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Dis-ARMed?

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More than half the population in Britain already understand that undiluted “free-market” capitalism in its current neo-liberal form of economics doesn’t work for the majority of people.  After immigration this was the biggest issue that swung the British EU Referendum vote for exit.  As economist Michael Hudson points out in his recent book, privatisation of national assets results in expensive toll-gates through which everyone is forced to pass.  Thus the basic things of life become difficult, complex and cost far more than they should, so less money is available to spend on more pleasurable purchases.  In the U.K. a supposedly free market with no government intervention has resulted in homes becoming exceptionally expensive and most new residential buildings being limited to luxury apartments for foreign investors.  Yet another market where the government has had an exceedingly “light touch” is broadband internet connection and its speed.  The FCC in America recently redefined broadband as a public utility so it has to be treated like electricity and gas because of its importance to individuals, commerce and education.  Free market fudging with monopoly provider Open Reach, owned by British Telecom, has ended up with Britain being ranked a poor 23rd in the recent global broadband speed charts produced by content distribution network Akamai. In a densely packed country like the U.K. there are still rural areas with no broadband access at all, at a time when government should be insisting that everyone has a right, not just to broadband, but to a high speed broadband connection.  Another fine example of the result of light touch government is the gas market.  There has recently been a two-year investigation by the Competition and Markets Authority into the UK’s energy industry.  Roger Witcomb who led the inquiry, came to the conclusion that British Gas’s profit margin should be nearer 1.25% compared to the 7% British Gas’s household supply business made last year.  As Whitcomb said in a press interview “All they are actually doing – and I shall get into trouble for this – is metering and billing. They are not making the stuff.”  However, Whitcomb’s analysis was not included in the final report and the CMA, a toothless consumer watch dog, has set no price caps on what this monopoly industry can charge consumers.  The latest pricing fiasco  concerns some utility companies billing consumers for metric consumption when their meters were still older Imperial ones – resulting in consumers paying far too much.  This had been going on for many years.  Politically no one is on the side of the British consumer and the current government is ideologically against any form of intervention because of their belief in the non- existent “free market.”  Free-markets are an abstract idea that only exist in economic theory - please show me one that works in practice.  We live in a world where key services are divided up between a handful of multi-national American banks, a handful of American technology companies, and a handful of utility companies.  It’s an anachronism that all this should be happening under the guise of free-market neo-liberalism as Central Banks manipulate and control the money supply and interest rates, and thus our entire economy.  In the U.K. the Bank of England has just increased the amount of “quantitative easing” to help British banks liquidity level rise up to a total of £445 billion. In America the enormous sum of $3.7 trillion was spent on the same activity, yet the result in both countries has been to create a bubble in the property markets and a rise in the stock markets benefiting only those with capital.  Standard economic theory says that some of this money will eventually end up by making the poor richer.  But in reality there is no trickle-down effect.  As economic Nobel Laureate Joseph E. Stiglitz notes: [in America] “Median income for full-time male workers is actually lower in real (inflation- adjusted) terms than it was 42 years ago. At the bottom, real wages are comparable to their level 60 years ago.” Yet the unfair free-market madness continues.  Another good example of unbridled capitalism at work is the extraordinary saga of The British Home Stores, BHS.  For those of you who don’t know BHS was a well-known chain of department stores with 8,000 employees in 160 shops spread across the U.K.  In 2000 BHS was bought by Sir Philip Green for £200 million, who then proceeded over the next few years to extract £807 million in dividends, management charges, and rent from the business, mostly paid to his wife who lives in tax free Monaco. Having substantially weakened the company, so it was left with a £507 million employee pension liability, Green then sold BHS to a former bankrupt “chancer” for £1, who then naturally proceeded to pick over the bones of the company for any remaining financial scraps.   Starved of working capital it wasn’t long before BHS was forced into bankruptcy leaving the government to pick up the substantial tab for the pension deficit.  The press renamed Green as Philip Greed, and the public outcry was sufficient to force a Parliamentary inquiry, labelling a shamed Green as “the unacceptable face of capitalism,” and questioning his knighthood for services to the retail industry.  So far Green, despite voluble reassurances, has refused to contribute to the BHS pension bail-out, so the state may well end up taking the hit.  It is a common theme in such stories that the public purse is the destination of last resort.  The Royal Bank of Scotland (RBS) is another sorry case.  At the beginning of 2008, RBS supposedly had assets of £2.2 trillion, over double the size of the total U.K. economy, but post the debacle of Lehman Brothers and the 2008 banking collapse, it was one of the banks that had to be bailed out and the British Government virtually nationalised it. The British Government still owns 73% of the bank, still one of the weakest of all the U.K.’s clearing banks, having sold a first tranche of shares at a loss year ago.   Since the “bailout” The Royal Bank of Scotland has taken over £52 billion of tax payer funds and lost the lot.  This hasn’t stopped the management team of 10 people, topping up their generous salaries and perks by sharing a share bonus of £17.4 million this year, based on their performance for a job well done.  The bank had just announced a first half year loss of £2 billion.  Compare that with National Health Service (NHS) pay rises of 1% and you can see how the government condones the rich getting richer and the poor getting considerably poorer.  Some thoughts spring to mind here – is losing £52 billion of tax payers’ money really seriously worth any sort of bonus?  How much did they need to have lost to have not got a bonus?  And unless the U.K. Treasury is totally inept at negotiating, and Scotland really does become independent, then a population of just over five million will strain to repay The Royal Bank of Scotland debt. Often the absurdities of neo-liberal capitalism are more subtle.  I was really disappointed to hear that the British company ARM Holdings plc (originally Advanced RISC Machines Limited) was being sold to the Japanese company Softbank for £24.3 billion - a premium of 48% above ARM’s current share price.  I am not an ARM shareholder, although I have tracked their progress for many years so I can be objective about a decision to sell such a brilliant company.  Worryingly the new U.K. Chancellor Philip Hammond said about the deal that the U.K. post-Brexit: “has lost none of its allure to international investors.”  He was clearly confusing a good deal with a very poor one.  The brightest U.K. company with no debt is being purchased by a heavily indebted Japanese company using even more debt.  Even before the ARM deal Softbank had already accumulated £86 billion of debt and it is haemorrhaging vast amounts of money from its acquisition of the U.S. phone network Sprint.  There is no synergy between ARM and any existing Softbank businesses, and the likelihood is that in five or six years the company will be sold on, almost certainly with accumulated debts.  Hermann Hauser, who helped found ARM in 1990, recently pointed out that SoftBank’s debt pile means that money earned by ARM could be used to reduce debt or pay interest, rather than be invested back in the company. “If [ARM were] allowed to remain independent, all that cash could be ploughed into further development, now some of it will have to be spent on servicing debt,” he said. So what is so special about ARM?  I believe ARM is a priceless company because it now owns the mobile computing market, and that is essentially where the great bulk of computer processing will take place in the future.  ARM is in an extraordinarily lofty position because Intel has just thrown in the towel trying to compete with it.  In a last ditch effort to compete with ARM Intel even tried giving away their semiconductor chips to try to get mobile phone manufacturers use them - to no avail.   Over many years the development infrastructure, and the supporting components that ARM has created for its semiconductor chips have proved too superior to be beaten by Intel.  ARM had a convoluted birth but its fundamental piece of intellectual property was the Acorn RISC (Reduced Instruction Set Computing) semiconductor.  That Acorn RISC design required an incredibly lower level of power to run than the general purpose semiconductor chips made by Intel.  ARM’s design has been incredibly successful with over 70 billion chips sold worldwide, yet you probably haven’t noticed them, even though virtually everyone in the U.K. owns over 50 ARM semiconductor chips in their devices.  As Sophie Wilson (who wrote the code for the original instruction set) said in an interview a couple of years ago: “Modern smartphones have lots of ARM chips in it.  But it will also have an arm processor controlling its Wi-Fi, one controlling its Bluetooth etc. The same applies to your laptop: you bought your laptop and it proudly bears the name Intel on it, but it’s covered in ARM processors. There’s one in its hard drive, one in its keyboard etc. there are lots of invisible ARMs in the world.” ARM doesn’t manufacture its low power, low heat semiconductor chips, instead it licenses its designs and takes a royalty on each chip sold.  That was the brilliant business model promoted by Robert Saxby, partly born out of necessity as there weren’t the funds available to create the expensive fabrication assembly plants that Intel possessed.  Over the years an amazing eco-system of skilled engineers has built up unparalleled expertise around the companies using and customising ARM designs, it was this spread of extraordinary know-how that Intel found impossible to compete with.  While ARM designs can be tailored to suit many different purposes and be custom modified to exactly suit their customers’ requirements, Intel only manufactures powerful general purpose semiconductor chip which its customers have to adapt their products to accommodate.  In past years Intel’s advantage was that its semiconductor chips were more powerful than ARM’s but now ARM designs have a similar performance but use far less power, so batteries last longer and smartphones and computers don’t generate so much heat.  It is no coincidence that this year the world’s fastest super-computer was built by the Chinese using multiple ARM semiconductor chips. The future of computing now belongs to ARM.  Last year 15 billion ARM semiconductor chips were sold and more will be sold every year as high performance but low power consumption is needed for the servers in data centres, a market that Intel used to dominate.  In a couple of years there will also be generations of low cost and powerful tablets and laptops, powered by ARM designs, that will run Google’s converged Android and Chrome operating system.  With moveable windows and mouse, pen, keyboard and touch interface, these devices will compete directly with Microsoft Windows at significantly lower cost.  All this potential is what makes ARM priceless, and to jeopardise its progress by loading a debt-free company with huge debts isn’t just silly, it borders on the criminal. For just under 50% of the British population who still believe in the fairy tale of neo-liberal free markets and non- government intervention, it may come as a surprise to know that ARM’s RISC design is unlikely to have happened without government money.  ARM owes its existence to the race to design the BBC Microcomputer, a project that was part of the British Government funded Microprocessor Awareness Programme that spawned a myriad British computer and software companies.  Of all those hopeful companies ARM has ultimately proved to be the most successful globally.  So much for laissez faire economics (where governments don’t interfere in the workings of the free market).  Perhaps we need more scientifically and technically intelligent MPs who understand that wise investment often pays dividends.  Such paragons might also be clever enough to understand genuine economics, to prevent foreign companies taking over vital utilities, and even to protect exceptionally brilliant companies.  Pigs might fly, and if they do, they will probably be powered by ARM microprocessors. August 2016
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More than half the population in Britain already understand that undiluted “free-market” capitalism in its current neo-liberal form of economics doesn’t work for the majority of people.  After immigration this was the biggest issue that swung the British EU Referendum vote for exit.  As economist Michael Hudson points out in his recent book, privatisation of national assets results in expensive toll-gates through which everyone is forced to pass.  Thus the basic things of life become difficult, complex and cost far more than they should, so less money is available to spend on more pleasurable purchases.  In the U.K. a supposedly free market with no government intervention has resulted in homes becoming exceptionally expensive and most new residential buildings being limited to luxury apartments for foreign investors.  Yet another market where the government has had an exceedingly “light touch” is broadband internet connection and its speed.  The FCC in America recently redefined broadband as a public utility so it has to be treated like electricity and gas because of its importance to individuals, commerce and education.  Free market fudging with monopoly provider Open Reach, owned by British Telecom, has ended up with Britain being ranked a poor 23rd in the recent global broadband speed charts produced by content distribution network Akamai. In a densely packed country like the U.K. there are still rural areas with no broadband access at all, at a time when government should be insisting that everyone has a right, not just to broadband, but to a high speed broadband connection.  Another fine example of the result of light touch government is the gas market.  There has recently been a two-year investigation by the Competition and Markets Authority into the UK’s energy industry.  Roger Witcomb who led the inquiry, came to the conclusion that British Gas’s profit margin should be nearer 1.25% compared to the 7% British Gas’s household supply business made last year.  As Whitcomb said in a press interview “All they are actually doing – and I shall get into trouble for this – is metering and billing. They are not making the stuff.”  However, Whitcomb’s analysis was not included in the final report and the CMA, a toothless consumer watch dog, has set no price caps on what this monopoly industry can charge consumers.  The latest pricing fiasco concerns some utility companies billing consumers for metric consumption when their meters were still older Imperial ones – resulting in consumers paying far too much.  This had been going on for many years.  Politically no one is on the side of the British consumer and the current government is ideologically against any form of intervention because of their belief in the non-existent “free market.”  Free- markets are an abstract idea that only exist in economic theory - please show me one that works in practice.  We live in a world where key services are divided up between a handful of multi-national American banks, a handful of American technology companies, and a handful of utility companies.  It’s an anachronism that all this should be happening under the guise of free-market neo-liberalism as Central Banks manipulate and control the money supply and interest rates, and thus our entire economy.  In the U.K. the Bank of England has just increased the amount of “quantitative easing” to help British banks liquidity level rise up to a total of £445 billion. In America the enormous sum of $3.7 trillion was spent on the same activity, yet the result in both countries has been to create a bubble in the property markets and a rise in the stock markets benefiting only those with capital.  Standard economic theory says that some of this money will eventually end up by making the poor richer.  But in reality there is no trickle-down effect.  As economic Nobel Laureate Joseph E. Stiglitz notes: [in America] “Median income for full-time male workers is actually lower in real (inflation-adjusted) terms than it was 42 years ago. At the bottom, real wages are comparable to their level 60 years ago.” Yet the unfair free-market madness continues.  Another good example of unbridled capitalism at work is the extraordinary saga of The British Home Stores, BHS.  For those of you who don’t know BHS was a well-known chain of department stores with 8,000 employees in 160 shops spread across the U.K.  In 2000 BHS was bought by Sir Philip Green for £200 million, who then proceeded over the next few years to extract £807 million in dividends, management charges, and rent from the business, mostly paid to his wife who lives in tax free Monaco. Having substantially weakened the company, so it was left with a £507 million employee pension liability, Green then sold BHS to a former bankrupt “chancer” for £1, who then naturally proceeded to pick over the bones of the company for any remaining financial scraps.   Starved of working capital it wasn’t long before BHS was forced into bankruptcy leaving the government to pick up the substantial tab for the pension deficit.  The press renamed Green as Philip Greed, and the public outcry was sufficient to force a Parliamentary inquiry, labelling a shamed Green as “the unacceptable face of capitalism,” and questioning his knighthood for services to the retail industry.  So far Green, despite voluble reassurances, has refused to contribute to the BHS pension bail-out, so the state may well end up taking the hit.  It is a common theme in such stories that the public purse is the destination of last resort.  The Royal Bank of Scotland (RBS) is another sorry case.  At the beginning of 2008, RBS supposedly had assets of £2.2 trillion, over double the size of the total U.K. economy, but post the debacle of Lehman Brothers and the 2008 banking collapse, it was one of the banks that had to be bailed out and the British Government virtually nationalised it. The British Government still owns 73% of the bank, still one of the weakest of all the U.K.’s clearing banks, having sold a first tranche of shares at a loss year ago.   Since the “bailout” The Royal Bank of Scotland has taken over £52 billion of tax payer funds and lost the lot.  This hasn’t stopped the management team of 10 people, topping up their generous salaries and perks by sharing a share bonus of £17.4 million this year, based on their performance for a job well done The bank had just announced a first half year loss of £2 billion.  Compare that with National Health Service (NHS) pay rises of 1% and you can see how the government condones the rich getting richer and the poor getting considerably poorer.  Some thoughts spring to mind here – is losing £52 billion of tax payers’ money really seriously worth any sort of bonus?  How much did they need to have lost to have not got a bonus?  And unless the U.K. Treasury is totally inept at negotiating, and Scotland really does become independent, then a population of just over five million will strain to repay The Royal Bank of Scotland debt. Often the absurdities of neo-liberal capitalism are more subtle.  I was really disappointed to hear that the British company ARM Holdings plc (originally Advanced RISC Machines Limited) was being sold to the Japanese company Softbank for £24.3 billion - a premium of 48% above ARM’s current share price.  I am not an ARM shareholder, although I have tracked their progress for many years so I can be objective about a decision to sell such a brilliant company.  Worryingly the new U.K. Chancellor Philip Hammond said about the deal that the U.K. post-Brexit: “has lost none of its allure to international investors.”  He was clearly confusing a good deal with a very poor one.  The brightest U.K. company with no debt is being purchased by a heavily indebted Japanese company using even more debt.  Even before the ARM deal Softbank had already accumulated £86 billion of debt and it is haemorrhaging vast amounts of money from its acquisition of the U.S. phone network Sprint.  There is no synergy between ARM and any existing Softbank businesses, and the likelihood is that in five or six years the company will be sold on, almost certainly with accumulated debts.  Hermann Hauser, who helped found ARM in 1990, recently pointed out that SoftBank’s debt pile means that money earned by ARM could be used to reduce debt or pay interest, rather than be invested back in the company. “If [ARM were] allowed to remain independent, all that cash could be ploughed into further development, now some of it will have to be spent on servicing debt,” he said. So what is so special about ARM?  I believe ARM is a priceless company because it now owns the mobile computing market, and that is essentially where the great bulk of computer processing will take place in the future.  ARM is in an extraordinarily lofty position because Intel has just thrown in the towel trying to compete with it.  In a last ditch effort to compete with ARM Intel even tried giving away their semiconductor chips to try to get mobile phone manufacturers use them - to no avail.   Over many years the development infrastructure, and the supporting components that ARM has created for its semiconductor chips have proved too superior to be beaten by Intel.  ARM had a convoluted birth but its fundamental piece of intellectual property was the Acorn RISC (Reduced Instruction Set Computing) semiconductor.  That Acorn RISC design required an incredibly lower level of power to run than the general purpose semiconductor chips made by Intel.  ARM’s design has been incredibly successful with over 70 billion chips sold worldwide, yet you probably haven’t noticed them, even though virtually everyone in the U.K. owns over 50 ARM semiconductor chips in their devices.  As Sophie Wilson (who wrote the code for the original instruction set) said in an interview a couple of years ago:  “Modern smartphones have lots of ARM chips in it.  But it will also have an arm processor controlling its Wi-Fi, one controlling its Bluetooth etc. The same applies to your laptop: you bought your laptop and it proudly bears the name Intel on it, but it’s covered in ARM processors. There’s one in its hard drive, one in its keyboard etc. there are lots of invisible ARMs in the world.” ARM doesn’t manufacture its low power, low heat semiconductor chips, instead it licenses its designs and takes a royalty on each chip sold.  That was the brilliant business model promoted by Robert Saxby, partly born out of necessity as there weren’t the funds available to create the expensive fabrication assembly plants that Intel possessed.  Over the years an amazing eco-system of skilled engineers has built up unparalleled expertise around the companies using and customising ARM designs, it was this spread of extraordinary know-how that Intel found impossible to compete with.  While ARM designs can be tailored to suit many different purposes and be custom modified to exactly suit their customers’ requirements, Intel only manufactures powerful general purpose semiconductor chip which its customers have to adapt their products to accommodate.  In past years Intel’s advantage was that its semiconductor chips were more powerful than ARM’s but now ARM designs have a similar performance but use far less power, so batteries last longer and smartphones and computers don’t generate so much heat.  It is no coincidence that this year the world’s fastest super-computer was built by the Chinese using multiple ARM semiconductor chips. The future of computing now belongs to ARM.  Last year 15 billion ARM semiconductor chips were sold and more will be sold every year as high performance but low power consumption is needed for the servers in data centres, a market that Intel used to dominate.  In a couple of years there will also be generations of low cost and powerful tablets and laptops, powered by ARM designs, that will run Google’s converged Android and Chrome operating system.  With moveable windows and mouse, pen, keyboard and touch interface, these devices will compete directly with Microsoft Windows at significantly lower cost.  All this potential is what makes ARM priceless, and to jeopardise its progress by loading a debt-free company with huge debts isn’t just silly, it borders on the criminal. For just under 50% of the British population who still believe in the fairy tale of neo-liberal free markets and non- government intervention, it may come as a surprise to know that ARM’s RISC design is unlikely to have happened without government money.  ARM owes its existence to the race to design the BBC Microcomputer, a project that was part of the British Government funded Microprocessor Awareness Programme that spawned a myriad British computer and software companies.  Of all those hopeful companies ARM has ultimately proved to be the most successful globally.  So much for laissez faire economics (where governments don’t interfere in the workings of the free market).  Perhaps we need more scientifically and technically intelligent MPs who understand that wise investment often pays dividends.  Such paragons might also be clever enough to understand genuine economics, to prevent foreign companies taking over vital utilities, and even to protect exceptionally brilliant companies.  Pigs might fly, and if they do, they will probably be powered by ARM microprocessors. August 2016
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Dis-ARMed?

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