As is very clear from this week’s reaction to last week’s EU summit, the UK veto is just one part of another EU disaster that is still waiting to happen.

No credible plan for the Euro emerged. This is not surprising. There are only two options, in reality. Either Germany pays for the rest of the EU to join it in the Euro or the rest of the Euro pay for trying to be like Germany. The third option is economic collapse: only the scale needs discussion.

The Germans can, of course pay. The question is, will they?

The rest of Europe cannot become like Germany. That is technically impossible. We can’t all have surpluses: there have to be deficits on trade and even on spending. That’s an accounting fact. Trying to all be like Germany is therefore doomed to failure – and like the Merkozy pact first guarantees recession, second destroys social democracy and third is a guarantee for chaos. These are facts.

That leaves economic chaos sooner or later, which is much like option 2, or the pact on which agreement was reached.

Governments cannot deliver option 2. It will not happen.

Option 3 – economic chaos, arrives early in the new year when Italy cannot refinance its debts.

So it’s down to Germany, to pay or not; to deliver chaos or not; to spite itself, or not.

That’s all that’s left to speculate on in the short term.

The long term is another story. But in this case the short term is too real to get too worried about the long term, yet. Except to note that’s why Cameron was wrong: he had to be present for the short term to make the difference in the long term. And he isn’t. Which is why he’s wrong.

Dec 142011
 

The following review of The Courageous State was written by Martin Cloake, a journalist who I have spoken to often but never met. It features on his web site, which I recommend:

Over the years, I’ve seen plenty of ‘where we stand’ lists from left-leaning organisations. Many of which amount to little more than a list of slogans, and few seem to have much idea of how the objectives set out might realistically be achieved. And as times have changed, many of those wish lists have stayed uninspiringly familiar, often standing as little more than articles of faith to be hoped for with little confidence that they will ever be achieved. What’s been needed for some time is a well-argued, rounded attempt to provide a complete view not only of what is needed to achieve a more progressive society, but why it is needed and how we might achieve it. Richard Murphy’s new book The Courageous State more than adequately fills that gap.

I first came across Murphy’s work on his Tax Research UK blog while I was covering financial news for AOL Money. He writes clearly, argues directly and has a prodigious work rate. When he announced he’d been asked to draw his thoughts together in a book, I knew it would be a must read, and I haven’t been disappointed. It is a vital book for our troubled times.

Where Murphy immediately achieves more substance than such vacuous notions as The Third Way is by clearly setting out what the state should do. My entire adult life has been lived against a backdrop of attacks on the role of the state, with even the left buying in to them – something only in part caused by a lack of confidence sparked by the overly statist models of the former Eastern Bloc. Murphy does not just set out what a state should do, but what only a state can do. In doing so he turns many of the arguments of the last 30 years on their head. Instead of looking at what the state does badly, he looks at the nature of various sectors of the economy and asks if they can really be left to markets. And in the case of sectors such as education and health, he articulates an extremely clear argument about why markets in fact make those sectors worse.

His argument is for a Courageous State “populated by politicians who believe in the power of the office they hold” and who “believe that office exists for the state of the public good”. And he says, those politicians need to “believe they can commend the resources to fulfil this task”. Currently, he argues, we live under a cowardly state, one in which politicians – and this includes the last government as well the current one – do not believe the state can or even should have a role in providing for its people.

Having established the need for a Courageous State as something which can help people and societies fulfil their potential, he then sets out clearly why you need to back the proper operation of a taxation system in order to support it. In doing so, he demolishes the modern concept of “taxpayers’ money” – one that has been used to erode the role of the state in favour of supposed individual freedom. This “freedom”, he shows, is nothing of the sort – merely a concession to the growing power of corporations and finance capital.

Once the basis of the Courageous State has been established, and the reasons why it is needed have been established, Murphy sets out a new way of economic thinking. In it, he attempts to construct a framework in which the unpredictability of human behaviour, the need for personal as well as material development, and concepts such as greater benefit to society as a whole play a part. This is an attempt to counter those economic theories which attempt to present themselves as science, and which assume that all human behaviour is utterly predictable.

In the final third of the book, Murphy sets out the measures a Courageous State might take in order to achieve a better way of living. What’s striking about these measures, certainly to any veteran of the tortuous theoretical routes followed by much of the left over the years, is how straightforward and achievable they are. What’s more worrying is that what are essentially a set of radical social democratic suggestions are already being portrayed as extremist by the sirens of neoliberalism this book firmly sets itself against.

I found this a refreshing, uplifting read. One of many things that stands out is how neatly interwoven green economics is to the whole approach. The green approach is too often presented as an ‘other’ or a bolt-on to a set of progressive policies. Murphy’s view places concepts such as sustainability right at the heart of the progressive approach.

There’s little in here that any progressive should find difficult to agree with. And the strength and clarity of argument should also help to convince doubters of the wisdom of the progressive approach.

This is a timely book. While there’s plenty of opposition to our current direction of travel, there’s less agreement on how we construct an alternative. If I were to be charitable, I would say that the official opposition is not exactly living up to its billing. There are plenty of people in a number of organisations who have good ideas, and there are plenty of encouraging signs such as the emergence of UK Uncut and the Occupy actions. But what’s needed is something more solid to coalesce around. Murphy’s Courageous State provides the opportunity to do just that. It’s not a wish list, it’s not prescriptive, it’s an open, living vision of how we can put practical measures in place to secure a better world. Those who find it too radical will prove they are as incapable of providing any answers as those who decide it is insufficiently radical on certain points – picking it apart in order to open up yet more splits in a movement which sometimes seems to take the Pythons’ Judean People’s Front sketch as more of a guide to action than an observation.

The Courageous State does a vital job in challenging an enforced consensus, and it does it does so calmly, in a reasoned manner which nonetheless recognises the urgency of the task at hand. It is a key read.

Order The Courageous State

 

 

 

One fascinating aside of spending time in Copenhagen over the last couple of days with people from many countries that use the euro as their currency was the chance it gave to assess the risk they perceived to their well being as a result.

Both I and another person attending from the UK were surprised to find how relaxed they seemed to be about it. Or was it they are resigned to their fate?

And yet I am not sure that the latter was the case. Whilst I can’t see how Italy is going to raise the €100 billion plus it needs by March as its debts roll over, indicating that there are many more euro crises and summits to come between now and then, those with direct interest seem resigned to keeping calm and carrying on.

I hope they are right.

 

It is rare that I have a day as far away from my computer as today, and I readily admit to having enjoyed it.

I’ve been the guest of Copenhagen Business School at a two day seminar to launch a new project to be located there focused on identifying innovations in the offshore world and how they might be tackled. The project is being funded by the Norwegian government, who also ultimately fund part of my work, and the synergies are obvious.

I am not going to recount all that was discussed; that would not interest many readers I suspect, and would also be inappropriate when the seminar was deliberately, and unusually for an academic event, not based upon the presentation of formal papers which too often (in my opinion) focus upon a review of existing literature and too often also within the framework if existing thinking, which discourages innovation. It was instead seeking to be exploratory, innovative and encouraging of the frank exchange of ideas. It succeeded within that framework.

That was not the key point of the event for me though. The first of those was that it was simply taking place. At a time when it would be easy to be despondent this seminar was  least in part solution focussed: the aim was to find what could be done to restore equity in finance, regulation and tax so that economies might survive their current stresses.

The second was as personally important, and I am aware that at least some others shared it, which was that it was so encouraging to take part in a research seminar where no one was asking you to justify why you thought offshore was so important. It remains the case that  far too few academics, and economists in particular (who were almost inevitably under-represented as a result), understand the enormous impact of offshore on the world economy and the resulting need to regulate them.

The result of seminars like this are rarely apparent when they take place and that was true on this occasion, bar one thing, which is that important new research has begun in Denmark, which is itself looking at becoming a major international participant on this issue alongside Norway, and I think that enormously significant in itself.

 

Dave Hartnett resigned from HMRC last week. That’s the official story. But since he was saying he was saying he was staying for some time to come only a month beforehand that looks very unlikely to be the real case. It looks very likely he was pushed in haste. The fact that he has been replaced in such disorderly fashion by Lin Horner who had only been in her existing job for a few months makes that look all the more likely. And don’t presume she is replacing Lesley Strathie alone – Hartnett’s job was a one off.

But is this the new broom to restore good governance to HMRC – for that is what has been missing? I really doubt it. There are real doubts about her leadership of Birmingham – and her role as returning officer there when things went mightily wrong whether or not her fault. The UK Borders Agency, which she headed until January is a right mess – and she must accept some responsibility for that. And now Transport have shuffled her one as fast as possible. It’s not a good sign.

And of course, she knows nothing about tax of any consequence.

But worse than that Hartnett’s failure was one of poor governance. Weak Chairs of HMRC matched by a coterie of non-execs mainly recruited from major tax avoiders and Hartnett being the only Board member with any knowledge of tax led to his having unaccountable power – and from my own experience of dealing with him, it materially changed him.

I see no evidence that this governance weakness is being addressed.

And there’s no sign that the culture of favouring big tax avoiders will change. That’s what’s really worrying.

 

The Bank of England has issued an important paper today. In summary it says:

The paper sets out three objectives for a well-functioning International Monetary and Financial Systems (IMFS): i) internal balance, ii) allocative efficiency and iii) financial stability. The IMFS has functioned under a number of different regimes over the past 150 years and each has placed different weights on these three objectives. Overall, the evidence is that today’s system has performed poorly against each of its three objectives, at least compared with the Bretton Woods System, with the key failure being the system’s inability to maintain financial stability and minimise the incidence of disruptive sudden changes in global capital flows.

It is quite literally impossible to argue with that: that’s why the paper is important.

But when it goes on to consider causes and solutions although it considers opacity and although it considers imperfect markets and asymmetry not one does it mention the fact that the offshore world – of which in so many ways London is the hub – is a prime casue of all these things.

And for that reason the paper fails, badly. The BoE has acknowledged a problem. I cannot believe it does not know the solution. It must know to whom the capital controls to which it refers are a threat and yet it cannot say that tax havens are the problem creating this mess in the world’s systems – at massive cost to many countries, as it rightly points out. We have a way to go yet.

 

As Larry Elliott notes http://www.guardian.co.uk/business/economics-blog/2011/dec/12/debt-crisis-recovery-recedesin the Guardian this morning, the Bank of England published a working paper this morning that says that the post war Bretton Woods agreements of fixed exchange rates and capital controls provided an environment for stable growth, the efficient allocation of capital and no economic shocks.

Of course the 1973 and onwards oil price changes threatened that but as they rightly note the system worked for 25 years whilst the Wahington Concensus era of free movement of capital has delivered none of those things, ever.

All right, there are caveats. Causality has to be assumed – but Courageous politicians always have to do that.

But as I argue in The Courageous State, the real need is to ensure capital is accountable and allocated to the real economy and not to speculation. Only then can real, sustainable, prosperity be restored. We are a long way from there and capital controls are an essential part of making global capitalism work again – by holding it to account for where it is, what it is used for and what tax it pays. Country by country reporting would help that, which is one reason why I am argung for it in Copenhagen today.

Copenhagen, today

 Uncategorized  Comments Off
Dec 122011
 

I’m heading to Copenhagen today at the invitation of the Business School to debate ‘Onshoring Offshore’.

The subject remains a key one. Indeed, recent events highlight just how sensitive sovereignty is and just how important it also is to ensure that business is held to account for what it does. In this context the whole dispute between the UK and EU and the ostensible reason given by Cameron for exercising the UK veto is all about offshore. London is an offshore finance centre that seeks to undermine regulation in other countries and does so in no small part bu pretending activities take place ‘elsewhere’ from where they are really managed.

So, for example, the EU wants hedge funds regulated and taxed where there impact is. London wants to be able to claim they are in Cayman when that is obviously untrue.

Cameron chose offshore over onshore. That was a massive mistake for the UK. And we will suffer for it because Europe will not forgive us for choosing to undermine it’s economies, regulations and tax systems.

 

There’s a good article under the above title in the Telegraph today, and not just because I’m quoted.

As they say:

Tax collectors, according to more than one person interviewed for this article, are heroes. After all, the people they are targeting – tax avoiders (people who legally exploit loopholes) and tax evaders (those who commit tax fraud) — are not exactly popular in the current climate, when the majority of the population is having to endure tax rises and wage freezes to help the country balance its books.

And I agree.

© 2005 - 2011 Tax Research UK.
Some rights reserved. Creative Commons License
Suffusion theme by Sayontan Sinha