I'm speaking at the launch conference of the Sheffield University Political Economy Research Institute today. My theme is The Courageous State and the right to tax.
I argued why the state has the right to tax on this blog last week. I won't repeat that in detail now now: suffice to say that the state's right to tax is a property right, and one it has a right to enforce. The difference in the case of the right to tax is that this property right belongs to the state, which is actually the foundation for and protector of all other property rights since all are based on law created by the state. That makes it a superior right that means all other such rights are conditional on tax having been paid.
Implicitly we know this. Even those who abuse tax know this. Most of all those now seeking to capture the state for private gain know this and given that the entire Conservative government programme is dedicated to the aim of capturing the state for private gain this is important.
Take one example in the form of banks. Bankers now know that whatever risk they take they will be bailed out with impunity. They have captured the capacity of the state to tax for private gain.
So have G4S. They'll suffer a £50 million loss on their Olympics failure, but that still leaves them with £234 million of revenue on a contract on which it looks like they have failed, spectacularly.
Take railways. The First Group handed back its Great Western franchise to avoid losses but is now a lead bidder for the West Coast route. You couldn't make it up if it was not true.
The whole of PFI is based on this premise.
All these are exercises in capturing the state for private gain. The right to tax is being exploited for profit by a tiny elite who have given up thinking about how business can innovate and service customers to make profit to concentrate instead on pillaging much easier pickings based on the right of the state to charge tax, which right has been corrupted by what I call cowardly politicians who run away from their duty to the state to service the interests of their friends in big business, where in due course those politicians will, no doubt, be fatly rewarded.
This is a definition of corruption, of course. Indeed, in developing countries that is exactly what we would call it. It fits perfectly into Transparency International's definition of corruption in those places.
It is what we also need to call it here. Instead we give it the term moral hazard, but that is far too kind. Let's name it for what it is. It is theft of the state's property right that should be exercised for the common good through the power of parliament for the enrichment of a tiny minority. And when that happens the future of the state is in jeopardy.
We need to take that seriously
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I suppose the newest property rights created and enforced by the state are intellectual property rights. Isn’t it ironic that they can be used to avoid the taxes that pay for enforcing them?
I couldn’t agree more. “Moral Hazard” is not a phrase I had ever come across till I started trying to learn something of economics: it does not exist anywhere else. Generally if we don’t have phrase it is because we don’t need it. In this case we don’t need it for precisely the reason you give: we all have perfectly good words to identify and describe the phenomenon
And according to a scathing US Senate report…. A “pervasively polluted” culture at HSBC allowed the bank to act as financier to clients seeking to route shadowy funds from the world’s most dangerous and secretive corners, including Mexico, Iran, the Cayman Islands, Saudi Arabia and Syria,
Just wait for the lid to be taken off the cess pits that are Jersey,Guernsey and the Isle of Man where almost every bank in the world has dodgy shenanigans going on – with the full support of their equally dodgy island “governments”.
The stink is growing ….
The thing to stop the corruption , is the need to reinstate the Glass – Steagall act 1933 if we look at history Churchill begged America for help because Britian was skint lol, now were almost bankrupt again and I think some higher up Parlimant members have called for this again , the monetary system is now dead so the need for a credit system will have to be introduced or could be, there is no doubt that the banking system was just a criminal gang who ripped the public off , time to say enough is enough. Thats my thoughts anyway .
let’s not forget the pivotal role played by Whitehall in facilitating this pervasive corruption, and in particular the role of Sir (now Lord) Gus O’Donnell during his long tenure as Cabinet Secretary under Blair, Brown and Cameron. before that, as Permanent Sec in the Treasury, he did the study that recommended the catastrophic merger of Inland Revenue and Customs into the shambolic HMRC. now, I hear Lord O’Donnell is frontrunner to replace Marcus Agius at Barclays …
I seem to recollect that I read that Sarah Brown, wife of Gordon, refused to shake the hand of Gus O’Donnell when they left Downing Street for the last time. Maybe there was a very good reason for this and we are seeing it being played out now in the corrupt behaviour of our elites and it is far from pleasant.
And this is also the week where we find that the US banks have been fined $7.6bn for rigging the credit card charges payable by retailers which are then passed onto customers through higher prices. Although, the fine will be paid onto retailers — who will no doubt not pass the proceeds onto their senior management and shareholders. Strangely enough the UK Government has yet to take similar action here — although those with a knowledge of UK credit card operations are well aware that the cartel operating here is probably even more voracious than in the US.
And we also find that the G20 are concerned that oil traders (not a small proportion of whom work for the oil companies) have been rigging the market for oil. Could they now start to look at what has happened to other commodities as well.
You might expect those on the right who espouse free market economics might be up in arms with regard to how the market gods they worship are being abused and manipulated, but no the silence is almost deafening. Perhaps this is the big lie in which they are all complicit?
I agree with everything you say, until you get start putting forward the role of the State.
By passing a definition of what “The State” is, (my definition is whatever clique is in power),
you have a touching belief that The State can be a dis interested party, innocent in the broad sense, pure, and what have you etc . Have you not studied the French and other revolutions and their utimate demise? By all means beef up State regulation, but it is an imperfect means, because people are imperfect. Tax is a crude instrument anyway, someone always gains, someone always loses.
And that’s a crude argument
But reasonable. G4S only has a £284 million contract because the government agreed to it. There is no reason to believe that the government could not have done a better job if they had tried to do it themselves, but sadly they chose not to. You might ascribe this to laziness on the part of the state, or an inability to organise and focus on detail.
“There is no reason to believe that the government could not have done a better job if they had tried to do it themselves”
But there will be after the Olympics – my guess is that the resouces controlled by the Government will be seen as having done a better job than the non existent security guards provided by G4S and with considerably less notice than G4S.
“Bankers now know that whatever risk they take they will be bailed out with impunity.”
Really? With Bob Diamond’s departure, almost all the senior banks management from the financial crisis have gone, bankers have lost hundreds of millions of value on their shares/share options in the banks and shareholders have been either been wiped out entirely or lost the majority of their investments.
It was not the bankers that were bailed out but the depositors and bondholders that were bailed out, and that was done to protect the entire system and economy. Yes many bankers were taking unacceptable levels of risk in their funding structures, having far less deposits than loans (despite the belief that every loan creates its own deposit), too little capital and taking too much lending risk. But then this was a situation that was being allowed by the Bank of England and by the FSA, who were totally asleep at the wheel. Regulations were very lax and simply not being enforced, virtually no other country would have let Northern Rock and Bradford & Bingley get away with over 50% of their mortgages having no proof of income. Our banking crisis covers a much wider rogues gallery than just the bankers from lying borrowers, fraudualent surveyors right up to the FSA, BOE and the government.
Tom
Are you and industry stooge?
Richard
Tom
“But then this was a situation that was being allowed by the Bank of England and by the FSA”
And where were the senior line manager, middle and junior managers, compliance officers, internal auditors, investment managers investing funds in the banks concerned, external auditors, press commentators, analysts, rating agencies etc. etc. all pointing out that something was going wrong and that the poor ordinary depositors funds were being placed at risk (so that they would need to be bailed out as if it were there fault – I daresay you believe in caveat emptor). Yes the regulators were buying in to the same deregulatory ethos – but there were not a few others who could and have done something to stop the rot earlier. Don’t you appreciate that the financial sector, many of whom are still around and still collecting inflated salaries and bonuses, has to do rather more to accept some responsibility and put its own house in order before seeking to blame others. It is just this attitude that explains why many continue to be treated as pariahs by the general public whio have to pick up the tab.