January 5, 2010
Extra Reading
A little extra evening reading for you all.
Chris Giles at the FT Blog on why the Tory proposals on marriage are incoherent, probably won’t work and aim to redistribute wealth from poor to rich.
(h/t to FreeThinkEcon)
The Adam Smith Institute?
This post was first published on the Tax Justice Network Blog. It’s a very short version of a much more detailed piece I wrote when excessively bored in the summer. The long piece has been put in the “Nerd Posts” section. Anybody who wants to take serious issue with my argument had best read the long piece first, and put comments there. But I warn you, it really is long.
The right-wing think tank The Adam Smith Institute (ASI) is in favour of the UK adopting a “flat tax”: see its report, A flat tax for the UK – A Practical Reality (PDF). Such a move would be revolutionary. It would overturn a decades-long consensus that higher earners are subjected to higher tax rates than those who earn less.
Flat tax is an example of a “proportionate” tax: all taxpayers incur the same rate, regardless of income. So, if the rate were 22% (as the ASI suggest) everyone would pay that much, regardless of whether they make £15,000 or £10billion. This is usually attended, however, with the important caveat that a personal tax-free allowance is given to everybody. The ASI advocates a threshold of £12,000 (a bit less than twice the existing personal allowance), below which no tax is paid. Above that everyone incurs the same rate.
This can be compared with “progressive” taxation: as income rises above certain thresholds, the rate at which it is taxed increases. The UK currently has a “progressive” taxation system, so for example once somebody earns more than £37,400, every pound over that threshold is taxed at 40%, but nobody pays tax on the first £6,475 they earn.
If he were alive today, which system would Adam Smith himself have favoured?
Smith’s seminal Wealth of Nations contains a sustained discussion of taxation. But it does not address income tax, because it didn’t exist in his lifetime. Smith does, however, talk about other taxes, and examining what he says is revealing.
Particularly instructive is Smith’s discussion on the maxim of “equality”, and his thoughts on taxing house rents:
“The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities, that is, in proportion to the revenue which they respectively enjoy under the protection of the state.”
…
“The principal objection to [window taxes on houses] is their inequality, and inequality of the worst kind, as they must frequently fall much heavier upon the poor than upon the rich. A house of ten pounds rent in a country town may sometimes have more windows than a house of five hundred pounds rent in London; and though the inhabitant of the former is likely to be a much poorer man than that of the latter.”
These passages seem to put Smith in the progressive tax camp: he clearly believes that the rich ought to pay more than the poor. Yet things aren’t so simple. Such passages only show that Smith thought the rich should pay more tax in absolute terms, not that they should incur higher rates. These lines are compatible with flat tax.
But there is more:
“A tax upon house-rents, therefore, would in general fall heaviest upon the rich; and in this sort of inequality there would not, perhaps, be any thing very unreasonable. It is not very unreasonable that the rich should contribute to the public expence, not only in proportion to their revenue, but something more than in proportion.”
This passage is important. Smith’s sentiment is being applied not just to house rents, but to contributions towards the “public expence” generally. It is a statement that the rich ought to contribute “something more than in proportion”. It could be equally well expressed by saying that the rich should incur higher rates of taxation, not just pay a bigger total. And this seems straightforwardly incompatible with a flat tax regime, where all contribute to the public purse in equal proportion (albeit minus an initial tax-free allowance). It looks like Adam Smith wouldn’t have supported a flat tax for the UK: he wanted the rich to pay “something more than in proportion”.
Why does this matter? By calling itself the Adam Smith Institute, the ASI implies that its policies are sanctioned by the founder of modern economics. That these are not just tax policies, these are Adam Smith tax policies. Compare, for political effect, “The Adam Smith Institute” vs. “The Right Wingers for Lower Taxes Institute”.
Moving the UK to a flat-tax regime would be revolutionary. It would overturn the consensus that the better-off contribute, as Smith wrote, “something more than in proportion”. We must ask tough questions of a think tank which uses Smith’s name to promote radical changes to our society and economy that he himself probably wouldn’t have supported.
December 15, 2009
How not to create a better society
The insufferable New Economics Foundation yesterday issued some idiocy of the highest order, declaring that bankers are economically “worth less” to society than cleaners. The appalling NEF methodological fallacies have already been enumerated by Giles Wilkes here.
Indeed, Giles reckons that the NEF “sets back the task of finding a truly just way out of this fiscal mess”. He’s right.
Sensible economic bloggers like Chris Dillow, Duncan, and Giles have been pointing out for months that a big part of the “banker problem” is to do with incentives. In the boom years banks and financial actors were incentivised to buy and re-sell debt whose true risks they didn’t know, or to issue NINJA loans, because during the bubble this worked. Profit was made, big time. Reform that will prevent future disaster, and foster a productive banking sector that doesn’t fuel social inequality, requires a careful restructuring of incentives.
Bankers and their bonuses fall into this wider picture. Investment banks pay their staff bonuses because so far this has worked for banks. A culture of high-risk, high-remuneration saw staggering profits up until 2007-8, with a return to the good times in 2009. Bankers themselves demand high bonuses because not only do they know they can get them, but in a banking environment where firms compete for staff by offering huge remuneration packets it makes sense for individual bankers to be greedy.
So part of the story for dealing with financial reform is incentive restructuring, which must be undertaken in a dispassionate, objective, level-headed manner. The NEF “report”, by contrast, amounts to little more than adolescent screeching and petulant antagonism. It adds nothing constructive.
But incentives alone musn’t be the whole story for the left. Before he passed away last summer, the brilliant political theorist Jerry Cohen explored the importance of collective social ethos in any society which aims to be just. Cohen believed there would be severe problems for any society in which individual agents lacked an “ethos of justice”, who simply bargained for what they could get given their market position, irrespective of any negative socio-economic impacts. Crucially, institutional arrangements alone would not suffice to secure justice. What efficacy a windfall tax on bonuses, if the bankers lack a social ethos that it is wrong to avoid the tax, and hence do so? How can a society be just if bankers take themselves to be masters of the universe, and employ their lobbying power to secure lower taxes and less regulation to the detriment of others?
Cohen was a Marxist, but non-Marxists on the left can form common cause here. In recent years there have been moves towards left “republicanism”, which calls (to caricature horribly) for an emphasis on social solidarity through collective civic action, to empower citizens by rediscovering the ties that bind. This is opposed to the hegemony of “liberalism”, which has grown to prominence since the 19th Century, and treats individuals as self-sufficient agents for whom the state must simply provide a “sphere of non-interference”. For although liberalism has brought much good – unrivalled liberty and tolerance for individuals, the growth of democratic society, and the (decidedly mixed) blessings of capitalism – it has also fostered a social “atomism”.
Y’know, the sort of society in which bankers view themselves as sufficiently isolated that they fully believe they are entitled to obscene bonuses, having just crashed the global system, plunged millions of people into dire straights, and following a year when thick chimps could have made money.*
The left would do well to concentrate on building a collective ethos of justice, fostering a society in which the social stigma against heinously selfish actions are internalised by economic agents, and thereby cut-off at root. No doubt a project of restructuring institutional incentives will help promote this end. Institutions, after all, profoundly influence all our lives and world-views.
But one thing that is certainly not going to help is bad economics, dishonest methodolgy and a response to profound crisis which is the equivalent of screaming “We don’t care what you think, because you’re rubbish anyway!”
–
* Because with interest levels so low and the global system underwritten by taxpayers, banks could hardly have failed to do well this year.
November 7, 2009
The Change We Need?
Today I attended the Fabian Society’s The Global Change We Need conference. With an impressive performance from David Miliband kicking things off and two excellent debates, it was a day well spent.
However, during the exchanges one thing kept coming up again and again: the issue of what progressives want to bring about, of how to encourage the wider population to accept progressive goals. The final debate was even called “Progressive Economy: How to get there”.
This P word. We need to talk about it.
First off some etymology. The word “progressive” entered the leftist vocabulary of self-definition when the American right did a successful hatchet job on the word “liberal”. It’s an American import, and the product of a very American political history.
That “progressive” is a response to a hatchet job is instructive about the way the word is now used: as a fluff term which is warm, cuddly, nice-sounding and most importantly, vague. After all, nobody’s against “progress”, or in favour of regression are they? You can’t be attacked for wanting “progress” because surely everyone agrees that – the world being the nasty place it is – making progress is a good thing. That’s what progress means, right?
Well perhaps it is, though the philosophers out there are likely to be pretty sceptical. But let’s ignore the philosophical deep waters, and worry about this instead. When we’re all talking in fluff-terms about “progress”, we’re not talking about these things: redistribution, equality, fairness, tax justice, the role of the state in correcting the market, gender and race rights, and all those other issues which were central to what used to go by the name of “the left”.
Instead, we talk about being “progressives” and our wonderful “progressive” goals, shying away from stating what those goals might actually be or how they might be brought about. In turn, we don’t argue for them, but rather leave the traditional goals of the left as implied by what “progressivism” is vaguely gestured to involve, for fear of making the horses bolt.
Except here’s the catch. Because “progress” is a fluff term which itself doesn’t mean anything, anyone can use it. And they do. That’s why David Cameron has claimed that the Conservatives are not only compassionate but progressive. It’s why Nick Clegg declared that the Lib Dems are now the true home of British progressives. Because nobody is against progress, and because it doesn’t mean anything and simply invokes vague feelings of warm fussiness, the term is co-opted by opponents, and can’t carry any meaning for those in favour of the ideals listed above.
Perhaps even worse, use of the term may not just hollow out the left and hand useful rhetorical ploys to opponents, it may also be self-destructive. Barack Obama campaigned under vague terms like “Change”, “Hope” and “Yes we can!”, driven forth by the enthusiastic masses of American “progressives”. But a year down the line, he finds himself with an unwinnable war in Afghanistan, a broken economy, and healthcare reforms that teeter on the edge of disaster. If Obama’s presidency fails to live up to the (unrealistic) hopes it raised, what will become of the concept of being a “progressive” in (American) politics? Without any sort of stated ideology to fall back on – egalitarianism, collectivism, social justice or whatever – the whole thing will look like the vague fluff it arguably always was. No prizes for guessing which party will suddenly find itself easing back into power.
So, The Global Change We Need? To stop using the damn P word, and have the courage of our convictions to actually say what we believe, and say why we’re right. If that means long, difficult and complex thinking about what equality, justice, fairness and the rest mean in the 21st Century, then good, let’s have that debate. Better that than the vacuous fluff of “progress”.
This post was also published at Next Left
Today I attended that Fabian Society’s The Global Change We Need conference. With an impressive performance from David Miliband kicking things off and two excellent debates, it was a day well spent.
However, during the exchanges one thing kept coming up again and again: the issue of what progressives want to bring about, of how to encourage the wider population to accept progressive goals. The final debate was even called “Progressive Economy: How to get there”.
This P word. We need to talk about it.
First off some etymology. The word “progressive” entered the leftist vocabulary of self-definition when the American right did a successful hatchet job on the word “liberal”. It’s an American import, and the product of a very American political history.
That “progressive” is a response to a hatchet job is instructive about the way the word is now used: as a fluff term which is warm, cuddly, nice-sounding and most importantly, vague. After all, nobody’s against “progress”, or in favour of regression are they? You can’t be attacked for wanting “progress” because surely everyone agrees that – the world being the nasty place it is – making progress is a good thing. That’s what progress means, right?
Well perhaps it is, though the philosophers out there are likely to be pretty sceptical. But let’s ignore the philosophical deep waters, and worry about this instead. When we’re all talking in fluff-terms about “progress”, we’re not talking about these things: redistribution, equality, fairness, tax justice, the role of the state in correcting the market, gender and race rights, and all those other issues which were central to what used to go by the name of “the left”.
Instead, we talk about being “progressives” and our wonderful “progressive” goals, shying away from stating what those goals might actually be or how they might be brought about. In turn, we don’t argue for them, but rather leave the traditional goals of the left as implied by what “progressivism” is vaguely gestured to involve, for fear of making the horses bolt.
Except here’s the catch. Because “progress” is a fluff term which itself doesn’t mean anything, anyone can use it. And they do. That’s why David Cameron has claimed that the Conservatives are not only compassionate but progressive. It’s why Nick Clegg declared that the Lib Dems are now the true home of British progressives. Because nobody is against progress, and because it doesn’t mean anything and simply invokes vague feelings of warm fussiness, the term is co-opted by opponents, and can’t carry any meaning for those in favour of the ideals listed above.
Perhaps even worse, use of term may not just hollow out the left and hand useful rhetorical ploys to opponents, it may also be self-destructive. Barack Obama campaigned under vague terms like “Change”, “Hope” and “Yes we can!”, driven forth by the enthusiastic masses of American “progressives”. But a year down the line, he finds himself with an unwinnable war in Afghanistan, a broken economy, and healthcare reforms that teeter on the edge of disaster. If Obama’s presidency fails to live up to the (unrealistic) hopes it raised, what will become of the concept of being a “progressive” in (American) politics? Without any sort of stated ideology to fall back on – egalitarianism, collectivism, social justice or whatever – the whole thing will look like the vague fluff it arguably always was. No prizes for guessing which party will suddenly find itself easing back into power.
So, The Global Change We Need? To stop using the damn P word, and have the courage of our convictions to actually say what we believe, and say why we’re right. If that means long, difficult and complex thinking about what equality, justice, fairness and the rest mean in the 21st Century, then good, let’s have that debate. Better that than the vacuous fluff of “progress”.
October 27, 2009
La plus ça change
When debating politics, it often feels like arguments go round in circles. The same points seem to get made over and again by all sides. The specific issues at hand may change, but the underlying positions informing responses can seem not to.
And I’m not just talking about tiresome, stuck-record individuals. If we go back over 250 years – to the early-mid 18th Century, during the great debates about the emergence of commerce, the benefits (or vices) of luxury, and the great enquiries into the nature and causes of the wealth of nations – we find patterns of argument that should look astonishingly familiar to contemporary readers.
Take the following by Jean-Francois Melon, from his enormously influential A Political Essay Upon Commerce (which according to Istvan Hont, dominated the debate on the emergence of nascent capitalism for 15 years after it was published in 1734):
“The excessive Price paid for some trifling Provisions, which the Luxurious Man displayeth with Profusion, at an Entertainment, the Merit whereof, he would have to consist in the Expensiveness of it, is an Instance of the highest, and most ridiculous Kind of Luxury, and yet, why should this extravagant Expence be exclaimed against? The Money thus earned, would, if it lay in the Chest of the Luxurious Man, remain Dead to the Society. The Gardiner receiveth it, and hath deserved it, as a Recompence for his Labour, which is thereby excited again. His Children, almost naked, are thereby clothed; they eat Bread in Plenty, enjoy better Health, and labour with a cheerful Expectation. The same Money given to Beggars, would only serve to feed their Idleness and Debaucheries.”
The attitude expressed is not at all dissimilar to the modern defence (usually from the political right) that the rich can spend their money on whatever the hell they like, even if that consumption is stupid and superfluous. It’s their money, after all. Furthermore, the added justification which follows – that money spent leads to employment, production, growth and ultimately better living for those lower down the social order – is not a million miles away from the “trickle-down effect” argument beloved of neo-liberal politicians (and some economists) in the 1980s especially. The final remark – that there’s no point giving money to the poor, they must work for their subsistence – should hardly be unfamiliar to modern readers.
But Melon’s remarks are nothing compared to this tirade from everybody’s favourite civic republican multiple-child-abandoner, Jean-Jacques Rousseau:
“As soon as the use of gold was known to men, they all strove to pile up a great quantity of it. Naturally, success had to correspond to the various degrees of industriousness and avidity of the competitors – in other words, they had to be deeply unequal. This first inequality, combined with avarice and with the talents which had produced it, must have increased even more through its own strength; for one of the vices of existing societies is that the difficulty to acquire anything always increases according to needs, and that the surplus the wealthy have is itself what enables them to deprive the poor of the bare necessities. It is an axiom in business as well as in physics that one makes nothing with nothing. Money is the true seed of money, and the first crown is infinitely harder to earn than the second million. Besides, thefts are punished only when necessity makes them forgivable; they cost honour and life to the poor man, and bring glory and fortune to the wealthy man. A destitute man who takes a crown from a harsh man sated with gold in order to have bread is a thief led to the gallows, whereas honoured citizens peacefully quench their thirst with the blood of the craftsman and the farmer. And the monopolies of the trader and the embezzlements of the taxgatherer bear the names of useful talents and ensure those exercising them that they have the favour of the Prince and the esteem of the public. That is how the wealth of the whole nation makes the opulence of a few individuals at the expense of the public, and how the treasures of millionaires increase the destitution of the citizenry. For in that forced, monstrous inequality, it follows that the sensuousness of the wealthy devours in delights the substance of the people, and blows their way only a dry, stale, brown bread at the cost of sweat and servitude.”
- Luxury, Commerce and the Arts, 1754
Rousseau packs so much into this passage it’s hard to know where to start. But I spot:
- Complaints that money begets money, and inequality harms the already worst-off the most, which is very similar to a now standard “left wing” complaint against the lack of equality of opportunity in present-day British capitalist society;
- Multiple claims that it is the very wealth of the rich which makes the poor, poor. And not just because poverty is a relative concept – elsewhere in the essay Rousseau notes that “the words poor and rich are relative, there are poor people only because there are rich people, and in more than one sense” – but because the rich “deprive the poor of the bare necessities”. Again, this should not be a new or novel concept to the modern reader;
- Reflections upon the frequency with which (what we would call) “white collar crime” is severely punished, versus the leniency offered to that of the “blue collar” variety, something I’ve reflected upon before;
- Praise being heaped upon the professions of the well-off, whilst the important tasks undertaken by the poor are marginalised and under-valued despite their being essential. Members of the financial services industry calling themselves “the wealth creators” and justifying grotesque salaries and bonuses whilst nurses and bin-men go on unsung and largely unnoticed, anyone?
- That inequality is “monstrous”. Indeed it appears for Rousseau to be the inevitable and despicable outcome of free commerce and wealth-accumulation (which we would probably now call “capitalism”) and leads to the misery and suffering of the poor, who end up with only “stale, brown bread” as the rich devour with delight their substance. However, given what Rousseau says about inequality in On The Social Contract we can also extrapolate another thought (not expressed directly in this early essay, but definitely in the later 1763 work): that inequality is bad because it leads to mistrust, factionalism and the break-down of the civic community. In sum, if there is inequality everyone suffers, not just the poor. Wilkinson and Pickett use empirical data about health, happiness and life-expectancy in The Spirit Level to argue that inequality is bad for everyone in modern society. Rousseau favoured appeals to the political and civic nature of the good human life. Different arguments, to be sure. But inequality is derided in both for its unhealthy effects upon human beings.
The only apparent divergence between Rousseau’s polemic and standard modern “left wing” complaints against (what we now call) capitalism is his denigration of tax collectors. Most modern leftists see tax and its collection as a positive force. But then, we must recall that Rousseau almost certainly has mid-18th Century France in his sights here, where huge chunks of the nobility (and clergy) simply didn’t pay any tax due to their estate privileges. So Rousseau’s hostility on that front shouldn’t bother us too much or be at all surprising.
Personally, I find the above passages pretty striking. It looks as though – in some respects and broadly speaking – we’re having pretty similar fights, and making roughly the same points, as were being fought and made when nascent capitalism first garnered popular and intellectual attention in the early 18th Century.
Whether you find that simply interesting, or perhaps a little depressing, is an indication of your outlook on life and politics, I suppose.
October 8, 2009
Secrecyjurisdictions.com
The Tax Justice Network this week launched the world’s biggest website for the study of “secrecy jurisdictions” – those shady little corners, more commonly known as “tax havens”, where the rich and well connected hide their ill-gotten gains, or clean dirty money on its way to legitimate western bank accounts.
Secrecyjurisdictions.com is a massive, on-going research project. It collects key data on the world’s 60 secrecy jurisdictions and aims to “map the faultlines” of the global financial infrastructure (including the “pinstripe army” of lawyers, bankers and accountants) which enables tax evasion, terrorist financing, organised crime, the looting of developing world assets, and a whole host of other evils, to take place.
As the website Project Overview states:
Secrecy jurisdictions facilitate illicit financial flows stemming from three overlapping sources: bribery, criminal activity and cross-border trade mispricing. Secrecy jurisdictions and those operating through them undermine development for the poorest countries, and create a criminogenic environment in which all sorts of crimes can thrive and feast on the fruits of law-breaking.
Secrecy jurisdictions facilitate a wide range of crimes such as tax evasion, non-payment of alimonies, money laundering, terrorist financing, drug trafficking, human trafficking, illegal arms trading, counterfeiting, insider-dealing, embezzlement, fleeing of bankruptcy orders, all sorts of fraud, and many more.
…
Financial opacity undermines the rule of law and destroys trust in markets. Loss of trust seriously damages market efficiency, raising the cost of capital and wrecking confidence in democracy.
The purpose of secrecyjurisdictions.com is to serve as a resource for those seeking to bring about positive change in the international financial system.
That change is desperately needed. Global Financial Integrity has estimated that each year, developing and transnational economies experience $800 billion – $1.06 trillion of outflows due to illicit financial flows. Each year, the developed world gives these economies just $100 billion in aid. By facilitating illicit financial flows, secrecy jurisdictions are at the heart of global poverty, as well as a wider web of corruption, crime and financial abuse. Secrecyjurisdictions.com is an early step in global attempts to clean up the international financial system, to create a better world.
More information can be found at the Tax Justice Blog, and at Tax Research UK.
(Yes, I helped with this project. But only a little bit. At least compared to the thousands of hours put in by some of the team).
September 22, 2009
Mansion Tax
A shorter version of this piece is posted here.
So Vince Cable has announced Lib Dem policy to introduce a “Mansion Tax” targeting the very wealthiest. The tax would be paid at a rate of 0.5% on the value of properties over £1m, and would affect around 250,000 people who would pay an average of £4,000 a year.
Cable – unlike the Tories – has apparently been reading his Adam Smith:
“The luxuries and vanities of life occasion the principle expense of the rich; and a magnificent house establishes and sets off to the best advantage all the other luxuries and vanities which they possess. A tax upon house-rents, therefore, would in general fall heaviest upon the rich; and in this sort of inequality there would not, perhaps, be any thing very unreasonable. It is not very unreasonable that the rich should contribute to the public expence, not only in proportion to their revenue, but something more than in proportion” (The Wealth of Nations, Book V, Ch II, Pt II, Art 1).
Those Smithian sentiments are certainly captured by the new Lib Dem plans. But it’s also a shot across Tory bows: “You want to give millionaires a tax break? We want to reel them in and help ordinary people”. Not only is this the right thing to be saying in a country where inequality has increased (with all its attendant evils), poverty remains a fact of life for many, social immobility is getting worse, and middle-class families are now struggling to keep themselves above water – it may also be electorally wise.
Whilst south-east Lib Dems like Susan Cramer (facing millionaire Tory opponent Zac Goldsmith in Richmond Park) may well suffer, the Lib Dem leadership has likely calculated that in the rest of the country, taxing the rich will play well. After all, Labour have got more seats to lose than the Tories and disillusioned Labour voters are likely to be highly responsive to a “Mansion Tax”.
But then, if one was being cynical about Lib Dem tax policies, one might well be significantly less generous about the latest announcement.
Until 2006, the Lib Dems had a long-standing commitment to a 50% tax for those earning over £100,000. Then, under Ming Campbell, the party dropped that position in a 2-1 vote. Many of the stated reasons for opposing the 50% tax were highly respectable (if debatable): that it was “totemic”, “symbolic not substantial”, and that anyway top-rate taxes don’t bring in all that much money so don’t help the worst-off, who need a tax break.
Unfortunately, what nobody in 2006 saw coming was the financial crisis and ensuing recession, with New Labour dropping its core Blairite (and formerly Brownite) pledge never to increase top-rate taxes, promptly introducing a 50% rate in spring 2009. Suddenly the Lib Dems found themselves in a squeeze. By September 2009 the 50% tax is attracting broad popular support – yet the Lib Dems would look like fools if just 3 years after making a fanfare over dropping commitments to such a tax, they switched to supporting it again with equal gusto. Accordingly, they’ve had to fudge the issue by condemning the tax-hike when it was announced as “counter productive”, but quietly accepting it now as a fiscal necessity.
The party thus finds itself stuck between a rock and a hard place: they can’t openly support the 50% tax to make a pitch for their progressive credentials, but they recognise that increasing the social burden on the wealthy is not only flavour of the month, but also likely to play well with disillusioned Labour voters and those worried about Dave’s sharp public spending axe (which is conspicuously not being blunted by promises of increased revenues from the rich).
The Lib Dems have been playing around with some (good) ideas to target the rich whilst not falling-back on increased top-rate taxes for a while (local income tax and scrapping council tax obviously spring to mind). Yet the new “Mansion Tax” could do a lot to get the Lib Dems from the rock to the hard place: it is claimed to increase revenues, targets the ultra-rich, and would apparently reduce the tax burden on lower-earners too.
So maybe being cynical is to miss the point (this is politics, after all). The Lib Dems are in something of a bind over progressive tax (not least because it’s an open secret that the party is riven by division on tax-and-spend issues). Yet the “Mansion Tax” could be a shrewd move indeed. On the one hand it puts clear blue water between them and the Tories. On the other, it adds substance to recent Lib Dem claims that they are the natural home for British “progressives” and are ready to supplant Labour. Of course, one policy alone won’t be enough to “break the mould” of British politics – but more like this, and who knows?
September 21, 2009
Tonight, Watch Television
Just a quick advert.
A couple of weeks ago I complained that the BBC was running a series demonising “scroungers”, whilst not dishing-out the same treatment to high-end tax avoiders. I also hinted that this may come to an end, albeit temporarily.
Well, tonight at 8.30 BBC’s Panorama promises to be a goodie. They’ve secretly filmed Lloyd’s Bank staff assisting clients to engage in tax avoidance – despite the fact that Lloyds is a bank which only exists because of tax-payer bailout. It should be a goodie.
Let’s just say the Tax Justice Network had a hand or two in tonight’s programme.
Programme details and blurb here.
UPDATE:
Well that was disappointing.
The 10 minutes about tax avoidance was OK, I suppose, but the rest was bog-standard, cheap, crass and emotive dross. No attempt to really delve into issues, just sticking to the old tried-and-tested approach of singling out goodies and baddies for sob stories (however genuine and terrible for those concerned). Once more the BBC declares that it doesn’t respect the average viewer enough to present them with a programme about banking or finance that could actually, y’know, require them to think a bit.
Then again, I was a fool to expect something more.
September 16, 2009
The Lehman Paradox
Yesterday marked the anniversary of the collapse of the investment bank Lehman Brothers. I’ve had some time to mull-over the signficance of this anniversary. Here’s my rather ambitious contention: that it will be looked back upon by generations to come as a paradox that marked the start of a brief period in which the evolution of global capitalism could have been radically redirected, but wasn’t.
Of course, predicting the future is a mug’s game. But here goes anyway.
I believe that the 21st Century will be defined by the rise and rise of the multinational corporation. That the growing prevalence of mega-corporations – many of which have long-been recognised as being bigger than most nation states – will fundamentally re-shape power relations across human societies.
This is, in part, because I think the rise of the modern, limited-liability multinational corporation is genuinely something new. Whilst academics of globalisation have pointed-out that cross-border movements of finance, capital, labour and goods is nothing particularly new (pre-World War 1 levels were as high as for much of the post-World War 2 period, apparently), what these “nothing’s changed” accounts miss is that the nature of international trade has in fact changed dramatically. Over 60% of world trade now takes place within the structures of multinational corporations. At one level, this fundamentally changes the dynamics of international market economics: rather than diverse suppliers competing for diverse buyers in competitive markets, with countries using their comparative advantage to maximise the benefits of trade, we have monolithic corporations shifting resources within their own structures with disregard for national boundaries. Arguments about the benefits and desirability of free international trade need to be drastically re-appraised in the light of the fact that substantially less free trade is going on internationally than might be supposed, because of the nature of modern corporations.
This radical change has other consequences. One that Tax Justice advocates will be familiar with is the way in which gigantic corporations use their structures to firstly deny tax revenues to the governments of jurisdictions they operate in (usually by transfer mispricing and creative accounting via secrecy jurisdictions aka tax havens), and secondly to dictate policy to weaker regimes: demanding extensive tax holidays in exchange for agreements to invest. (One result is that many developing nation governments in particular are denied the tax revenues they need to adequately develop, becoming reliant upon international aid as they are not individually strong enough to turn away the investment promised by tax-policy-dictating MNCs).
These phenomena are both constitutive and indicative of the fact that the global picture has changed. For thousands of years – to the Greeks and before – international relations has been conducted primarily between states. There have been exceptions – acts of international terrorism, for example – but predominantly the picture was one of states interacting with states. The rise of the multinationals in a world of globalised economics has changed this. As Susan Strange, former Professor of International Relations at the LSE, argued in her 1992 paper States, Firms and Diplomacy:
“Governments must now bargain not only with other governments, but also with firms or enterprises, while firms now bargain both with governments and one another. As a corollary of this, the nature of competition between states has changed, so that macro-economic management and industrial policies may often be as or even more important for governments than conventional foreign policies as conventionally conceived.”
The rise of the MNCs has changed the dynamics of international power.
It has also changed the dynamics of domestic societal power. Multinational corporations impact upon all our lives: when MNC energy companies hiked prices in 2008 after the oil-price spike, and then conspicuously refused to lower their prices as oil value collapsed, ordinary people felt the pinch. But the story goes deeper than the now centuries-long relationship between small, powerless consumers and the large, powerful suppliers of essential goods and services (be they states or firms). Indeed, let’s take the Lehman Collapse and subsequent bank bail-out as a case in point: civil society across the globe was so dependent upon the continued existence of the financial system, that millions of ordinary people saw their governments plow tax-payer money into these private, global institutions simply to keep them afloat. It’s not just at the international level that power-balances are changing: at the societal level the same is true – we individuals must now reckon not just with our states, but with the MNCs that may well be bigger and more powerful than the governments that predominate in our states.
So what has this got to do with Lehman Brothers, and why did I call its collapse a paradox that may shape future conceptions? Think of it this way. The Bush administration let Lehman fail, on the basis that a private banking corporation in the capitalist system must sink or swim by its own merits. Yet in letting Lehman fail, panic spread throughout the banking institution and partly as a result – but also because of other, deeper, structural factors – the entire banking system teetered on the brink of collapse. The US – and in turn, European – administration(s) realised that there could be no repeat of Lehman. The banks, it turned out, were too big to fail. The state would have to save them with taxpayer money, in the best long-term interests of taxpayers (bailouts being better than economic collapse and anarchy). The paradox of Lehman is that in letting it fail on the principle that capitalist enterprises ought not to be rescued by the state, it became apparent that this principle was thereby untenable: Lehman’s financial brethern would have to be saved.
So why do I think this will be viewed as the start of a crucial period in shaping the coming century (and beyond)? It’s simple: Lehman’s collapse was not – could not have been – repeated. As a result, the rest of the banks got their bailouts. Yet with their bailouts came a unique moment in the evolution of the multinational corporations which have reshaped – and will continue to reshape – our world. The most powerful governments on the planet suddenly had a chance to radically re-strike the balance of power between themselves and the global financial powerhouses that are at the centre of our globalised economy. In exchange for taxpayer-backed guarantees, national governments could have extracted radical reforms from the banking institutions, fundamentally transforming the banking system itself. The balance of power between some of the most important globalised corporate institutions – which represent, in turn, some of the most important aspects of the globalised economic system – could have been fundamentally redirected in favour of democratic governments which, unlike corporations, are at some level amenable and accountable to ordinary people.
But we all know that this isn’t what happened. The financial power-houses got their bailouts, and our governments – and by extension, all of us little people – got nothing in return. The great opportunity to redefine global financial capitalism – and in turn, the entire global economic system – slipped away. I suspect that the consequences of this lost opportunity will reverberate throughout the next hundred years, and beyond. I believe that people will look back to 15th September 2008 and the short months that followed, and will say dejectedly to themselves, “if only those heads of state had been braver, if only they had seen the true nature of the opportunity that lay within their grasp…”
