Britain’s system of public honours looks increasingly absurd. The recent decision to strip disgraced banker Fred Goodwin of his knighthood only brings it further into disrepute

All nations, even the most egalitarian of republics, have some form of state recognition of outstanding service. The principle is based on sound management practice: it encourages workers if their work is appreciated and it encourages others when such people are held up as role models, and it costs very little. The French Revolution abolished all titles of nobility, and old revolutionaries objected when Napoleon replaced them with the Legion of Honour. The master of psychology replied, “With such baubles are men led.”

Baubles they are. It seems ridiculous that some people get worked up about them. Even more ridiculous is the way that most seem to go not, as they should, to people who make some great sacrifice or who go above and beyond the call of duty, but to people who simply do the jobs they are paid to do – and sometimes paid very well.

In the UK, the volunteer lifeboatman or the tireless charity worker might be thrown a bone in the form of an MBE (Membership of the Order of the British Empire, the lowest ranking honour), but there is no sense of proportion when higher ranking knighthoods are given to super-rich pop-stars or soccer-players simply because they are celebrities, or to bureaucrats who are already very well rewarded from the public purse.

Honours for businessmen as businessmen are equally superfluous. The proper reward for business is the money one earns, no more, no less. If a successful businessman gives a large proportion of his personal earnings to charity, or a lot of his free time to a good cause, he might deserve a separate honour for that, but no one should expect to be honoured for doing no more than enrich himself.

So it was wrong to give to give Sir Fred/Mr Goodwin a knighthood in the first place “for services to banking” – especially since it turned out that his services to banking consisted of leading the Royal Bank of Scotland into bankruptcy.

Yet two wrongs do not make a right. Once granted, an honour should not be revoked except in the most extreme circumstances. Mr Goodwin has been convicted of no criminal offence. He was stripped of his knighthood by a secret committee of bureaucrats, without a hearing, in response to a media campaign that had more than a whiff of a lynch mob about it. Goodwin may not deserve our sympathy but that does not justify the way the decision was made. Friends in high places should not be enough to honour a man nor subsequent unpopularity enough to dishonour him.   

This blog tries very hard to be apolitical, but it does have one underlying political principle: a belief that enterprise and free markets are the most efficient generators of material prosperity.

So we do not share either the motivation or the conclusions of most “anti-capitalist” protestors. However, that does not mean they are necessarily wrong about everything. Some of their criticisms are valid. The fact that we are in favour of free markets does not oblige us to defend the cosy relationships that undermine those free markets. On the contrary, it is precisely because we believe in free markets that we add criticisms of our own.

Although the two expressions are often used interchangeably, it should be noted that there is a difference between free markets and capitalism – certainly the sort of capitalism that prevails at the moment, state-sponsored capitalism, or “crony capitalism”.

Free markets are, or should be, level playing fields, open to all and on which all can compete fairly, so long as they are willing to abide by the same rules.

Fairness and openness go out of the window when the state grants little favours to its special friends. When big business buys expensive lunches for tax collectors in return for an unusually sympathetic attitude, it is small business that ends up paying the bill. Small business is also the loser in the close relationship between government and the banks: in a reverse of the Biblical parable, government forgives the debts of the bankers but allows them to treat their small business debtors ambiguously.

There is also a need for greater transparency and accountability within the private sector itself. Free markets work on the principle of reward in proportion to success – with extraordinary reward for extraordinary success – but not extraordinary reward for little success. So it is not the anti-capitalists but we minor capitalists with small shareholdings in big corporations who should be the first to object when directors and senior executives are given excessive pay increases which are not matched by increases in profitability.

What is required is not the overthrow of the whole capitalist system but a reform of corporate governance within that system to increase the independence of non-executive directors and the rights of shareholders.

Politicians as varied as American conservative Newt Gingrich and British socialist Ed Miliband are talking of the need for a “new kind of capitalism”: we have every right to suspect their motives – but they may be right.

With public confidence in politics, the media, the banks, the legal system, the police, and big business all in rapid, and for the most part deserved, decline, perhaps the time has come to do more to celebrate the heroes on whom all that is best in modern life depends: the entrepreneurs.

The management theorist Peter Drucker defined entrepreneurship as transferring resources, including time, capital, labour, money, and knowledge from a lower to a higher state of productivity.

In other words, human and natural resources would achieve nothing unless someone had the enterprise to put them to good use. They would lie idle. Mankind would not have progressed beyond the caves without the initiative of the relatively few individuals willing to take risks and try new things. So entrepreneurs are behind every real advance in human civilisation. They were not necessarily the people who had original ideas. They were the people who put those ideas into practice, which may be more important.

Should any complain that some entrepreneurs are very well rewarded for that, they should note that we have committed ourselves to be rewarded only in direct proportion to our providing for the needs and desires of others, no more, no less. If we fail to serve those needs and desires, we fail to sell our products and services, and we get nothing.

If we succeed, it means other people consider what we provide is useful to them. The principle that control of resources should go to those who have done most to meet the needs and desires of others seems morally right, as well as the most efficient way to organise an economy. It is a democratic principle: people vote with their wallets. Certainly it is a more democratic, efficient, and moral system than any of the alternatives that have been offered.

Finally, in a world divided by ideology, ignorance, egotism, greed, and the misuse of religion, doing business is one of the few things that can bring members of different branches of our diverse species together for their common good.

King Edward VI once provided a Company of Merchant Adventurers who were exploring unknown lands with a letter of introduction. In it, he wrote, “Of all men, the merchant is most deserving; for God, in providing for mankind, ordained that all his needs should not be found in any single region, in order that each region should have need of others, and friendship thus be established among all men.”

John Richards’s Predictions for 2012

Since our previous predictions have proved fairly accurate, I am going to stick my neck out and give some fairly specific best-guesses for the next year. I must give the health warning that these are only extrapolations of present trends, and do not take account of currently unforeseeable events – which, of course, always occur.

First, the good news: the world as a whole should avoid a full recession in 2012 – emphasise the word should. All the bad news should not be allowed to obscure the fact that global business is growing, albeit slowly. Recovery from 2008 should not be expected to be spectacular, but it ought to continue, so long as everyone keeps their heads.

Alas, the bad news is that they are unlikely to keep them in Europe. The latest scheme to save the euro, FU (Fiscal Union), does not address its underlying problems. I predict the euro will survive, but not in its current form. Sooner or later, its weaker members must leave the single currency, for their own good as much as the euro’s. Yet there will be more time and money wasted before the EU’s leaders are forced to accept this obvious truth.

I can also see no end to the economic stagnation of the United States. Political gridlock will continue until the November elections. President Obama will then be re-elected fairly comfortably – not because he offers any solutions, but because he has more money, because he retains the uncritical support of most of the mainstream media, and because his Republican opponents look more and more like a suicide cult.

The second terms of re-elected Presidents are usually disappointing: it seems unlikely that Obama II will come up with a real vision for America’s economic recovery given that there has been no sign of such a vision so far in Obama I. Mr Obama was elected on a platform of Change; his probable re-election will mean No Change.

However, there is now more to the global economy than the old Western Powers. A sign of the times is that Brazil has just overtaken the UK to become the sixth biggest economy on Earth. This is not a negative reflection on the UK – where the outlook is not too bad so long as the British can keep their distance from the euro debacle – but one more indicator of the massive power shift that is taking place in the world. That may be bad news for the moribund economies of the West, but good news for the rest of the planet, and for those American, British, and European businesses who see what is happening and look for new opportunities where the growth is.

We were told that business was relying on increased consumer spending over Christmas to boost the economy.

So we were told – by commentators with little or no first hand experience of commerce. Those of us who have been in business for more than a year or two know that an extravagant Christmas means an austere New Year – or, sometimes, vice versa. There is never something for nothing in economics. Simply waiting for consumers to spend more ignores the fact that their resources are finite. If they go beyond their limits, there is a price to be paid later – and if business profits from their self-indulgence, it must also pay its share of that price. That is basically why our economy is now so weak: we partied for more than a decade and now the bill has arrived.

More importantly, just hoping that consumers acting stupidly will solve their problems for them distracts businesses from trying to solve those problems.

There are two sides to economics, supply and demand. Most media commentary focuses on the demand side, consumer spending. Politicians are also obsessed with it because everyone is a consumer but only a minority are suppliers – and, in our materialistic democracy, high consumption is equated with happy voters.

Yet many of the problems in the West in particular – especially Europe, Britain, and the United States – are due to a failure to address the supply side. During the party years of high demand, the money kept on flowing – much of it borrowed but no one cared so long as it kept coming. Structural inefficiencies were increasing, but they were tolerated because no one wanted to be the party-pooper.

Now the cheap money is gone and we find ourselves in a far more competitive world, and the West is at a disadvantage. Much of our leadership is short-sighted. Executives are largely untrained and come out of university with unrealistic attitudes. Directors often pay themselves too much relative to their results. Workers in Britain and America in particular are poorly educated. Unions still impose restrictive practices. Government adds to costs, increasing risks and decreasing rewards, through excessive taxation and regulation.

Western businesses need to stop waiting for the next one-off spending spree and knuckle down to the hard, unpleasant, unpopular work of restoring their competitiveness.

It is a commonplace to say that the world would be better off without politicians. Of course no one really means it – but it may be true in the economic crisis that is now brewing. Our political leaders, far from averting this crisis, are themselves the cause of it.

The same was not true of the 2008 crisis. The politicians were a contributory factor then, but by no means the only one or the most important. The global economy survived that crisis and has been recovering, albeit very slowly, since then. The 2011-12 crisis is a new one and is entirely of the politicians’ own making.

A little local difficulty in Greece has been blown out of all proportion by European politicians’ obsession with maintaining the euro in its current form at all costs. The actual needs of the different national economies of the EU have been put second to keeping countries in the eurozone who should never have joined in the first place.

Leaving aside the question of the desirability of a single currency in theory – there is case for and a case against – the deal cobbled together in a panic by European leaders last week is not a sound basis for such a currency. Although EU leaders are right that tighter enforcement of the rules is essential to any single currency, the new proposals, called “fiscal union” (FU), leave the same holes in the deal that led to the wholly foreseeable collapse of the previous arrangements. The markets are now endorsing the position of the UK, which wanted nothing to do with it.

Meanwhile, the stupidity and egotism of Europe’s leaders seem to have provoked the competitive streak in their American counterparts, who appear determined to prove that they can be just as stupid and egotistical. Everyone is at last agreed that a cut in payroll taxes is a highly desirable stimulus to employment – something this blog has been saying for some time – so one would imagine it would pass without difficulty. Not in Washington...

For purely political reasons, President Obama and his Democratic allies tied the payroll tax cut to an increase in taxes on higher earners, knowing his Republican opponents are pledged to oppose tax increases. Rather than stick to the moral high ground, the Republicans, in their turn, tied their support for the tax cut to funding a controversial pipeline in the worst tradition of American “pork barrel” politics. Given that the Republicans were elected on a platform of cutting both taxes and “pork barrel” expenditure, their making the cut conditional on more expenditure is doubly inexcusable – at least the Democrats are being true to their principles, even if what they are doing in bad for the economy. Both sides have proved themselves selfish, foolish, and dishonest, but in different ways.

Looking at our “leaders” in general, even a law-abiding businessman must wonder if the anarchists may have a point.

So don't think you can fool me with your political tricks
Political right, political left, you can keep your politics
Government is government and all government is force
Left or right, right or left, it takes the same old course
Oppression and restriction, regulation, rule and law
The seizure of that power is all your revolution's for
You romanticise your heroes, quote from Marx and Mao
Well their ideas of freedom are just oppression now

Nothing changed for all the death, that their ideas created
It's just the same fascistic games, but the rules aren't clearly stated
Nothing's really different cos all government's the same
They can call it freedom, but slavery is the game

Extract from 'Bloody Revolutions' by Crass

Your contributor first tried using eBay in its early days and was not very impressed. The experiment was not repeated for several years.

However, a combination of desperation for a particular item and the persuasion of an acquaintance with a more successful experience led to the internet auction site being given a second chance over the summer – with such positive results that there is a danger of addiction.

eBay has come of age – for reasons that should bring joy to all supporters of free markets.

First, it is a perfect example of how supply and demand can be seen to be setting a fair price. If you are looking for an item that comes up fairly frequently, and are in no hurry, it is worth taking the time to watch the closing prices of auctions. There are exceptions, when someone gets caught up in the heat of bidding, or picks up a bargain while no one else is watching, but, more often than not, prices for items of the same type usually settle around similar figures.

Second, it illustrates how open markets with a free flow of information are better at improving quality than any amount of regulation. When most business was essentially local, reputation was the key to quality. One of the drawbacks of globalisation was that reliable information about reputation became harder to obtain. However, that is less of a problem on eBay now that their rating system is well-established. Most sellers, and buyers, are proud of their scores and will go out of their way to avoid them being reduced by a single negative rating.

Operations like eBay and Amazon Marketplace point the way to how most businesses will operate in future. Some products and services, by their nature, require personal contact, but, for the vast majority, the global marketplace is already a fact of life, and international marketing and sourcing the norm. This will be increasingly tough on businesses, like the proverbial corner shops, whose focus has been exclusively local, but even such businesses may profit if they take the opportunity to develop an online operation that synergises – using that word properly for once – with their existing work.

A rather fatuous campaign to “Make the Banks Lend” is reminiscent of claims that a “capital strike” was undermining America’s recovery from the Great Depression in the 1930s. President Franklin D Roosevelt actually ordered a criminal investigation of the alleged conspiracy to withhold investment – which, predictably, found absolutely no evidence that such a thing existed.

The very notion of a “capital strike” shows a lack of understanding of the nature of money. There were and are no men in top hats hoarding piles of spare banknotes. Investment is all about confidence and credit and a careful calculation of risk and reward.

It was Roosevelt’s own policies of increasing both tax and national debt that discouraged investment. They reduced the amount of money available for investment in the private sector, and the government’s debt itself sucked up what credit there was. Risk was increased at the same that reward was reduced by taxing any profits that could be made.

FDR is often given credit for saving America from the Great Depression, but there is a lot of evidence to suggest that he prolonged it*. After all there have been about two dozen major crises in the 300 odd years of modern capitalism, but in most cases the markets showed remarkable powers of recovery: only the 1930s saw a whole decade of continuing and widespread suffering. There was a distinct and avoidable “double dip” recession under FDR.

Moreover, although direct comparisons are not as easy as they are today in our age of greater economic integration, the statistical evidence suggests that the American recovery in the 1930s was far more sluggish than that in other developed economies, including the UK. In the end, it was not FDR’s policies but war profiteering that dragged the USA out of the Depression – several years late. Given that unpleasant truth, no wonder most Americans would rather give the credit to Roosevelt.

All this history is important because President Obama models himself on FDR. He obviously sees clearly how FDR’s strategy of gesturing at taxing “the rich”, while spending massively on credit, led to political success. Does he appreciate the economic price of that strategy? If so, does he have the strength of character to resist it? Will his response to this week’s “super committee” proposals – or lack thereof – be principles or politics?

*NOTE: in the interests of partisan fairness we should point out that the Great Depression was itself caused, at least in part, by the foolish imposition of tariffs by the previous Republican Administration. Roosevelt – to his credit – opposed those tariffs at the time, but did not reverse them later when he was in power.

The euro crisis has now claimed a centre-left Prime Minister in Greece and a centre-right one in Italy. Leftist Spain is keeping a low profile, trying very hard not to be noticed – almost certainly in vain.

Yet it would be a mistake to write off the Mediterranean economies as “all the same”. Greece is a true basket case, a welfare state in the literal sense – a state dependant on welfare – underwritten mainly by the Germans. Italy, however, is in many ways a strong economy, at least in parts, with lots of viable businesses and an understanding of the need for international marketing. The present crisis is all about past deficits rather than future prospects.

Italy’s underlying problems go back a long way: weak governments since the beginning of the Republic encouraged structural inefficiencies. As a result, public sector debt has grown out of control under governments of both left and right. This could be ignored in the years of growth, but not since 2008.

Silvio Berlusconi attempted some reforms, but half-heartedly and largely without success.  So the markets rose a little on the news of his resignation – only to fall dramatically when realisation set in: If Berlusconi cannot deliver reform, who can?

There is no one in Italian politics with anything like Berlusconi’s power and personal dynamism. Although he has lost the high approval ratings he once enjoyed, the fact that he ever had such large majorities makes him almost unique among the Republic’s Prime Ministers, and he still has a larger block of parliamentarians and voters loyal to him than any other Italian politician. He might object to the comparison, but he was the most powerful Italian leader since Mussolini. He delivered an unparalleled period of relative stability in Italian politics. If he must share some of the blame for some of Italy’s failure to reform, he also deserves at least part of the credit for her recent prosperity.

Largely portrayed in the English speaking media as a buffoon, he is nevertheless a self-made multi-millionaire and understood business – unlike the career politicians and bureaucrats of the European Establishment, who never embraced him. His clowning led many to underestimate him: his road to power was over their political graves. He was a product of the openly corrupt Italy of the 70s, but he did not create the system that made him and which he exploited so skilfully. An unelected technocrat is unlikely to succeed where he failed.

Many Italians say openly that only a Mussolini can sort their country out. The EU seems keen to take on that role. For all his many, many faults, Silvio Berlusconi may yet go down as having been the last, best hope of Italian democracy.

At the very least, the eurozone will weaker without him – and a lot duller.

Friday is 11/11/11 – for once a date that works in the American date format as well as that used by the wider world, for whom 9/11 technically means the 9^th of November). Childish it might be, but many of us will not be able to resist the temptation of purposefully using the date somewhere, even if just for posterity, perhaps by writing out that increasingly archaic financial instrument, a cheque (or check in the American spelling).

Friday is also the day when veterans are honoured in the United States, and those who died in war are remembered in a number of other countries of “the developed world” – an expression that seems almost as increasingly dated as a cheque – including Britain, France, Canada, Australia, and New Zealand.

So it seems a fitting moment to pause and reflect. Could those who have died for those countries over the last hundred years have predicted the world we have today? Would they have approved of it? Would they be disappointed?

Perhaps if a Canadian or an Australian or a New Zealander from 1911 could have looked forward in time he would have been pleased to see his country today prosperous, dynamic, and fully independent. However, a patriotic American, Briton, or Frenchman of 1911 – or 1941, or 1961, or 1991, or even 2001 – might be quite shocked to see how much his country has declined in power and prestige.

Globalisation is a fact. The world is no longer the exclusive preserve of a handful of major powers run by white men. This is a right and necessary change.

What is neither right nor necessary is the crisis of confidence into which the old major powers have plunged as a result of this desirable development. For some years now, the United States, the United Kingdom, and the European Union have been living on borrowed money and the memories of past glories. Now both are drying up, and the West is drifting, lost and leaderless, in an unfamiliar world.

It is not too late to turn things around. The 1960s and 70s saw a similar loss of confidence and direction. Yet new leaders were found and old values revived, the Cold War was won with remarkably little violence, and the West went on to enjoy a prolonged period of peace and prosperity.

It could happen again, but only if we find leaders who are prepared to admit there are problems and face up to the challenge of making American, British, and European businesses competitive in the truly global economy we now enjoy. The world offers greater opportunities than ever – but only to those who understand that it has changed.