Friday, 27 February 2015

The triumph of accountancy

This week, Natalie Bennett, the leader of the UK Green Party, suffered what has been described as a “car crash” interview on the day of the launch of her party’s election campaign. Challenged about the costing of her party’s housing policy, she experienced what she called a “brain fade” and couldn’t answer the questions. I didn’t hear that interview until later, but I did hear two others she gave that day and, frankly, neither of them was impressive when it came to questions about the funding of Green policies.
Naturally enough this provided ample ammunition to critics of the Green Party, but my reaction was to wonder about the way that political debate is now framed almost entirely in terms of accounting: what are the costs of this or that policy and where will the money come from? This is a relatively new development. In the past, political programmes were articulated in terms of broad commitments, principles and ideologies.
This isn’t a nostalgic false memory on my part. I went back and checked the manifesto of the British Conservative Party for the 1979 election. This was the election that brought Margaret Thatcher to power effecting what is agreed by both supporters and critics of Thatcherism to have been a political sea-change. Yet it contains virtually no numbers and nothing in the way of costed policies. I went further back, to Labour’s 1945 manifesto at another sea-change election which created the post-war welfare state. Again, no costing of policies.
It might be argued that this is a good thing, that politicians should make concrete proposals so that they can be held accountable for their delivery, and that policies should be pragmatic. On the accountability point, it is chimerical. Does anyone think that politicians have become more likely to deliver their promises because they were costed? In practice, the earlier costings get forgotten or departure from them is readily explained away by reference to changed circumstances (and perhaps quite reasonably so, again undercutting the case for costings). Actually, this is very similar to the way that public sector management has in recent years been configured in terms of accountability, with more and more information (league tables etc.) being produced in order to give taxpayers and ‘customers’ re-assurance. Yet, at the same time, trust in public institutions has nose-dived.
On the pragmatism point, the problem is that what it validates is a stultifying small-c conservatism. The journalist Zoe Williams wrote an interesting article on Bennett’s interview, where she says:
“We have lost faith in any of the large available understandings of how structural change takes place in history,” the philosopher Roberto Unger said in a recent lecture in London “and as a result we fall back on a bastardised conception of political realism, namely that a proposal is realistic to the extent that it approaches what already exists.” This is the whole of British politics encapsulated in two lines: unless a policy looks exactly like what the mainstream parties are suggesting; unless it can be funded by minor tootling on existing tax instruments (and even that will be called a “raid”); unless it will leave the fundamental structures totally unperturbed – then it is the most outlandish idea that anybody has ever heard.
This is really the key point. By focussing on narrow issues of accounting, wider issues of over-arching principle are not just avoided but stigmatised and rendered illegitimate. One interesting aspect of this is that it reflects the complex, schizophrenic way that the language of politics and of business have intermingled. On the one hand, we have a discourse about ‘visionary leaders’ who charismatically inspire us with broad brush stories about where we, as organizations or societies, are going. Not for them mundane, prosaic budget spreadsheets. On the other hand, we have the ‘no such thing as a free lunch’ accountants, poring over the last penny of expenditure and the detailed cost-benefit calculus of every decision. In politics, leaders who lack the requisite charisma are seen as not looking like prime minister material but if they try to articulate a vision of a better society they are eviscerated for not having done the sums. Somehow, politics manages to fall into two traps: those of individualised charismatic leadership and bloodless accountancy. What gets lost is the sense, present in both the 1945 and 1979 manifestos (albeit in very different ways), of a collective project to re-imagine society, with the sums being left to take care of themselves.
None of which is to say that Natalie Bennett did a good job in those interviews, just that her mistake was to try (and fail) to answer the questions within the terms they were put, rather than to challenge their underlying premise. In that respect, at least, she might take a lesson from Nigel Farage, leader of the anti-immigration party UKIP. When challenged on the dire economic consequences of his policies he said that these mattered less than the principle of controlling immigration. Readers of this blog will be aware that I am by no means a fan ofUKIP, but the idea that politics should be about big discussions of the shape of society is surely right.

Friday, 13 February 2015

Taxing times

Tax evasion, by both individuals and corporations, is the story of the moment, and it’s a global one. In Australia, the Tax Justice Network estimates corporate tax avoidance (we’ll come on to the evasion/avoidance distinction shortly) by the top 200 companies at Aus$8.4bn, prompting a Senate inquiry. The same thing is happening in China, especially as regards the tax location of multinationals. Meanwhile, in Greece, clamping down on tax avoidance and evasion is a core plank of the new Syriza government. Whilst in the UK there has been a huge row this week about the activities of HSBC’s Swiss subsidiary in promoting tax avoidance.
The figures involved here are eye-watering. According to a 2011 estimate, globally tax evasion amounts to $3.1trillion or 5% of global GDP. This matters for all sorts of reasons, but most obviously because of the context of government deficits, which of course represent the difference between what governments spend and what they take in tax. It is these deficits that drive the case for the Austerity economics that characterises the fiscal policies of many countries. Such policies proceed on the basis that the problem is excessive expenditure, when what really drives deficits (apart from the cost of rescuing failing banks) is the erosion of the tax base in many countries.
As an adjunct to that, it is also remarkable how political discourse has prioritised cracking down on welfare fraud ahead of cracking down on tax evasion and avoidance. I give some figures for this, as regards the UK, in the book (p.118), but to update them – for 2012/13 HMRC, the UK tax authority, says that there was £1.2bn of fraudulent welfare claims but £4.1bn of tax evasion and £3.1bn of tax avoidance.
So what about this issue of tax evasion versus tax avoidance? In the book (p.128n5) I offer the standard distinction – that avoidance is legal and evasion illegal. But that is extremely simplistic. What is legal and what is not, within complex tax regimes, is always a matter of interpretation and negotiation, not an iron-clad line. HMRC eschews a definition but offers some ‘signposts’, reflecting the haziness of the concept.
One of those accused of tax avoidance this week in the UK – the splendidly named hedge fund plutocrat Lord Fink - opined that ‘everyone does it’. What he meant is not clear, but on internet discussion board the frequently made point is that many ordinary people make use of tax-exempt savings accounts (called ISAs in the UK) and so in this sense are tax avoiders. This of course is nonsense. Such tax accounts were created by government legislation to encourage saving, and account holders are using them for the purpose intended. Tax avoidance means finding ways, legal in themselves, to exploit tax advantages unintended by lawmakers. Now that is a hazy area – for who can say for sure what those intentions were – but it certainly is not hazy with respect to ISAs because they were explicitly set up as a tax free route to saving. Similarly, charitable gifts in the UK are tax exempt so that the beneficiary can receive the basic rate tax and the donor the balance of any higher rate tax. Again, exactly as designed. It is pure sophistry to call such things tax avoidance.
This issue of tax feeds into many others I’ve discussed on this blog, especially inequality. Within these, one fundamental issue is how economic globalization has not been accompanied by a globalization of politics and regulation. This disjuncture appears in debates about labour standards, immigration and, indeed, tax. In relation to immigration, I’ve written about the contrast of cosmopolitans and locals, and this can be seen in the tax debate, too. Cosmopolitans like Lord Fink see tax avoidance as just what everyone does, reflecting a world of trust funds a million miles away from that of locals. Similarly, there is a temptation to see privilege in local terms – posh judges and snooty civil servants – rather than those of global financial elites.
In the current debates about tax evasion and avoidance there is a moment of possibility – I don’t put it higher than that – of enacting a more realistic conversation about global governance and of the irredeemable interconnection between national polities and the global economy. Meanwhile, in a little-reported move, in Croatia the poorest have had a debt write-off – a local solution to a global issue which some economists, such as the Australian Steve Keen, see as the only way forward: the idea of a ‘debt jubilee’. Now that, truly, would be something that everyone does.

Monday, 2 February 2015

What will become of the middle class?

It seems clear that we live in an age of growing inequality, as a recent BBC analysis showed. And this inequality has a particular shape to it, because its prime feature is the evisceration of the middle class. It arises from the process of globalization which, in its early phases, most obviously threatened the working classes, exposed to international competition for labour. Now, across the developed world, the middle classes feel the squeeze: the middle class is turning proletarian.
Although seen as a recent phenomenon, the roots of this lie in the corporate restructurings that started in the 1980s. Then, it was just organizational theorists who noticed how middle management was being transformed. Charles Heckscher’s excellent book White Collar Blues (New York: Basic Books, 1995) summed it up well: “The downsizing trend has begun to erase the key distinction between managers and workers: for the first time managers are being treated as a variable cost rather than a part of the fixed based” (Heckscher, 1995, p. 4).
The basic deal for the middle-classes has now disappeared: do well in state-funded education, enter the corporate hierarchy, have a job for life and draw a pension. With it has disappeared the middle-class dream, a dream that was primarily organizational, because these benefits mainly flowed from the workplace. But it is not just that. Current analysis of this issue invariably focusses on salaries and wealth distribution, but the malaise of the middle class runs much deeper than this. The neo-liberalization of the public sector (for which, it should be noted, many in the middle class voted) has dramatically undermined the security that the middle class took for granted. For example when I was young a part of the middle class deal was that their children would be able to go to university without paying fees, a doctor would visit them at home if ill, their daily commute to work would be subsidised, and their ageing parents would have state-funded care homes. Now, all of that has disappeared. And not to equalise things between middle and working classes but because of a massive transfer of wealth to a tiny minority.
It used to be a cliché that any undergraduate history essay could safely include reference to ‘the rising middle class’ and in any period it would, indeed, be a relevant factor. Not so for the present period, and how will this play out? The answer is unpredictable, but will probably be to feed political extremism at both ends of the spectrum and, especially, scapegoating of ‘demonized others’ – immigrants and those on welfare being the most obvious targets.