Monday 13 February 2012

The Rolls Royce Government: The case for big government protecting social values

What does the Continental European model of social democracy and a Rolls Royce have in common? We will return to this metaphor after some brief analysis.

Last week David Miliband wrote in the New Statesman that Labour should not be the party of the “big state” - this comes against a recent trend of criticism of large governments, which many politicians believe, are bad for the economy and unpopular with voters. Western governments are not without their legitimate criticism as anyone who has had to claim benefits or submit a planning application will be aware of. The marsh of bureaucracy which the public has to deal with when they want something from their government creates a feeling of disillusionment with the virtues of the public sector which turns voters away from any politician who claims that we need more government to solve societies’ problems. The slick efficiency of the tills at Tesco stand in sharp contrast to the long periods of standing around waiting at the Job Centre. It is no wonder politicians who favour the selling of public services to private companies find voters agreeing with them at all levels of society.

The scepticism directed towards big government is partly a result of real fear caused by the European Sovereign Debt Crisis but it is also a definite effort to shift the agenda towards a free-market small government approach by those with vested interest in this opinion. This being large companies and right leaning governments keen to drum up support for their ideologically motivated austerity programs. Miliband argues that it was faith in big government which caused the Labour party to lose the public’s trust over the economy. He is pandering to the view that Labour is the party of the “nanny state” and that the Conservatives are the party of individual freedom.

I personally, have never had a problem with the label nanny state. When you think about it, who is a nanny? A warm and comforting figure that looks after children when they are cannot look after themselves. I cannot think of a better role model for government. However western voters are opposed to oppressive, overbearing regimes which meddle in the daily lives of their citizens. The fear behind this is also legitimate, only a fool in the West would want to live under a Cold War Communist regime. However, in the left learning parties of Europe’s desperate attempts to escape the spectre of being labelled a Marxist-Leninist, some of what was truly important about socialism has been washed away in the bland acceptance of the free market.

What is important about socialism is not a commitment to the big state but to a set of underlying principles that society should be directed towards income equality, the removal of class divides causes by wealth inequality, an equality of opportunity for all citizens as a birth right and safety net for those who are unable (temporally or permanently) to provide for themselves and their families. Self-reliance should not be the governing rule of society and the collective should look out for the individual. In exchange for this the individual must be willing to make a sacrifice for the good of the collective in terms of personal wealth and some degree of personal freedom. The social democratic parties of European - some of which are differentiated from the socialist parties of Europe and some of which are not – maintain the commitment to these values on a social level but not an economic one. In place of the economic proportion of socialism there is a general acceptance of the virtues of free market capitalism as the best method to allocate societies’ scarce resources.

David Miliband and the Brown Government embodied this notion of a commitment to social justice along with a commitment to small state free market capitalism. The coalition government has continued the shift towards right wing economic principles by further reducing the state at the expense of any commitment to the values of stated above. Miliband’s insistance that Labour move beyond the big state verses small state argument may win him support with voters but will do little to reassure those who believe that Labour has lost touch with the key values at the root of socialism from which the party draws its ideology.

I submit that a rebranding of the virtues of big government is needed by social democrats if they are to distinguish themselves from the economically right leaning parties and reconnect with the values at the root of their past popularity. This rebranding should be focused on the core values stated above. There are many who are concerned about the growing divide between the rich and the poor and how unevenly wealth is distributed across society. This is also where Rolls Royce comes in.

The typical criticism of big government by the right is three fold: 1, that state involvement in the market causes a problems for industry, 2, that that it requires higher taxation and 3, the old nanny state argument. I will take each point in turn:

Firstly, I have already written on the need for Capital Conscious Socialism. I have said that government should always be mindful of the needs of private business to provide employment when intervening in the economy. It is also worth considering that state invention is often necessary to make sure that industry allocates societies’ scare resources so that they create the most social good not economic good. An example of this is medicine, which should be allocated where it benefits society by curing diseases rather than where it is most profitable.

Secondly, the cost is key to the value of large Government. We should think of Government like a car. If we opt for the cheap option (economically right wing with low taxation and spending) then we will receive a cheap government, one which is ineffectual at meeting our needs and protecting our values. If we opt for the Rolls Royce government, which is expensive but capable then we will have a government that is empowered to tackle social problems and is something to be proud off. Spending more on our government should be viewed the same as buying a luxury car. That the price tag is part of the appeal because only with an expensive product can we achieve satisfaction from our spending.

Thirdly, social democrats should remind the public that it is their government’s duty to look after them and not simply get out of the way of private businesses. It is the role of government to embody the values of altruistic medieval kings. To clothe the naked, feed the poor, provide shelter for the homeless. Those who have the least are the most vulnerable to the problems created by wealth inequality and the basic safety net provided by the state ensure that the needs of the very worst off are not forgotten. The state may intervene in our lives to protect us from letting the selfishness - which the free market uses to drive economic growth - from entering our social conscience and thus kicking aside the poor, the vulnerable and the politically weak.

The values at the heart of socialism and big government will resonate with voters once framed within the right context. The argument of big state verses small state is not the right context. The argument of Rolls Royce against a budget banger is the right context. It is important that social democrats across Europe defend these values less society become deeply divided between rich and poor. The core values behind socialism are important in building a fairer society and there is still merit to the argument that big government can help to achieve this.

Ed Miliband would do wise to bare this in mind during his review of Labour’s policies - rather than listening to the supposed wisdom of his older brother. Many on the left hope the results of the policy review will bring the Labour party out of inertia and back into the business of providing a genuine alternative to the methods of the coalition government. Until that time we should remember that we get back from our government what we put in. If we give it scepticism and starve it of funds it will be ineffective at protecting our core values. If we view government spending as an important step to having a fairer society then we can empower government to tackle the root causes of social ills.

Wednesday 8 February 2012

Facebook’s IPO: Are those adds worth $100bn

In the eight years since Facebook first appeared online, the site has gone from a way to waste time to a social necessity. Today (especially for younger users) not having a Facebook account is akin to not having a mobile phone, in that you are likely to be left out of the loop by friends and work colleagues. Now the internet giant’s recent IPO suggests that this social necessity could be worth up $100bn as a company.

Facebook was founded in 2004 by Harvard University undergraduate Mark Zuckerberg, and since then has taken the internet by storm. First it became the world’s largest social network with over 800 million users. Then the site replaced Google in its position as the internet’s most visited site. Now Zuckerberg and his team have earned a new record after raising over $5bn from an initial public offering, the largest ever for an internet firm. More than just a commercial success, Facebook has added new terms to the popular lexicon such “to friend” and has redefined the use of the verb “to like” online. Brands large and small have rushed to establish fan pages on the website and entire real world conversations focus on events which took place in the entirely virtual social network.

What is interesting about Facebook’s petition to be partially floated on the Stock Exchange is that the information they have released has given us a rare glimpse at the numbers behind Facebook’s success. Facebook and other internet companies that offer a free service lack a traditional revenue stream upon which to draw. Most fall back on the tried and tested method of advertising. The value of an advertisement on a website is determined by the “click through rate” in other words the percentage of users who click on an advertisement to be taken away from the page which they were browsing to one which they had not intended to visit, prior to seeing the advert. Research has suggested that click through rates for most websites are very low as most users are resistant to the idea of following links online. This is partially due to a legitimate concern about internet security but also a response to the degree to which users are saturated with banners and links tempting (often unsubtly) users to leave behind what they were interested in the first place. This has prompted concerns that that this revenue model has become out dated and that many internet firms might be overvalued.

Facebook has relieved that a substantial amount of their $1bn annual net revenue comes from advertising, leading to speculation that intelligent internet advertising is having a degree of success in tempting users. Firms like Facebook use the personal information supplied to them to customise their advertising space to a user’s tastes, and thus boost the click through rate. This in turn makes advertising space on Facebook more valuable, not simply because of the larger audience but because of a greater degree of success. Try, for an experiment, changing your relationship status to “engaged” and witness the barrage of wedding goods and services that will come out of Facebook’s proverbial woodwork to tempt you to their pages. Often the advertising is more subtle than this, and usually it is from a trusted website. It is this clever use of Facebook’s greatest asset (its members’ data) which makes it a viable company.

However, all is not rosy in Zuckerberg’s world. Internet users are becoming increasingly aware about how their data is being used. The wealth of information which Facebook has built up is also a liability as the public demand restrictions on how this data is used. Facebook’s privacy settings are becoming increasingly complex, which is creating an incentive for uses to switch to a network that is more mindful of privacy.

For now Facebook retains its dominant market position, and the necessity of having an account means this situation is unlikely to change soon. The site has seen off competition from a variety of other social networks seeking to challenge its dominance, and even Google entering the fray with their Buzz and later Google+ services have had little effect on the state of the market.

Facebook should be applauded for changing the way we relate to one another. Upon meeting a new friend at a party it is easier (and seems less forward) to connect with said person via Facebook than to ask for a phone number – mainly because it is also easier to remember a name rather than an 11 digit number.

However, Facebook would do well to consider an alternative revenue model as users become more concerned about privacy. It is also worth considering that the click through rates of intelligent advertisements will eventually fall as users become tried of their saturation, just as we all became tired of banners atop websites in the early days of the popular internet.

This week Facebook’s founders and executives will be congratulating themselves after their IPO sets another record for the company – but if the site’s meteoric rise proves one thing, it is how quickly the internet can change and how complacency is severely punished. For further proof of this, simply ask anyone who still has a MySpace account.