do not require axes to include the zero point
    Tufte’s “The Visual Display of Quantitative Information” also does not require it.

    It is reasonable to expect a reader to read the axis labels.

    A.

    Comment by Antoine — August 21, 2011 @ 10:08 am

  23. Quoth, I wouldn’t throw your toys out of the cot when you’re on the oilrig libertopia man, somebody might shoot you & throw your remains overboard for the sharks :-(

    Comment by Hobbes — August 21, 2011 @ 11:15 am

  24. Hobbes – That’s real funny, Hobbes.

    The Berlin wall fell over twenty years ago. China, Brazil and India have liberalised their economies and the world has seen the results as globally poverty and inequality have been declining. Even Cuba has begun to ease controls on its economy. Privatisations around the world proceeds apace. One of the last holdouts is North Korea and it is still experiencing famine. The world is becoming a more peaceful place. The nation-state is on the decline. The trend is on our side. It is no wonder socialists have to resort to jokes and insults as their project is crumbling before our eyes and they’re worried about a tiny bit of competition in governance from a handful of libertarians on a disused oil rig. Even former marxists like Christopher Hitchens understand quote:

    I can no longer say I am a socialist. … Marx’s original insight about capitalism was that it was the most revolutionary and creative force ever to appear in human history. And though it brought with it enormous attendant dangers, [the revolutionary and creative nature] was the first thing to recognize about it. That is actually what the Manifesto is all about. As far as I know, no better summary of the beauty of capital has ever been written. … There is no longer a general socialist critique of capitalism – certainly not the sort of critique that proposes an alternative or a replacement. There just is not and one has to face the fact, and it seems to me further that it’s very unlikely, though not impossible, that it will again be the case in the future.

    I used to be one too, but I like more and more people all over the world see things differently now.

    Comment by Quoth the Raven — August 21, 2011 @ 1:32 pm

  25. Finally, I have little but contempt for high fliers like Buffett and the Morgans here who complain that they were undertaxed.. I have a suggestion.. lets see them publicly pay the IRD/IRS retrospectively for their ill gotten gains; they wont, because to a man they believe they can use the money better than the Govt.

    I’m quivering with at my keyboard to the suggestion that both Buffett and Morgan should pay more income tax than midlevel a NZ secondary school teacher. Let no man even mention the fact unless he himself has rendered every cent to the IRD.

    I’m off to pull myself up by the bootstraps and Fox.

    Comment by taranaki — August 21, 2011 @ 3:37 pm

  26. Ah well, I guess if the Mises Institute, Roger Kerr’s blog and “former marxist” Christopher Hitchens say that “communism” has lost then I guess we should all just give it up eh old chap? Amusing as always chief!

    Comment by Hobbes — August 21, 2011 @ 4:55 pm

  27. Quoth @#24 and previously – did the GFC pass you by? Do Libertarians just look the other way when the entire world economy teeters on the brink of oblivion, saved only by massive “socialist” injections of state cash? What about our part in climate change and the world’s absolute refusal to do anything meaningful to prevent catastrophic damage to the way most of the world’s people live?
    Your confidence that life would be so much better if we would all just agree that greed is good sounds eerily similar to the neocons declaring the “end of history” just before history jumped up to bite them in the bum. Or Gordon Brown saying that inflation had been defeated and that Britain was now looking at endless growth, right before aforementioned GFC reared its head and hissed at him. Britain is pretty stuffed now, in case you hadn’t noticed.
    Then again, I suspect these facts do not conform with your theories so maybe just ignore them.

    Comment by Neil — August 21, 2011 @ 5:10 pm

  28. Comrade, it’s a speech by Martin van Crevald one of the world’s leading military historians and by no means an anti-statist, international data on privatisations, and one of the world’s leading public intellectuals. The state as an institution is losing power due to economic and social changes and it is losing its ideological support base. The trend is clear to many. It’s a positive development that what when comes down to it is just an ideologically legitimized monopoly on mass coercion that does more harm than good to society is on the decline. You can pretend that all the empirical economic and sociological evidence and the economic theory that a free and open society with free markets leads to the greatest human flourishing doesn’t exist all you want. You can ignore global trends and act like the Soviet union never collapsed, but more and more people are seeing. Aging socialists such as yourself will just have to ride the tiger.

    Neil – Do you choose to ignore the state interventions that had a role in the GFC? In the case of the recent crisis the thick web of regulations built up and up over years interacted in ways that regulators were ignorant of to create the systematic risk that lead to systematic failure. The Community Reinvestment Act, Government sponsored enterprises such as Fannie Mae and Freddie Mac, and the department of housing and urban development all worked to create a spate of government insured subprime lending and securitisation, the capital requirements in Basel I and II, tied to the judgements of the ratings agencies which were canonized in regulations, encouraged banks to hold double and triple A rated asset backed securities, and the SEC regulations which protected the three major ratings agencies from competition, essentially giving them state privileged status, all interacted to move banks and investors in the same direction and make them ignorant of the risks and lead to the crisis.

    We simply can’t know if the recent crisis would have occured, whether subprime securities would have become so concentrated in banks if not for the canonization of the ratings agencies and their interaction with the Basel rules. There is no systematic risk if only a few players engage in risky behaviour they will fail or change and it won’t pose a threat to the whole system. That is if there is sufficient heterogeneity in it. However, what regulations do is push the system toward greater homogeneity and hence put it at greater systematic risk. Here’s an argument on why Financial regulation is doomed to fail.

    It is not about greed is good. That’s your strawman. It’s about the bottom-up emergent order of a free society, voluntary human interaction and cooperation, versus the top-down order imposed through mass coercion.

    And just for you:

    Comment by Quoth the Raven — August 21, 2011 @ 5:31 pm

  29. “…The nation-state is on the decline….”

    What? I’m sorry are you from the past? When the Mr. Creosote’s of global capital paused their projectile vomiting on the rest of us in order to explode, who was it again who everyone – and I mean, everyone – reflexively turned to to save them? Who was it who was expected to pick up the tab, protect jobs, bail out the bankers and ensure the wheels of the world’s economy continued to turn?

    Oh that’s right. It was the nation states. The ones run with that silly irrelevancy called democracy (how does democracy fit into your corporation as a state vision of the future anyway?) that have leaders we actually voted for. they were the ones who saved us all, not your dickhead banker Gods.

    Oh and Van Creveld is the Ezra Pound of military history, a neo-fascist Zionist fanatic chiefly known these days for promising Israel will use it’s nuclear arsenal to wipe out Europe if it looks like it might lose a war with the Arabs.

    Comment by Sanctuary — August 21, 2011 @ 5:48 pm

  30. I agree with you Raven, just look at Pike River. Those men were condemned to die in an unsafe mine by the stifling hand of regulation; the oppressive yoke of health and safety legislation was the problem. If only the owners had been liberated to generate profits and safer workplaces without the nanny breathing down their neck/

    I write this from my bed, Richard Haley’s latest concerto drowning out my moans of self-pleasure as I dream of entering the promised land, our Galtian world. Let me whisper it to you… Somalia.

    Comment by taranaki — August 21, 2011 @ 6:51 pm

  31. Sanctuary – Ad hom. Anyway, I mention van Creveld because he isn’t some free market anti-statist ideologue, but as a historian he recognizes the trend.

    Like Neil you ignore all the numerous state interventions that lead to the recent crisis. Should we ignore the change to the Community Reinvestment Act (CRA) (the first private securitization of loans were of CRA loans), to make banks prove they were making efforts at lending to the ‘underprivileged”, which led to the creation of the subprime mortgage market in the US? Should we ignore the role of the government sponsored enterprises Fannie Mae and Freddie Mac (the federal guarantee of which gave risky securtizations of their mortgages an implied triple A rating) or the role of the Federal housing Authority in directing mortgage lending to low income borrowers? Should we ignore the the labyrinthine mess of regulations that conferred upon the rating agencies government protection and privilege and effectively barred anyone from competing with them? Should we ignore the Federal Reserve keeping interest rates low for five years after the dot com crash and the credit expansion it fostered? Should we ignore the role of the Basel accords? See this paper in the critical review.

    If you actually want to understand the libertarian position and engage honestly in debate, instead of relying on insults, ad hom and straw men ( e.g., “corporation as a state vision of the future”) I’d recommend two pieces (though I doubt you’d actually read them) from one of my favourite blogs to read:

    Against politics, the nation-state, and government
    The history of human society property rights versus the state

    Comment by Quoth the Raven — August 21, 2011 @ 7:06 pm

  32. John Galt built my house. It leaks. He built it from the bottom up, but considered the roof to be an unnecessary limit on personal freedom so left it off.

    Comment by Guy Smiley — August 21, 2011 @ 7:29 pm

  33. Guy, taranaki, et al., Let’s hear your logical arguments and empirical evidence or is your argument so good it’s not necessary to talk about it?

    Comment by Quoth the Raven — August 21, 2011 @ 7:43 pm

  34. Of course Reynolds is paid well. He is, after all, very tall.

    http://www.apa.org/monitor/julaug04/standing.aspx

    Comment by Rick Rowling — August 21, 2011 @ 7:55 pm

  35. Raven,

    I suppose you then support National/Act policies then now, like privatisation of everything, and an American style health system.

    Traitor.

    Comment by millsy — August 21, 2011 @ 7:59 pm

  36. Quoth,

    I’m not sure how strong your point regarding the role of financial market regulation in creating the GFC is. Your own conclusion is pretty muted: “We simply can’t know if the recent crisis would have occured, whether subprime securities would have become so concentrated in banks if not for the canonization of the ratings agencies and their interaction with the Basel rules.” By the same token, of course, we simply can’t know if the recent crisis would not have been 10x worse without such regulation in place. So if the point is “maybe regulation hurt, or maybe it helped”, then sure … obviously there were regulatory flaws, or else we wouldn’t be discussing the problem at all.

    But anyway, the point with the GFC is that when it DID happen (for whatever reason) the immediate response of all involved was to turn to “the State” to (i) stop the immediate crisis (by injecting liquidity into the markets and thus reassuring participants they could trust their counterparties) and (ii) ameliorate the worst of the consequences (by taking on the worst of the liabilities and socialising the losses). That kind of tells against your “the State is dying and no longer relevant” thesis. Now, of course, you may say that these actions were wrong, and that things would have been better had the State kept out. But that was never going to happen as a point of fact (read the first hand accounts of the events) and almost certainly never will happen whilst we have democratic governments in place. Because no matter how much creation destruction may allow for – no matter the new green growth that follows a forest fire – that destruction carries costs in terms of peoples actual, real lives. And those people want to keep living their lives. And governments that respond to what people want will continue to intervene in markets to adjust outcomes. Which is why ACT and the Libertarianz are margin of error propositions. Which seems like a real-world matter that needs factored into any analysis.

    Finally, on “It’s about the bottom-up emergent order of a free society, voluntary human interaction and cooperation, versus the top-down order imposed through mass coercion.” What about China – which combines (a measure) of economic freedom with centralised state control over society generally. Isn’t this the likely dominant model for the immediate future, given that it has all the money … ?

    Comment by Grassed Up — August 21, 2011 @ 8:04 pm

  37. “32.John Galt built my house. It leaks…”

    crackup

    Comment by Alistair — August 21, 2011 @ 8:09 pm

  38. Grassed up – I agree with the paper I linked to:

    there is no reason to think that subprime securities would have been issued in such volume, nor that they would have been concentrated in the hands of the banks, in the absence of the Basel rules and the legal canonization of the rating agencies’ judgments. Indeed, what may have saved the world from complete economic chaos in 2008 was the fact that the regulations were loose enough that many investors and many bankers had resisted buying the “safe” securities that most banks seem to have bought. Heterogeneous behavior like that, however, is allowed for, encouraged, and rewarded by capitalism; and is either discouraged or prohibited by regulation, depending on how tight the regulations are.

    We can’t know what the financial and banking sectors would have done without those regulations nor do we know how the recovery from the financial crisis would have proceeded in the absence of state intervention. I would also add that as per my above link there are good reason to believe that financial regulation cannot remove systematic risk from the finance and banking system and probably only exacerbates it. Given that states exist it is unsurprising that they responded to the crisis. That’s no argument against the trend. We didn’t see anything like what occurred in the thirties and furthermore state debt problems have now lead to austerity (albeit extremely mild) measures and more market liberalisation in places like Greece.

    The reason China has done so well is because it moved in the opposite direction to what socialists and statists are advocating here. They moved towards more market orientation and liberalised their economy. Remember they have been and still are picking the low hanging fruit that western economies picked long ago. Still central planners are causing problems in China that they will have to deal with in the future.

    Rick – We should introduce a height tax to improve equity or do something like this

    Comment by Quoth the Raven — August 21, 2011 @ 8:24 pm

  39. Raven – thanks for the economics lessons. Interesting take on the GFC being the result of too much regulation. Naive little me thought it was all because hotshot young bankers found a way to slice and dice dodgy loans to minimise the risk of failure by spreading it really thinly. Trouble is, their bosses (paid such astronomical salaries that Paul Reynolds’ one looks like peanuts) stupidly thought they had eliminated risk altogether and proceeded to dole out money left, right and centre to people who had absolutely no hope of paying it back.
    Then we all stared into the abyss because for a while no-one trusted anyone else and wouldn’t lend them any money. Sounds to me like the bottom-up emergent order of a free society that the Somali refugees I worked with here in Chch described. Funnily enough, they weren’t that keen to go back there.
    Our own little mini-me subprime debacle was almost entirely down to a lack of regulation. First uncle Roger Douglas removed almost all restrictions on finance companies so that they would become nimble and smart. You know, the market would make it so. Then auntie Ruth Richardson did more of the same. It slowly dawned on the finance companies that no-one was watching them (Jane Diplock might have been having a massage at the time) so they got Colin Meads and similarly trustworthy people to assure us they were “solid as” and proceeded to lend mum’s and dad’s life savings to dodgy property developers and every boy racer who strolled up in search of a Subaru WRX for a dollar down. Oh, and themselves- they “lent” it to themselves. So they could continue to live in the manner to which they had become accustomed.And lots of them still are.
    Far from liberating us from the shackles of government control, deregulation in NZ is a testament to the destructive power of unrestrained selfishness and greed.

    Comment by Neil — August 21, 2011 @ 8:25 pm

  40. Neil – Above i linked to this paper in the Critical Review A crisis of politics not economics complexity ignorance and policy failure. If you care to read it is the best explanation of the crisis I have come across and adresses all of your points Such as in the section ‘Was it bankers greed than after all?’ and ‘The Executive Compensation Theory’. From the former: Here’s a couple of excerts from the former:

    Without the Basel rules, commercial banks would not have loaded up on subprime securities. And had they not done so, the dawning realization that these securities might be“toxic,” despite their ratings, would not have caused lending among the banks to freeze. No Basel rules, no overinvestment in toxic securities by the banks; no overinvestment in toxic securities by the banks, no financial crisis.

    But if we look at the same process from a different angle, the bankers concentrated risk in their own portfolios so that they could make more
    money. So it might seem that, after all, the most popular explanation of the crisis is true, although for a reason most people have never heard of:
    “Greedy bankers” were indeed at fault, because they took advantage of the Basel rules to “leverage up.” …

    … truly “excessive” risk-taking causes a bank to lose money. A greedy banker may want to make more money, but he also doesn’t want to lose it. The miser who hoards his pennies is as greedy as someone who borrows as much as possible in order to gamble with it: With leverage comes not only the promise of large gains, but the risk of great losses. Avarice, therefore, can lead to leveraging down as much as it leads to leveraging up: If greed is a banker’s motive, raising his capital ratio (to reduce his leverage) makes as much sense as lowering it. Thus, when we see bankers leveraging up, avarice is not the issue. Confidence is. A bank that leverages up is relatively confident in the accuracy of its judgments about how to make money—and relatively confident in its judgments about how to avoid losing it….

    If the only thing bankers had cared about was making money, heedless of the risks involved, then they could have exclusively bought double-A
    subprime securities, which conferred exactly the same capital advantage as triple-A securities—but which produced a higher yield. But Acharya and Richardson’s Table 1 shows that in fact, only 19 percent of the rated securities held by banks were rated AA or lower. Eighty-one percent of
    the time, bankers chose lower-yielding triple-A securities. The bankers’ preference for AAA over AA securities demonstrates that they were not
    blind to risk.12 It also demonstrates that they, like everybody else, believed in the accuracy of the triple-A ratings, since they were trading the greater returns on double-A tranches for the supposed safety of triple-As.

    Moreover, most banks went the extra mile and bought additional insurance on these securities, both from “monoline” insurers, which
    provided 100-percent loss protection (Gorton 2008, 38n42) on some portion (generally 20 percent) of the securities; and in the form of creditdefault swaps—as Wallison explains in “Credit-Default Swaps Are Not to Blame.”13 The evidence, then, suggests that bankers were not imprudent in the sense of ignoring risks that they knew about. Rather, they were ignorant of the fact that triple-A rated securities might be much
    riskier than advertised.

    Obviously, there’s too much to go into in the comments section of a blog, but if you wish to you can read the paper.

    On the issue of Somalia I would encourage you to look into Siad Barre and his efforts to impose “scientific socialism” on the country. His was a brutal and inhuman regime. The appropriate comparison to make on the situation in Somalia is to life under that regime. i recommend the following paper in that regards Better Off Stateless: Somalia Before and After Government Collapse

    Comment by Quoth the Raven — August 21, 2011 @ 9:00 pm

  41. millsy – I support privatisation, but I don’t support the Act party or the National party. In fact I don’t support any political party. I probably won’t bother to vote. From a probability perspective I know it is a waste of time.

    I want a more peaceful, freer, more prosperous and flourishing society as I’m sure you do. I just don’t agree with you on the means to that end. If that makes me a traitor so be it. I would naturally assume that you have good intentions and it would be nice if you would extend the same assumption to me as you should anyone you are trying to debate in political matters.

    If you want to understand the American healthcare system from a different perspective I recommend this piece The Healthcare Crisis: A Crisis of Artificial Scarcity

    Comment by Quoth the Raven — August 21, 2011 @ 9:55 pm

  42. Raven,

    There’s every reason to think that these things would have been dealt in such large amounts without financial regulation – they looked like risk free money (and generated huge fees for the institutions that created them), so why wouldn’t the investment banks gorge themselves silly? Now, your argument seems predicated on a position that if there were no rules around, everyone would have to very carefully assess for themselves the relative risk of any given financial transaction and thus the chances of large scale disruption to the markets is nugatory. But the reality is that (i) people aren’t that good at assessing risk (the Black Swan problem); and (ii) so they systematically use shortcuts to “help” decide relative risks (be it rating agencies or Colin Meads’ visage); plus (iii) they are prone to getting caught up in manias that end – with systematic jolts. In a nutshell, there was no State regulation of the Dutch tulip market back in the 17th Century … didn’t stop that bubble popping. So, you don’t need to fool all of the people all of the time – you just need enough people to be foolish for long enough to blow up the world.

    As for “Given that states exist it is unsurprising that they responded to the crisis”, that’s not the point. The point is that when the shit hit the fan, the markets went running to government. In fact, it was the regulators – Paulson, Geithner, et al – who were actually resistant to action (on the grounds of “moral hazard” and the political problems with being seen to give shit loads of money to Wall St) right up until they realised the whole system really was on the verge of complete meltdown. Try reading some actual accounts of the events of 2008, rather than Monday morning quarterbacking of it. So if your claim is “if there were no State, it would not have responded”, well … duh. But if you’re trying to imply that it was the State that stepped in against the wishes of market participants, then you are fundamentally wrong. And if even hard-nosed market participants (and usually free market zealots) pound on the State’s door to save them when disaster looms, that once again tells pretty hard against your “the State will wither away” thesis.

    My China point was not to deny that they have liberalised their economy. (BTW: I’m not sure who these imaginary die-hard defenders of Soviet-style central planning are that you seem so determined to vanquish … I’ve yet to read a comment here claiming that North Korea is the way forward.) Rather, its to point out that they’re missing a pretty substantial part of your “bottom-up emergent order of a free society, voluntary human interaction and cooperation” recipe – you know, the “free society” bit. Or is it all about the money with you?

    Comment by Grassed Up — August 21, 2011 @ 10:07 pm

  43. Grasssed Up – There’s every reason to think that these things would have been dealt in such large amounts without financial regulation – they looked like risk free money

    There is no reason to think that without the changes to the Community Reinvestment Act (CRA) (the first private securitization of loans were of CRA loans), to make banks prove they were making efforts at lending to the ‘underprivileged”, without the actions of the government sponsored enterprises Fannie Mae and Freddie Mac or the Federal housing Authority directing mortgage lending to low income borrowers or the regulations that conferred upon the rating agencies government protection and privilege and effectively barred anyone from competing with them, the Federal Reserve keeping interest rates low for five years after the dot com crash and the credit expansion it fostered, and the regulatory arbitrage that Basel rules fostered that subprime securities would have become so concentrated in banks. You cannot ignore these actions.

    The problem of the financial crisis is not a simple matter of why bankers err, why they are overconfident or imprudent, but why did so many banks engage in the same behaviour at the same time. There is no systematic risk if only a few players engage in such behaviour they will fail or change and it won’t pose a threat to the whole system. That is if there is sufficient heterogeneity in it. However, what regulations do is push the system toward greater homogeneity and hence put it at greater systematic risk. From my previous link Why Financial Regulation is Doomed to Failure:

    We also show empirically that the securities with historically low volatility tended to have almost twice as much subsequent risk, while those with historically high volatility tended to have almost half as much subsequent risk. For both the riskiest and least risky securities, therefore, historical risk is a statistical illusion.

    Here’s where the problem of objective regulations comes in. To see it, consider the perspective of a bank deciding what to invest in. It can invest in any of the 1,000 securities, but if it invests in the special ten that exhibit less than 80 percent of their true volatility, it will have to put up one-fifth less capital than otherwise. At least to some extent, those ten securities will be more favored than the others. What’s worse, every bank will favor the same ten securities because the objective regulations are the same for everyone.

    If those securities continue to rise, then no problem will be apparent. But if they should fall, then, suddenly, all banks will need to liquidate the exact same positions at a time when those positions are falling anyway. This sets the stage for systemic failure. Consider sub-prime mortgages as an illustration. These assets appeared to be historically low-risk and were, therefore, regulatorily favored. Banks invested more in them than they perhaps should have. For a while, as real estate prices continued their ascent, no problems surfaced. But once the market turned, banks began experiencing more losses on their sub-prime mortgage holdings than their regulatorily-mandated risk calculations had planned for. Banks needed to raise capital quickly and began doing two things: selling the sub-prime mortgages, dropping the prices even lower; and selling other assets. Because the banks all acted nearly simultaneously, and all in the same direction, the impact on the markets was both broad and deep, and systemic collapse became a real threat.

    (i) people aren’t that good at assessing risk (the Black Swan problem); and

    The same goes for regulators. Regulators are no omniscient. They cannot see into the future. As was clear in the recent crisis basing capital requirements on past outcomes is no guarantee for the future.

    so they systematically use shortcuts to “help” decide relative risks (be it rating agencies or Colin Meads’ visage);

    You must understand that the state canonized the judgements of particular ratings agencies in regulation. Ratings agencies that state regulations protect from competition. From the aforemention Critical Review paper:

    Although the rating agencies, like the government-sponsored enterprises, are privately owned, they are usually called agencies rather than companies for good reason—although the reason is not widely known. Lawrence J. White’s paper shows that a welter of regulations going back to 1936 had, by the end of the twentieth century, conferred immense privileges on these firms, effectively making them unofficial arms of the U.S. government. A growing number of institutional investors, such as pension funds, insurance companies, and banks, were prohibited from buying bonds that had not been rated “investment grade” (BBB- or higher) by these firms, and many were legally restricted to buying only the highest-rated (AAA) securities. So income from producing the ratings was guaranteed to the rating firms. Moreover, in 1975, the Securities and Exchange Commission (S.E.C.) effectively conferred on the three rating firms that were then in existence—Moody’s, Standard and Poor’s, and Fitch—oligopoly status. In this ruling and subsequent actions, the S.E.C. ensured that only these three firms were Nationally Recognized Statistical Rating Organizations (NRSROs)—and that only an NRSRO’s ratings (oftentimes, two NRSROs’ ratings) would fulfill the numerous regulatory mandates for investment-grade and AAA ratings that had proliferated since 1936. The net result was that while the three rating “agencies” remained in private hands and could use whatever rating techniques they wished, their financial success did not depend on the
    ability of these techniques to produce something that somebody would have wanted to buy (in the absence of the earlier S.E.C. regulations)— such as accurate ratings. Instead, their profitability depended on government protection. If the rating agencies used inaccurate rating procedures, they would not suffer for it financially—let alone go out of business.

    Comment by Quoth the Raven — August 21, 2011 @ 10:34 pm

  44. QTR: Ever considered the Pirate Party or Legalise Cannabis?

    Comment by DeepRed — August 21, 2011 @ 10:47 pm

  45. DeepRed – I was going to say to millsy that if I did decide to walk the 500 m or so to the primary school on voting day I would probably give my vote to the ALCP.

    Comment by Quoth the Raven — August 21, 2011 @ 10:52 pm

  46. QtR,

    Irrespective of the cause of the GFC – a matter on which I suspect one can find an analysis to suit any prior belief (see this paper from the IMF, for instance, linking the level of sub-prime lending to political lobbying designed to neuter regulation of that practice (http://www.imf.org/external/pubs/ft/wp/2009/wp09287.pdf)) – let’s examine its effects for a moment. You claim “The nation-state is on the decline. The trend is on our side.” So, simple question – is the nation state more or less involved in regulating the activities of financial institutions (as well as wider economic activity) now that in was in 2007?

    Comment by Andrew Geddis — August 22, 2011 @ 10:09 am

  47. One question I am intrigued to get a clear answer on around this whole nation state in decline theory is what organising principle do the libertarians/neo-liberals see replacing it? Neo-liberalism has always seemed to be an explicitly anti-democratic project to me when one looks at the actions (rather than the rhetoric) of it’s adherents, be it the Koch family or our local Messianic Randian Don Brash. From where I am looking, the “decline of the nation state” is actually code for the rise of a quasi-fascist police state, where the sole purpose of the regime is to do the dirty work of protecting some sort of Platonic corporate aristocracy. In this vision of the future, almost all people will experience extreme state violence and repression, not freedom and liberty.

    Comment by Sanctuary — August 22, 2011 @ 10:38 am

  48. While we’re posting links from QtR’s favorite website, here’s one I quite like

    http://mises.org/daily/2066

    “Stateless in Somalia, and Loving It”

    Somalia is in the news again. Rival gangs are shooting each other, and why? The reason is always the same: the prospect that the weak-to-invisible transitional government in Mogadishu will become a real government with actual power.

    The media invariably describe this prospect as a “hope.” But it’s a strange hope that is accompanied by violence and dread throughout the country. Somalia has done very well for itself in the 15 years since its government was eliminated. The future of peace and prosperity there depends in part on keeping one from forming.

    Aaah, insane libertarians, always good for a laugh.

    Comment by Hobbes — August 22, 2011 @ 12:00 pm

  49. Another Socialist leader, self confessed “green socialist” Muamar Ghadaffi appears to be falling.

    Andrew – In answer to your question more regulated. However, that’s one instance, and the Basel III rules already seem to be failing, I’m talking of a long term megatrend. Look at the economic liberalisation of nations like Brazil, India and China (and as I mentioned before even Cuba), the collapse of the Soviet union, the global movement away from public ownership and towards privatisation, the rise of free trade, globalisation and corporate arbitrage which makes it harder for states to control economies, and the technological advances in communications and transport that make national borders inncreasingly irrelevant to business.

    Sanctuary – Yes, you’ve rumbled us we’re all fascists who want a police state, that’s why we spend so much time decrying the drug war and police abuses, defending civil liberties, proposing open immigration, and so on. Organisations started by libertarians like Cop Block, candlelight vigils held outside police prosecutors homes, libertarian activists filming police, organising 4.20 protests are all just fronts for our real activities.

    Comment by Quoth the Raven — August 22, 2011 @ 12:35 pm

  50. Hobbes – Somalia became the poorest place in the world under a socialist regime. The regime of Siad Barre who attempted to impose “scientific socialism” on the country. The brutalities included torture, rape, summary executions, arbitrary detention and restricted pres freedom. In short the usual socialist fare. Despite all its problems, after the collapse of that regime, Somalia empirically improved on most economic metrics.

    Since you’re not going to read the paper here are some excerts:

    Most depictions of Somalia grossly exaggerate the extent of violence. In reality, fewer people die from armed conflict in some parts of Somalia than do in neighboring countries that have governments. In these areas security is better today than it was under government (UNDP
    2001). About the same number of annual deaths in Somalia are due to childbirth as are attributable to war—roughly four percent of the total (UNDP/World Bank 2003: 16). And these deaths are combatants, not civilians. “Atrocities against civilians are now almost of unheard of”
    (Menkhaus 2004: 30). This is still too high, but far from cataclysmic. In fact, it’s not far from the percentage of deaths due to homicide in middle-income countries such as Mexico, which in 2001 was 3.6 (WHO 2006).

    The data depict a country with severe problems, but one which is clearly doing better under statelessness than it was under government. Of the 18 development indicators, 14 show unambiguous improvement under anarchy. Life expectancy is higher today than was in the last years of government’s existence; infant mortality has improved 24 percent; maternal mortality has fallen over 30 percent; infants with low birth weight has fallen more than 15 percentage points; access to health facilities has increased more than 25 percentage points; access to sanitation has risen eight percentage points; extreme poverty has plummeted nearly 20 percentage points; one year olds fully immunized for TB has grown nearly 20 percentage points, and for measles has increased ten; fatalities due to measles have dropped 30 percent; and the prevalence of TVs, radios, and telephones has jumped between 3 and 25 times.

    Indeed, thus far in the stateless period, the two greatest disruptions of relative stability and renewed social conflict have occurred precisely in the two times that a formal government was attempted—first with the TNF and more recently with the TFG. In both cases the specter of government disturbed the delicate equilibrium of power that exists between competing factions, and led to increased violence and deaths due to armed conflict (Menkhaus 2004). Even the recent increased volatility of the Somali shilling is rooted in these attempts at recreating a central state. At the moment at least, it seems that in upsetting this delicate balance of power the attempted reestablishment of government in Somalia is likely to lead to more conflict and obstacles to progress rather than less. This would have the undesirable effect of reversing the strides toward
    increased development Somalia has achieved since 1991.

    As we have seen in the handful of years since that paper was written and the attempts to impose government by Islamists and western states that he was right on the latter point.

    Comment by Quoth the Raven — August 22, 2011 @ 1:11 pm

  51. that fits with what my friend who has lived in Somalia told me. He said that the whole ‘no government’ thing wasn’t working very well in comparison with any country with a government he had ever lived in (except possibly Burma – he was unsure whether it was better or worse than Burma), but he said most of the Somalian people he knew were happy with having no government because their experience with government had been so bad that they thought they were better off without it.

    Comment by Kahikatea — August 22, 2011 @ 1:25 pm

  52. QtR,

    Of course, the wonderful thing about “long term megatrends” is that they allow you to point to the evidence that supports them, whist ignoring any evidence to the contrary (as this is just obviously is just a blip on the otherwise clear course of history). Equally, they invariably turn out to be wrong – witness the Communist march of history, the 1000 year Reich, and Fukiyama’s end of history thesis.

    Comment by Andrew Geddis — August 22, 2011 @ 1:26 pm

  53. Kahikatea – That why I said above that the appropriate comparison for Somalia is before and after socialism.

    Andrew – It’s not to ignore, but to say that when your piece of evidence is a bit of regulation against the major social and economic changes, which I mentioned, that have been occurring over many decades, it’s a little insignificant.

    Comment by Quoth the Raven — August 22, 2011 @ 1:34 pm

  54. I will concede one point, and one point only, that I am indeed highly unlikely to read a paper by some Cato institute libertarian nutcase about how great Somalia apparently is these days. You’ve got me on that one!

    Comment by Hobbes — August 22, 2011 @ 1:39 pm

  55. Actually, I will concede a second point: I can see how potentially appealing it would be to say that Somalia is a great case study as to why the state is evil if the depth of ones argument is limited to something along the lines of “Stalin had a state/government. it did bad things. It was communist. Therefore, the state is bad. QED”

    Comment by Hobbes — August 22, 2011 @ 1:42 pm

  56. Hobbes, once again you resort to ad hom, straw man, and derision. Throughout this thread you haven’t said anything constructive. You haven’t made any logical or empirical arguments. If my case is so weak why don’t you muster something against it without resorting to insults and derision? I would think that if your such a tower of intellect you could destroy my arguments without the condescension and invective of your other comments. Or is that your argument is so good it’s not necessary to talk about it?

    Comment by Quoth the Raven — August 22, 2011 @ 1:59 pm

  57. QtR,

    The “war on terror” – both in the guise of external military action and increased domestic surveillance and control. Fear of illegal immigration and the consequent tightening of borders (in the US, Europe, and elsewhere). The TARP and government intervention in the US auto industry and health care market … along with quantative easing. The role of sovereign wealth funds in global markets, as well as Chinese state-owned companies. Climate change mitigation strategies – be they cap-and-trade models or carbon taxes. Etc, etc, etc.

    Remember, all these must be incorporated within the “long term megatrend” that shows us “The nation-state is on the decline. The trend is on our side.”

    Comment by Andrew Geddis — August 22, 2011 @ 2:30 pm

  58. QtR –

    You do realise in your Somalia piece above that the country did in fact have government functions of a sort, hence all those lovely stats about immunisation etc.

    It’s just that those functions (and hence government) weren’t sovereign. They were under the governance and mandate of the United Nations Development Programmme.

    These services didn’t just spontaneously self organise courtesy of the Invisible Hand.

    Comment by Gregor W — August 22, 2011 @ 2:30 pm

  59. Quote the Raving: “That why I said above that the appropriate comparison for Somalia is before and after socialism.”

    That’s one way of putting it. Someone concerned with factual accuracy would put it slightly differently – the most significant characteristic of Mohammed Siad Barre’s regime fro these purposes is not socialism but tribalism, and by that I don’t mean the harmless post-tribalism of tracing your ancestry to Ngati Porou or Clan McGregor. Somalia is a country where there is long-standing rivalry between tribes, people support their tribes against other tribes on the basis of ‘my tribe right or wrong’, and Mohammed Siad Barre used his regime to privilege his own tribe against others. This is the main reason why his government was so bad that having no government is in some respects better. Incidentally, ththis tribalism was also a characteristic of Iraq under Saddam, and Libya under Qadaffi.

    And this mention of Qadaffi brings me to your description of his regime as ‘green socialist’ – someone who didn’t know anything about it could mistakenly interpret that as meaning that his regime was environmentalist. It was not – ‘green’ in Libya is the colour of Islam, and he used it to present his government as a good muslim government. It has no more to do with environmentalism than the use of green to signify Irish nationalism or the green on Australian sporting uniforms.

    Comment by Kahikatea — August 22, 2011 @ 2:47 pm

  60. Andrew – States are still pervasive and intervene in so many aspects of our lives so you can give any list of deleterious actions they engage in, but they have peeked and there is ample evidence of the trend. The last decade has seen fewer war deaths than any in the past century. Compare that to the 80 million killed between 1914 and 1945 around the peak of the statist era. Wars between large powerful nation states just don’t occur now and as mentioned in the Foreign policy piece the last war between two regular armies ended a decade ago. States like the US now engage in asymmetrical warfare with terrorists and insurgents. So when you compare the war on terror to the past it just shows the trend I’ve been discussing. Compare the domestic surveillance and control to that of the past as in the stazi or the KGB. Regarding China the story there is that of economic liberlisation the state loosening its controls. Yes, the state owns many companies, but look at the trend over the last few decades. Furthermore, look at the global trend away from public ownership and towards privatisation and the other points I mentioned globalization, free trade, corporate arbitrage. I think you are missing the wood for the trees.

    Comment by Quoth the Raven — August 22, 2011 @ 3:09 pm

  61. Kahikatea – I didn’t mean to imply ‘green’ as environmentalist. I think most people get the reference between green and Islam.

    Comment by Quoth the Raven — August 22, 2011 @ 3:11 pm

  62. Kahikatea – Government patronage could only expressed itself to benefit government cronies through tribal allegiances because the state had so much centralised control over the economy. The power of the state gave him the power to pursue it. That is the point about having power dispersed and decentralised in the market as opposed to centralised in the state. Some excerts from the paper to demonstrate why economic controls were essential the actions you describe:

    In 1975 all land was nationalized along with nearly all major industries and the financial sector. This facilitated government’s ability to expropriate citizens’ property for state projects, like massive state-operated farms, and for politicos’ personal use. Unpopular minority groups, such as the Gosha, were particularly easy prey. In the 1970s and 80s Barre expropriated Goshaoccupied land to create state-owned irrigation schemes that benefited his allies. In other cases his minions expropriated land for their private use, making Gosha serfs on their own property (Menkhaus and Craven 1996).

    State control of industry in Somalia created inefficiencies like in the Soviet Union. Between 1984 and 1988, for instance, the government-owned Kismayo Meat Factory was open only three months per year. Government also owned tanneries. The “Hides and Skins Agency” paid herders less than half the market value of hides to process in these factories. These firms also utilized only a tiny fraction of their capacity. All told, capacity utilization of Somalia’s state manufacturing firms was less than 20 percent (Mubarak 1997: 2028). Incentives to be productive, keep costs down, or cater to consumer demands were virtually absent. Factory managers cared only about meeting quotas. This led them to pursue
    wasteful activities, such as purchasing inputs worth more as raw materials than the output they produced (Little 2003: 39). Some state-owned enterprises were developed purely to benefit political rulers and their friends. For instance, government created the Water Development Program to subsidize private watering holes for the livestock of Barre’s allies.

    In the late 1970s Barre abandoned full-blown socialism to attract aid from the IMF. However, government continued to rely on central planning. “Parastatal companies continued to receive subsidies, foreign aid was channeled through state institutions and the state remained sole arbiter in the allocation of profitable contracts. Private sector autonomy was further curtailed by political patronage, which was the easiest way to access resources controlled by the state” (UNDP 2001: 140). In the 1980s there was only one bank in Somalia, state owned and operated. Government used it to keep afloat failing public firms and to reward political supporters. Only state enterprises or politically well-connected Somalis were able to obtain loans (Mubarak 1997). Government also remained involved in most other important economic sectors. Livestock and pastoral-product exports have long been critical to Somalia’s economy. In the 70s Barre nationalized most of this trade, and continued to control it throughout the 80s. Government 8 restricted imports and exports and introduced a bewildering array of regulations. Foreign exchange controls were also strict. They required exporters to exchange at least half their foreign exchange earnings at the state-set rate, which in 1988 overvalued the Somali shilling to the US$ by more than 120 percent (Little 2003). This benefited wealthy political patrons who consumed imports but decimated Somalia’s export industry.

    Comment by Quoth the Raven — August 22, 2011 @ 3:27 pm

  63. QtR,

    A wood is but an amalgam of trees. Looking only at one sort of trees in it (say, larches) whilst ignoring all the other sorts of trees in it simply so you can then declare “this is a Larch forest” is a bit silly. Point being, states do a lot of other things than just regulate the economy (even though they still do this an awful lot, and again have started doing so more in the past 5 or so years). Take the issue of “domestic surveillance and control” which you say proves your trend. Yes, the level of this in the USA/the West generally is less than occurred in East Germany/the USSR/etc. But why is that the metric of comparison? It is, after all, far higher than it was in 2000. So why isn’t this evidence of a U shaped trend, rather than of a steady path to greater and greater personal freedom and less state intervention?

    However, if your argument simply amounts to “the collapse of the former soviet bloc means that there is fewer soviet-style policies in place today”, I’ll grant you it. That is, however, a long way from showing that “the nation state” is on the way out and that we’re on the road to some libertarian paradise.

    Comment by Andrew Geddis — August 22, 2011 @ 3:28 pm

  64. The last decade has seen fewer war deaths than any in the past century.

    QtR –

    It doesn’t mean that the nation state has peaked at all. It merely shows that methods of aggression have become less overt and colourful.

    The slow strangulation of an enemy via international finance, the WTO, sanctions etc. appears to be the method du jour.

    Comment by Gregor W — August 22, 2011 @ 3:42 pm

  65. Andrew – It’s not a metric of comparison it’s to show that there is more to the world than a few nations in the west and we can look at the global trends that are occurring over decades. Also look at ways communications technology has subverted the ability of states to get away with abuses, e.g., the role of the media in the Vietnam war and wars, civilians filming police abuses on cell phone cameras, wikileaks, etc, and allowed anti-statist ideas to spread. Modern communications technology and globalisation has meant an increasing denationalising of cultures people may have more in common with people of other nations, than those of their compatriots. Look at the rise of transnational civil organisations and transnational corporations. Globalisation has meant greater transnational economic integration and states can no easily set their own tarrifs or implement protectionist policies. Corporate arbitrage means corporations can more easily avoid regulations and taxation playing state’s off of each other. They have to some extent lost some economic sovereignty.

    here’s a piece I just found by someone at Vic uni arguing along the same lines The Decline of the Nation State.

    Gregor – It could also show the increasing inability of states to wage major wars, as the world is more economically integrated and it is more difficult to use nationalist sentiment to promote war and increase state power, cultural changes mean people are repulsed by war and its consequences are less willing to see bloodshed for their nations and the media and global communications allow people to see the atrocities committed as never before.

    Comment by Quoth the Raven — August 22, 2011 @ 4:12 pm

  66. QtR – I’m sure you’ll agree that war is fundamentally about access to resources.

    The concerted application of violence and mobilising people through nationalism are just methods to achieve that end.
    They are tools rather than outcomes in themselves.
    They have become ineffective for some of the reasons you have stated.
    Other methods are now used, equally affective, by the modern nation state to achieve the primary aim of resource capture.

    This does not in any way mean that the nation state is in decline. It means it has adapted. Corporatism is just another flavour of state control, not and end unto itself or alternative model of governance.

    Comment by Gregor W — August 22, 2011 @ 4:31 pm

  67. QtR,

    Of course, those same communications technologies have also been used by the State to increase its surveillance of the individual – see the spread of CCTV, the tracing of individuals through their use of the internet, to say nothing of the great Firewall of China. And while globalisation may have allowed capital to become more mobile, it also increases the systemic risks involved – the reason the GFC was a GFC is because of the interdependent nature of financial institutions. And such global systematic risks drive attempts at coordinated responses … which are still channelled through nation states.

    My point is that there’s no necessary linearity to any of this. Yes, maybe we’ll march boldly into an era of individual freedom based on consenting transactions. Or maybe we’ll slump into an era of regional hostility and border tightening, as the world economy falters and climate change throws a spanner in everyone’s works. Or maybe we’ll muddle on through much like we are today. Saying “the future must be thus” is, and always has been, a taunt that the Flying Spaghetti Monster cannot abide.

    Anyway – here’s some reading for you, too:
    http://www.usao.edu/skandeh/Increasing%20significance%20of%20the%20state.pdf
    http://global-directions.com/Articles/Business/GlobalizationScenarios.pdf
    You might also check out this book: http://www.oup.com/us/catalog/general/subject/Politics/InternationalStudies/?view=usa&ci=9780195393903

    Comment by Andrew Geddis — August 22, 2011 @ 5:22 pm

  68. My point is that there’s no necessary linearity to any of this… Saying “the future must be thus” is, and always has been

    I never said it was inevitable or the “the future must be thus”. Now you are being intellectually dishonest. I am pointing to a widely recognized trend, one not accepted by everyone as your links will show, pointing to evidence in support of it, and making predictions based on that trend. Making predictions does not mean you think something is inevitable.

    The empirical evidence regarding economic crises is that economically liberal countries are less prone to economic crises than those which are less free. We can look at hyperinflation in Somalia and Zimbabwe as examples of heavily economic interventionist governments causing economic crises. Regulation by fostering homogeneity over heterogeneity only increase the risk of systematic failure. The GFC should demonstrate the ways in which regulations and government actions interacted in unintended ways to cause disaster and as I have pointed out there are good reasons to believe that the practical difficulties in regulating finance and banking are insurmountable. It is a myth that more government control of the economy leads to greater economic stability. And I shouldn’t need to mention the innumerable practical problems that planners face, like for instance the local knowledge problem.

    I’m sure you’ll agree that war is fundamentally about access to resources.

    No I wouldn’t. Wars are complex phenomena with many potential causes. It’s simplistic nonsense to argue they are fundamentally about access to resources.

    Comment by Quoth the Raven — August 22, 2011 @ 7:26 pm

  69. In the spirit of challenge then QtR, find me an example of interstate conflict not about resources.

    Comment by Gregor W — August 23, 2011 @ 9:55 am

  70. find me an example of interstate conflict not about resources

    Post WWII alone, and with a liberal interpretation of ‘interstate’, I’m going to say off the top of my head:
    Vietnam
    Afghanistan I
    Afghanistan II
    Falklands

    Comment by Phil — August 23, 2011 @ 10:22 am

  71. Gregor – I see you surreptitiously slipped ‘interstate’ in there when I was talking of war in general so I you can avoid obvious examples like the the French wars of religion. Any example I would come up with Gregor you would say was fundamentally about resources and all the other reasons I give you would say are just ancillary. Most sociologists and historians would recognise multiple causes for war (for example see Understanding Conflict and War Chapter 16 Causes And Conditions Of International Conflict And War By R.J. Rummel). Only crank marxists think wars are really only about competition for resources. If they are fundamentally about anything they are fundamentally about power.

    Comment by Quoth the Raven — August 23, 2011 @ 10:41 am


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