I am pleased to share this guest post:
Professional Chameleons Or Independent Public Auditors And Regulators?
— A Case Study of KPMG and its Regulatory Arbitrage Services
Atul K. Shah, Senior Lecturer, Suffolk Business School, University Campus Suffolk
Recent news regarding tax avoidance and unethical banking cultures are putting an increasing spotlight on the Big 4 Accounting Firms and their independence, professionalism and conflicts of interest. Scholars are beginning to question their huge power and influence in global accounting, auditing and tax, yet little is known about exactly how they practice regulatory arbitrage and the extent to which it is structural and systemic, and how they continue to get away scot free from major financial crises and corporate failures. In the case of the audit failure at HBOS, KPMG have still not been independently investigated eight years after the loss of billions of pounds, thousands of jobs and huge losses for investors, pensioners and retirees.
My latest research, which looks microscopically at KPMG in the UK and its structures, services and culture, exposes some alarming truths. The paper is entitled ‘Systemic Regulatory Arbitrage — A Case Study of KPMG' and was first presented at a Tax Justice Network Research Workshop at City University in June 2015.
In simple terms, regulatory arbitrage occurs when organisations or professionals use their knowledge of the regulations, legislation and administrative procedures to help their clients escape the substance of those rules and thereby benefit commercially. Readers of this blog would be very familiar with the exposes of Richard Murphy about how tax avoidance is practiced and escapes regulatory sanction. My research is broader in spirit and suggests that it is in the very nature of Big 4 firms to help clients practice regulatory arbitrage, and this is interwoven in their structures and services. The result of this, if true, is that global professional accounting firms appear to help multinationals to escape all kinds of regulatory limits and controls in specific nation states and become a power unto themselves, free from restraint. This is in stark contrast to their public license and image as upholders of truth and fairness and professional firms which are independent and reliable.
Sadly, in spite of the threat such behaviour poses there are huge challenges in getting access to internal systems and processes to determine the scale of this problem whilst interviews with senior leaders and managers about how such arbitrage is practiced and implemented are difficult to secure. Most of our evidence therefore comes largely from published information, either in annual reports or on websites, or from press reports and regulatory/parliamentary investigations. Using a variety of publicly available information, and an interview of KPMG's Head of Audit Quality, Risk Management and Ethics, the research paper unravels how KPMG undertakes this activity and escapes regulatory sanction.
The research paper explains and defines ‘Creative Compliance' and ‘Regulatory Arbitrage', and analyses in detail the commercial incentives for Big 4 firms to provide arbitrage services. For example, significant multiplier fees might be earned by developing a particular scheme and then cross-selling to a wide range of clients. Fees can also be earned from the on-going creation and administration of off-shore boiler plate subsidiaries in tax havens and generally advising or managing complex group structures.
The result is that the concept of ‘Regulatory Dialectic' is introduced, where contacts with regulators, understanding the resources and skill limits of regulators, understanding how slow regulatory investigations can be and how they can be ‘managed' in the client interest — are all skills that may be exploited to provide client services. It is then suggested that each of these could be restrained by strong ethical codes and rules of professional conduct, but sadly there are no such rules, let alone indication of willingness to enforce them. Instead having a large and talented workforce from a range of disciplines has helped firms nurture and retain these skills which have proved to be a major commercial strength to them.
The evidence I present exposes flaws in governance, leadership culture, ethics and at times even deliberate and explicit publicity of regulatory arbitrage services on their website. For example, on one occasion it was aid that ‘Our training and secondment experience within regulators gives us exceptional insight into their expectations and perspective.' (KPMG Financial Services Website, 2014)
In their annual reports, one of the key risks KPMG identifies is that of ‘regulatory risk' i.e. the possibility that they may lose their licence to audit as a result of poor or failed audits. From a big picture perspective, the origins of these Big 4 firms came from a legal requirement to audit, and they were seen as ‘regulators' on behalf of the state. How paradoxical its is then that they are now ‘managing' their own (KPMG's) regulatory risk!
These and many other significant contradictions in their rhetoric expose the huge commercial bias of these firms, and their desire to grow profits at virtually any cost. For 2014, I calculated the firm's Return on Equity to be 112% - most corporates would be lucky to get a return of 20%: this shows how hugely profitable these organisations are for their partners.
The research also analyses KPMG's Systems, Services and Strategy to see the extent to which these can be used to harness and support clients practicing regulator arbitrage. A detailed analysis of the role of contacts and networks in practicing successful arbitrage exposes the deeply political nature of accounting and its regulatory capture by such firms. There is also a section in the paper that shows how the firm itself uses complexity and secrecy to reduce its transparency and practice information arbitrage. As a result it is concluded that the firm faces fundamental cultural conflicts of interest exposed as ethical contradictions within the firm.
This stresses the need for the public to be aware of what the core values and culture and services of these glamorous Big 4 brands are, so that smart graduates can make informed choices about where to work. For the accounting profession, its reputation and image rests on the good conduct and monitoring of these firms and their partners, given their power and influence within it. Regulators need to be very careful about the extent to which they rely on Big 4 advice and services, and understand the huge conflicts of interest and regulatory capture that may result from working closely with them. Global institutions like the United Nations or the IMF must take an active interest in how the Big 4 firms hinder the creation of a fair and equal society and one which ensures that multinational corporations are held to account, and follow the spirit of regulations.
The Big 4 are not culturally neutral.
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Or, put another way, these firms advise their clients how to exploit the regulatory terrain to gain competitive advantage. This is how capitalism is meant to work, isn’t it?
No
That is a deeply perverted view
If we take it that “red in tooth and claw” capitalism (aka neoliberalism) is primarily about exploitation: of opportunity, resources, structures, systems, institutions, etc etc, then Will Ross’ comment is about right, Richard. It’s a deeply perverted view to you, me and many others, but sadly has been in the accent for many years and has finally found its full flowering under the generation of Tories (and many of the political class and their puppet masters) that now rule us.
Ivan
I agree it is what neoliberal capitalism is
But that is a perversion in itself
Richard
I’m sorry Will I did not realise until you spoke up just than that as one of millions of PAYE taxpayers, along with thousands of indegenous SME’s like my milkman, local publican, butcher, barber etc, that I/we was in competition with multinational corporations who have money than Creosote over our paying of tax contributions.
Could you advise me please? Because I ‘ve not had a drink in a couple of weeks and not been out for several months I currently fnd myself in the unprecedented situation of having a surplus of £1.68 sitting in my pocket. Do you think one of these big four auditing companies would advise me how I can compete more successfully with people like Google, Amazon et al, and even yourself Will, to pay less tax and make myself more competitive than you?
I’m afraid I cannot offer you any financial renumeration for answering the above question as I find myself, as a PAYE taxpayer, having to effectivey subsidise large multinational corporate entities and their top management’s who can afford to engage these people to draft laws to their advantage and every other taxpayers disadvantage.
With such a huge and obvious conflict of interest, no Chinese walls can prevent the inevitable legal corruption and arbitrage that is now so in-bred in the world of the so called professional world of audit, tax, accountancy and consultancy.
It is time to separate out the true regulatory and control functions of the state and place these in the hands of public servants who have a clear non-profit agenda.
Until such time, the perpetual accounting related scandals will continue as they are all driven by the profit motive and boundless greed. Remember they used to be the big 5, until one of them got caught so red handed and with their pants down by their ankles that they could no longer hold their head up in polite society anymore!
I remember it well, I used to work for them.
Careful there Keith, you are bringing contextual reality into the discussion. Clearly indicating that you are a member of the reality based community.
Do you not understand that “the law is the law”, immutable, unchallengeable, immune to criticism. It is as it is, seemingly owing it’s existence to divine creation, magic or spontaneous combustion untouched by human hand or mind, and therefore right and proper in all respects for all time and for ever and ever. Amen.
If I were you I’d volunteer for the North Korean space programme before the cheerleaders get on your case.
I have my ticket booked already Dave!
I have a sneaky feeling that North Korea may be a safer place than most of the rest of the world for the next few years – not an endorsement of any form of dictatorship, but accepting that the “democratic dictatorships” are no better than any others and perhaps even more dangerous as so many of their population firmly believe they are something they are not.
It’s funny how no country with a nuke has been invaded by the western powers, no matter how many international laws they are supposed to have broken, while the non-nuke puny dictators are fair game. It sends a very dangerous message to all would be dictators and “democratic dictatorships” to get on the bandwagon and get some nukes quickly.
One day the world will wake up to the fact that Mutually Assured Destruction is just that, and it will so be!
“It is time to separate out the true regulatory and control functions of the state and place these in the hands of public servants who have a clear non-profit agenda”
Given the revolving door between civil servants, accountancy and legal companies: I assume you are unaware of how ironic your comment is?
The revolving door is an interesting challenge. It’s been long known that ex-gamekeepers make cunning poachers, ex-soldiers can be ruthless mercenaries, ex-police can develop devious criminal minds.
But society generally doesn’t allow those who have moved to the dark side so easily to come back into the light. So its odd that this is not only allowed, but actively encouraged at the top of the public/private interfaces of government and business?
It really is time for a very big shake up at the top, if we are to change the lives of those in the middle and bottom in a positive direction.
Well done to Keith and Dave. Your comments are right on target.
The trouble is that people like Andrew and Pardeep, who are probably perfectly decent people are caught up and so ingrained within the system that they cannot see the bigger picture.
Of course the Big 4 are involved in arbitrage – their interests are directly aligned with their clients. This is not a conspiracy theory it is a fact! How else would they get away with charging eye wateringly exorbitant fees…
They are within the toolkit of the FIRE/Pharma/Oil complex that run this country. Another tool is the “Magic Circle” of Law firms!
You must mean this non-sensical gravy train of non-productive rent seeking from the ultimate in regulatory capture merchants!
http://www.theguardian.com/law/2016/feb/05/city-law-firms-charging-up-to-1100-an-hour
Sorry Dave: I wasn’t clear. The corporations are not in competition with us. They are in competition with one another to serve us. The regulations are the playing field.
Most big Corporations won’t have a particular problem paying tax so long as they know that their competitors aren’t avoiding tax and putting the money into beating them in market. In practice, avoidance is rife. So companies need an incentive to justify diverting funds from operations to avoidable taxes.
In your dreams Will
For heaven’s sake open your eyes and shut that baby’s guide to economics you are relying on
It is an interesting question.
Are Amazon and Google successful because they organise their affairs to pay the minimum of tax or are they successful because they give the public a service that the public want and appreciate?
Should someone be forced to go out of their way to pay more tax? That would see you, Richard, forced to set up a company, pay yourself a wage and suffer Employers’ NIC, a burden you could self-impose but currently avoid.
Why should Google or Amazon be forced to create a PE in the UK to increase their tax burden if tax increasing impositions are not being forced on you?
Seeing as I like you today Pardeep, because I might not like you tomorrow, I’ll Janet and John it for you.
Every legal entity, be it a human being, an SME, a PLC and yes even a Corporate survives, thrives and operates within a geographical space. In order to do so every single entity requires an infrastructure within that geographical space without which it cannot survive and thrive and prosper.
That infrastructure, essential for trade and access to resources etc consists of complex systems for transport, such as road, rail, canals, ports for shipping and aircraft; utilities such as power grids, water collection, delivery and treatment, gas delivery, communications networks; security and emergency services such as police, fire, ambulance, hospitals, health care, defence; education such as nurseries, schools, colleges, universities; administrative such as legal processes, creating law, regulating the space, organising the various systems so they work in harmony and so on.
Now the thing is Pardeep, all this infrastructure did not fall out of the heavens. It did not magically appear from the benevolence of some sky fairy. It did spontaneously come into being. It was built and created by public money, through borrowing and taxing people using, living in, and operating within that space. Moreover, it does not maintain or improve itself.
Every single entity from PAYE/VAT taxpayers through SME’s like my Milkman, local butchers and barbers shop to too big to fail corporates cannot operate without those infrastructure systems. Which is why, whenever what passes for the fourth estate these days blows it’s favourite dog whistle about social security, you see steam coming out of people ears because they do not like the thought of “hardworking taxpayers” (PAYE/VAT) paying for something like creation, maintenance and improvement of that infrastructure when others are freeloading off it, ie not paying their wack.
Now, the political system which operates within this geographical space regularly publishes identified losses to the commnon publc purse. It regularly finds that the losses to the public purse available for that necessary infrastructure that every entity operating within this geographical space depends on is anything up to fifteen (15) times more from avoidance and evasion of taxes, mainly by large corporations and wealthy individuals, than from what is referred to as benefit fraud which is presented as an unreasonable burden on “hardworking taxpayers.”
Moreover, the same unit responsible for collating this data also finds that the losses from “benefit fraud” are exceeded by the amount of legally available social security benefits not claimed.
In which case, given that it is considered unacceptable in polite society for one group of entities operating within that geographical space and benefitting from that infrastructure to be “freeloading” off the system on the basis of “hardworking taxpayers”, it is more than reasonable to apply the same standards and criteria to those whose freeloading is anything up to 15 times greater.
Because you see Pardeep, those of us “hardworking taxpayers” paying our wack through VAT and PAYE (and yes, even though I am retired, but not in receipt of a state pension for another 4 years having paid over 40 years NI contributions, I pay PAYE on anything over £10k on my small company pension) do not have a choice.
We cannot not pay VAT on our everyday purchases. We cannot reduce our PAYE contributions. We do not have access to slick lawyers and lobbyists on an hourly basis which we can slip in to the system as secondees to write and draft the tax laws to create loopholes where we get to avoid making our contribution towards the infrastructure systems we all depend upon. We don’t have access to get sweetheart deals with a regulator and tax authorities who have been captured and are in our back pockets.
We, the majority of”hardworking taxpayers” ARE FORCED to pay more for the fact that these entities are taking the piss and feeloading. We are subsidising them every which way and are seeing their freeloading on our infastructure creating a deterioration in the systems which make up that infrastructure to the detriment of the majority. One can see and experience it every waking moment if one bothers to get off ones arse and open ones eyes.
And you know what Pardeep, if everone else tried the same it would be counterproductive. If everyone does not pay their wack the infrastructure deteriorates and breaks down. It ceases to be functional. Shed loads of tax payers money is already shovelled in the direction of these corporate entities in various direct and indirect subsidies from underwriting pension schemes of privatised utilities through to various tax breaks already.
So here’s some advice Pardeep. Don’t keep bleating and whinging on behalf of these parasites as though they are the ones who are hard done by. Because what you are doing on their behalf, whether you realise it or not, whether you accept it or not, is you ARE taking the piss. You are insulting the intelligence of those who have no choice but to subsidise these freeloaders on our systems because, unlike those such as Google et al, the majority of “hardworking taxpayers” have no other choices and are not operating on a level playing field.
What you are supporting is the antithesis of capitalism where, in the field of tax, there is unfair competition between taxpaying entities. You are essentially arguing for the continuation of a monopoly, a cartel in which competition is not free and open because one group has written the rules to suit itself. You are arguing against the rule of the law you hang your hat on because the rule of law is based on equality before the law, a level playing field for all entities. That level playing field does not exist in this regard.
You have made a very public choice here. You have chosen the freeloaders over the “hardworking taxpayers.” You really need to sit down and think a great deal harder about that choice.
Hi Dave
You seem to be saying that a French company, with French infrastructure supported by French taxpayers, with French employees who have French children being schooled in French schools, with families supported by French hospitals, French police and so on should not pay tax in the UK just because their customer happens to live there.
This is good as international law supports this.
To say otherwise would suggest that. for example, A UK company should be paying profits on tax if it exports goods to Monaco, a country that has contributed not a single penny to the UK infrastructure.
Thank you Dave
Andrew
Andrew
I find people like you very tedious
We all know that at present exporters do not pay tax in the poiint of destination (barring VAT)
BUT yoiu also know you are being disingenuous. Google ads in the UK are negotiated in the UKL with UK customers, published on a UK web site, alrgely managed by UK staff and get value from clicks by UK IT users
You know that
So stop claiming anyhting else
I have no problem with a part of the resulting revenue being used to pay for IP
I take great ioffence at the pretence there is no revenue here
And at the apoloigists for that claim
Richard
Don’t you just love the smell of sophistry in the morning.
If the infrastructure required to operate within a geographical space is used and accessed and utilised than an appropriate level of tax is due. That’s how everyone else has to operate. There are some companies, no names no pack drill, who arrange so they don’t even pay the due VAT.
Al Capone must be spinning in his grave cursing his luck and asking why such people were not around to leap to his defence when he was fiddling his tax.
If I were you Andy I’d get down to the chemists pronto for a tube of gorm as you are clearly lacking in it.
Richard,
I genuinely don’t understand your initial comment. What are principles of pure capitalism that are being perverted, and in what way?
If you think that Adam Smith would have believed this was capitalism I think you are very wrong
I believe Adam Smith died in 1790 and that there has been much development in the theory of capitalism since then.
Can you answer Will’s question with reference to modern theories of capitalism?
He has asked which principles of capitalism are being perverted and in what way. Reference to what a long dead writer may (or may not) have believed is not an answer.
But apparently long dead theories of permanent establishment are just fine
I haven’t studied Adam Smith diligently. Did he identify areas which are out of bounds to the market (such as tax advice)?
I really do not think he and David Ricardo would have ever considered regulatory abuse should be a basis for comparative advantage
“He has asked which principles of capitalism are being perverted and in what way.”
See above, 10:55 am 11.02.16. Penultimate paragraph.
Addendum:
Actually the question as framed by Will was
“What are [the] principles of PURE capitalism that are being perverted,…”
Given that Smith is touted, if not regarded, as providing the original blueprint for the description of pure capitalism the use of his name in response to such a question, as phrased, seems reasonable enough.
Only a committed sophist would try to rephrase someone else’s question outside of the original meaning, effectively distorting that meaning. If someone has a specific question it seems reasonable to observe they should at least have the common courtesy and honesty to ask it themselves, under their own handle, rather than piggy back/hide behind someone else’s totally different question by distorting the original question beyond the meaning of the words and combinations of words used in that original question.
Capitalism has no principles – just like war has no principles.
There are rules, guidelines and laws to supposedly moderate and control the conduct of capitalists – but ultimately there is only one rule that of kill or be killed.
Capitalism is in my view just an extension of all the other social and political ‘isms that have preceded it. It is at heart just another system of social order and control.
If I have a castle and some land and some serfs to do the work and provide with a comfortable life, steady income, rising wealth and prestige then nobody is going to take it away from me without a huge fight. I’ll rig the game as much as I possibly can in my favour to try to hold onto what I’ve got for me and my offsprings and my fellow friendly castle and landowners for as long as we possibly can.
And if someone comes along with a new and bigger and better weapon, a bigger army or a smart new way to organise things that threaten my existence, power and control – that’s a real threat which must firstly be thwarted but then captured and used to boost my own wealth, power and control even more.
It’s a game that has been going on since we dropped out of the trees and started to walk (infact even before as the big apes still show today). Until we realise that actually we have the ability to reach beyond our animal instincts and be something better, the game will continue.
But the stakes are getting bigger and bigger, the risks have for sometime now been existential. And for that reason if nothing else capitalism has run its course and nation states need to re-think their integral relationship with it.
Many of us have long suspected this to be happening, but evidence has been difficult to find. My research unpicks the evidence, mostly from publicly available sources, and shows the deep contradictions and hypocrisy of the firm’s pronouncements. Far too little research has been done on the ‘processes’ of regulatory arbitrage and the ways in which ‘regulation’ is managed and circumvented by giant professional firms and their skills and global networks. I hope this research encourages others to dig deeply, to gather more evidence and to expose the wrongdoing in the name of ethics and professionalism. I could not believe that there is no rule or limit for entertainment or gifts by clients to their staff. At Handelsbanken, if a manager is treated to a meal costing more than £50, it has to be either refused or recorded. Gifts from clients are strictly prohibited.
Atul.
I read your paper yesterday and fully appreciate how much work went into the research, having myself looked at the role of management and IT consultancies in influencing “E-Governemnt” policy through the early 2000s. As you found, very few people want to talk about this kind of capture, control and corruption of the intended purpose and outcomes of policy. Instead the myth has to be maintained that what is going on is even-handed and in the public interest, and, as you point out, ultimately “professional” when in fact it is far from that, and many, many, people know that but can’t or won’t do anything about it.
Indeed, for the past decade I have taught postgrad students from across many public and private sector organisations and I can confidently say that a constant theme that emerges from the assignments and research theses I see is the exploitation and undermining of public services (or what were deemed public services – eg, probabation and prison) by commercial enterprises. And that doesn’t alter regardless of whether we are talking about the building of an aircraft carrier (I had a student who was a naval architect involved in this project and the information he provided on the ripping off of that project by contractors would make most people’s hair curl) or the inspections carried out by CQC.
Ultimately what we now have is a system of government, public administration (which includes regulation) and public service that is designed to manufacture and deliver private profit at the expense of anything that’s in the public interest. In essence it’s no different to the corruption that appears to be a feature of government in developing countries, it’s just very cleverly hidden behind complicit politicians and ministers, warm words and a whole range of myths that have been constructed to support the “private good, public bad” meme.
Anyway, good on you for getting stuck into another aspect of this pile of stink.
Ian,
Not only are there people who do not want to talk about it there are people, no names or pack drill as they are easily identifiable, who actively go out of their way to deny this context and pretend it does not exist. Seeking, as the sophists that they clearly are, to argue the terminological inexactidude that it is in fact those gaming the system and writing the rules and paying the politicians and offering lucrative deals to individual policy makers, public servants, and poltical parties, who are the ones who are hard done by.
These Grima Wormtongues acting as shrills for the freeloaders are as big a parasite on society as the freeloaders on whose behalf they troll.
Thanks Ivan it’s interesting that young people and mature students pursue this research but most academics are silent. It must be because its difficult to get grants for such research or publish them in journals like the Harvard Pro-business Review or the a outstanding Academy of Management Review where theory rules and the real world is irrelevant. In my class the students get riveted when I say their experiences of finance are real and they should not allow experts to con them with their sophistry. They get empowered and engaged. I say Finance is Fiction and truth lies in human cultures and relationships.
Richard,
Wasn’t this exactly why Adam Smith considered democracy unworkable? Because Parliament inevitably is corrupted by special interests?
Do you have an alternative?
I would refer you to Winston Churchill in the subject of democracy
Quite so. A bit like capitalism, you might say.
You might
But I need not agree
I am not certain of many things (someone famous once said if you’re not confused you’re not thinking?), but I am fairly certain that there has never been any example of PURE capitalism or PURE democracy as both require the absence of human beings who tend to screw up every social theory every invented.
As all these terms would need an army of theorists to debate for many years and still not come up with an agreed definition, it’s probably best to talk about social reality and ignore social theory completely.
David Ricardo is buried just a few hundred yards from my house and I am sure I have heard him laughing in his grave every time I pay him a visit and ask him what on earth has gone wrong.
There is one thing for certain – he knew how to make a few quid on the financial markets, by hook or by crook!
Did you get my long comment expanding on why corporations worry more about beating one another, and why a clear, enforced tax regime is in their interests too? If not, i’ll retype this evening.
If you chose not to publish it, that’s fine. This is your space, and you have every right to keep it free of material you consider boring or offensive. But I am obviously failing to engage you, so I’ll bow out at this point.
FWIW, I think I am on your side. But it’s hard to be sure.
It began with a comment tha alienated me and I lost the will to read it after that
I have always argued about the practices of the Big 4 and seen the inside of them.
But imagine a world without them, I can and it’s ugly for reasons I can quote at length but I have to get to work now. I know what the problems are, but I am deeply sceptical of the solutions proposed. There is nothing new under the sun, humans are fallible, it was ever thus, and ever will be.
All it takes is for good men to say nothing
Precisely, Richard. It may be that the world without the Big 4 would still be “ugly”, as Stephen suggests, but let’s at the very least be brave enough to admit what’s really going on here and have a debate about the alternatives. Instead we are left with scandals such as this that I read about in the most recent Private Eye (1411).
Presumably in an effort to try to save money – as per the instructions of our increasingly deluded Chancellor – the care Quality Commission (CQC) outsourced its “experts by experience” inspection regime to Remploy (yes, that Remploy who are now largely owned by a US company, Maximus). The people with experience , usually older or disabled people who work alongside inspectors on care home visits, were then told that their pay would be cut from £17 an hour to £8.25.
This did not go down well, of course, and so to head off the mass departure of “experts by experience” Remploy agreed to taper the reductions in pay: the reduction would be £15 for the first six months, then £12.50 for at least the next six, until the new, low hourly rate was reached.
However – and this is the part that illustrates the extent to which public sector organisations are routinely fleeced (often with the connivance of their own staff) in the new world of commercialism – who will cover the cost of this taper arrangement? Surprise, surprise, as Private Eye reports, not Remploy but the CQC!!! As PE concludes:’So, it’s trebles all round for Maximus, while the “experts by experience” programme goes into meltdown.’
The questions this kind of arrangement raises are many and various, and some of them deeply concerning to anyone who believes public services should first and foremost function in the public interest. Were the CQC party to the fact that people employed on their much vaunted inspection programme were about to see their wages almost cut in half (presumably forcing a fair number of them to have to claim in work benefits from the state)? And, if they were, what thought was put into the impact this would have on these people and the programme in general? Because what it looks like is yet another example of the outsourcing of a public service with very little, if any, thought put into the outcome, other than on paper it might appear to save money.
Ultimately, this is just another example – now of many hundreds – of changes in public service and policy that appear to deliver a short time financial saving, but will in the medium and longer term cost the majority of the people of the UK a great deal more, not simply in money, but misery, cruelty and suffering, creating a far less civilised and more divided society in the process. Unfortunately by then the majority of those responsible for the rape and pillage of the public sphere in pursuit of entirely ideological ends will have departed to very comfortable lives denied to many, many millions, content in the knowledge that ideologically and politically and for their fellow members of the elite, they did “the right thing”.
Ivan – that is the outsourcing model that is repeated every time. It is very similar to the wave of corporate asset stripping of the late 20th century. There are after all only so many ways to skin a cat!
Let the accountants run a slide rule over the organisations accounts, identify the high paid employees and under valued/high value physical assets, strip out the fat (in this case the elderly experienced but high paid & benefit employees), relocate to lower cost regions in the UK or elsewhere, sell off the now unused physical assets, pay a small number of people at the top huge salaries to make sure they have enough carrots to undertake this madness, set up a tax efficient corporate structure, put your profits in a tax haven then go sip a long cool drink on your mega yacht while you look for the next corrupt government who will play along with your game.
Now this is not complicated stuff, even to a non-capitalist minded person, so if anyone in government denies they know this is going on they should be called out for what they are – down right liars with their noses firmly in the trough!
Stephen – I understand your dilemma, the fact that you have seen and acknowledge problems is an unsettling reality. So are the choices:
a) There Is No Alternative (the mindset that it’s just human nature after all that greed drives us all – so we should continue to let it loose and run wild no matter what the costs to society as a whole)
b) There is An Alternative (its why families love and care for each other, its why some people devote their lives to things for little or no financial gains, its why many people find private businesses a very uncomfortable place to work because they know they are just a cog in a system that provides few long term rewards)
So the choice is yours, accept your fate or fight for something better!
When will people learn that when you privatise a public company you are creating another mouth to feed from it – the shareholder – who will demand a return and insist on that return growing or else.
And where are those increased returns going to come from?
Answer:
Fewer staff
Less well trained staff
Less pay and conditions (incentives)
Lower quality consumables
Decisions based on cost rather than need.
Excessively paid management
More centralisation
I’m sure I could go on…………
Some good stuff here folks but on the subject of capitalism we need to be wary using the same broad brush strokes to describe it.
I remember a certain type of capitalism that used to think of the welfare of its workers – that well paid, housed and educated workers resulted in a better product and better productivity – take for example Owen’s New Lanarkshire Mills or the John Lewis model or how Cadbury’s used to work. All of these types of capitalism might need to be encouraged.
There is also the worker-owner type capitalism of which exists even in America of all places and should also be actively encouraged. Self owned by the workers and pay and conditions fairly dealt out.
Or the so-called ‘social market-system’ that was said to have existed in say Yugoslavia – where the private sector, unions , communities and banks worked together for shared goals apparently.
I do not see anything wrong with these forms of capitalist production.
It is the mode I’m about to describe below that seems to be the problem.
I recently went to get my lovely American made Ovation guitar set up at my local guitar shop and was told that American production of these fine instruments had been scaled back. I went online to check and saw that as of 2010 Ovation were taken over and although there was now a vey expensive custom shop in America, the factory making even the professional level instruments had now been closed down and manufacture was now taking place in China and other south-east Asian countries (where cheaper lines were already being made). What about American jobs, taxes and communities? Those Ovation guitars made abroad are still being sold at ex made in USA prices. The profit must be huge.
I also use Macpac rucksacks which used to be made in New Zealand. These back packs will outlive me. Not so long ago, 75 New Zealand production jobs were lost as manufacture was moved to China although the head office and marketing is still based in NZ. I don’t think that the new packs are as good as the older ones which still go for good prices on eBay. The move was in order to compete against Berghaus, Lowe alpine – all of whom had moved production to China/South East.
The example of the sort of bad capitalism above is what I’m talking about.
So what we really need to do is tease out the type of dominant capitalism we have now – not just ‘capitalism’ per se.
The sort of bad capitalism I see today is one where profit comes before anything; where the companies purveying it insist on being seen as people and having the rights thereof; where the investor in this form of capitalism has more rights than even the customer/end user of the firms good or services. And now, the capitalists running these firms don’t even think they should be paying taxes! And they also want to patent that which exists in nature simply because they saw it in a microscope first (and even that assertion may be dodgy)! This is the sort of capitalism that does predatory mortgage lending and then sells the unsustainable mortgages on the international investment market as good investments and has never apologised for nearly bringing down the world wide financial system.
Ladies and gentleman, I give you: North America.
So to me it is North American Capitalism that is the problem and has been for a long time. These NACs are now doing to the American people what they did to ethnic Indians who lived there before except rather than using bullets they are using economics as the weapon – they are killing aspiration, justice, fairness, communities – in short – peoples lives. And they are managing to export NAC to other countries.
So to me ‘capitalism’ is not actually the problem; it’s a certain strain of capitalism that I call North American Capitalism (NAC) where the problem is.
That
And rentier capitalism
Yes – fair enough – in fact NAC seems to over-amplify the rentier aspect of the capitalist model.
The rentier class will always go wherever there is an opportunity to capture the market in a good or service. It’s ironic that the American nation was formed in its founders rejection of European rentiers exploitation of the colonies, only to find its high principles were soon replaced by its own home grown rentiers who are now acting on steroids and cocaine (literally in too many cases!)
Ironic?
I’d say it is tragedy – for the Americans and the rest of world.
Read the book ‘The Puritan Gift’ By Kenneth & William Hopper which charts the financialisation of American industry. According to them during the Clinton administration old Bill called in the brilliant industrialist Edward Deming out of retirement to solve the decline of American industry.
Bill didn’t realise (was it because of Monica?) that the industrial ‘decline’ was due to deliberate policies driven by commercial banks and investors to liquidate as many assets of these companies as possible in order to create cash returns.`
Deming was simply ignored but I have read his stuff and I’d defy anyone to tell me that they wouldn’t like to work in a firm ran along his recommendations – either as a manager or a worker.
This is also a very useful and easy to read short paper from 2010, providing an historical overview of the US move from capitalism to financialism (which has been replicated to a great extent in the UK)
The final paragraph is prescient, but seems to have been largely ignored by both US and UK policymakers, which ironically may only hasten the demise of both capitalism and financialism.
“The need to end financialism and restore capitalism is underscored by the special moral role a sound economic system plays in our society. Perhaps the most important benefit of capitalism is its ability to stimulate economic growth, the creation and distribution of wealth, and the sustaining of that wealth over time. Whatever benefits financialism may have, it lacks these essential characteristics. Indeed, as I hope I have at least preliminarily shown, financialism is a system in which the present generation robs future generations of their economic patrimony and national security and thus is intrinsically immoral. We owe to our children, and our children‟s children, the benefits of a system that allowed the United States to become the world‟s most successful and prosperous democracy from its founding until the present. We must destroy
financialism for the sake of capitalism.”
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1655739
Looks interesting: but I have not got much beyond the abstract