Even Conservatives are concerned about capricious capital

Former Conservative MP turned columnist and broadcaster Matthew Parris has been expressing his concerns about capitalism. He was in gloomy mood in one of his first Times columns of 2016. He kicked off by disclaiming any economic expertise and by admitting to an inner fear that something terrible is going to happen.

He listed the three main measures used to deal with the 2008 crisis – namely, quantitative easing, cutting interest rates and, crucially, cutting government spending.

He endorsed only the third of these measures as likely to be effective. He then outlined his fears about a likely collapse in property values, had a dig at Gordon Brown over his absurd claim to have abolished boom and bust, and expressed the view that our economic prospects are shaky.

So far, so apocalyptic and dyspeptic.

“Capital, as soon as it finds itself subject to legal control at one point, compensates itself all the more recklessly at other points.”

Karl Marx

“Either poverty must use democracy to destroy the power of property or property in fear of poverty will destroy democracy.”

Nye Bevan, Why not trust the Tories?

“Many things were wrong, but five weaknesses seem to have had an especially intimate bearing on the ensuing disaster. The first weakness was: “The bad distribution of income. In 1929 the rich were indubitably rich. It seems certain that the five per cent of the population with the highest incomes in that year received approximately one third of all personal income.”

JK Galbraith, The Great Crash

Parris returned to his theme in his Times column of January 23. He observed that the typical CEO makes 183 times more than their average employee. In 1998, this was a mere 47 times more. So, a situation which was morally indefensible back in 1998 has worsened significantly in the intervening years. Parris then listed “the classical defences of the status quo”.

(i) The high earners are worth their high earnings. Parris shot down this point in the same short paragraph as he mentioned it.

(ii) In a market economy the rate, for the job is the market value, and that goes for the top earners and it applies to those at the bottom.

This is simply a tautology.

(iii) Next, a baffling argument put forward with some diffidence “Earning 20 times as much as the next guy isn’t the same as living 20 times as well as the next guy.”

(iv) Under capitalism and over the longer term, most people have got much richer.

Parris grasped that he was struggling to square his beliefs with his explanations. But to make matters worse, he ended on a plaintive note: “Something must be done” – a phrase borrowed from that great social reformer, King Edward VIII during a visit to the depressed valleys of South Wales in the 1930s.

The views of Times readers on the Parris column as they appeared on the letters page on January 25, 2016.

  • From Heather Roderick: “Something has to be done about this iniquitous situation but what?”
  • From Judith A Daniels: “The wealthy man could buy the entire stock of shirts in every hue from Primark but the poor man would not have the luxury of choice.”
  • From John T Pounder: “Matthew Parris has a dire grasp of capitalism.”
  • From George Stonier – a statement of the obvious obviously stated – “all the top earners can see the iniquity and of the system, and could refuse to participate. But they don’t. Ego and greed are powerful indeed.”

A statement of the obvious.

The Times published a magisterial piece by its economics editor, Philip Aldrick, on January 27. His main points were:

* On the slopes of the Swiss ski resort Davos, it was hard to discern that capitalism was in crisis.

* However, business knows that the days of the business free-for-all are over, that the free market is no longer a virtue in itself.

* Rail, media and utility companies used to be public institutions. They are now, for the most part, governed by the profit motive which all too often has pitched business against customer.

An ethical approach is the key to restoring confidence in capitalism and Aldrick listed a number of well-known companies said to be working to restore an ethical basis for business to improve its reputation and standing in the wider community

Has he found an escape route, a magic formula to enable capitalism to survive?

“Capitalism was doomed ethically before it was doomed economically a long time ago”

Alexander Solzhenitsyn , Cancer Ward

“A good tree cannot bring forth evil fruit, neither can a corrupt tree bring forth good fruit…. Wherefore by their fruits ye shall know them.”

Sermon on the Mount, Matthew 8, 18

There is no point in lingering over the declared good intentions of some leading business figures. Suffice it to refer to the track record of many, if not most, of those occupying the top jobs in business. The words of Jesus as quoted in St Matthew’s gospel are relevant here, but we can extend the metaphor, more in sorrow than anger, by noting that the top men and women have demonstrated over and over again their skill at stripping all the best fruit from the good trees leaving the rest of us to forage as best we can from the leftovers.

Capitalism does indeed face a shaky future if it relies on a surge of Pauline conversions on the part of those now in the top jobs and headed not for Damascus but Davos.

But capitalism, the private ownership of the means of production, distribution and exchange, is most certainly not in retreat across the world. In recent years state, ownership has been replaced by private ownership throughout much of the former Soviet Union, much of China, and in much of the developing world. There are no indications that this global trend is likely to be reversed.

What we have today around the world is a spectrum of degrees of capitalism in which the United States remains fiercely committed to a minimal role for the state, in which most of Western Europe is broadly capitalist, but more relaxed than is the US about European Union involvement and intervention in economic and social issues, and China where state-owned enterprises co-exist with private ownership.

Accordingly, capitalism, far from failing, is more and more becoming the orthodox economic arrangement of choice, and that the policy of the left ought to be to develop policies to civilise and control capitalism, and to soften, in some cases to a considerable extent, the anti-social consequences of unbridled and unregulated capitalism.

Effective measures are available to do this, and while they measures might not meet with approval of Lenin and Trotsky, they have the virtue of simplicity, ease of implementation and crucially, are likely to be viewed with sympathy, and even endorsed by the majority.

Those in the tiny group currently earning 183 times the average might dissent, but a sustained appeal to their better natures would solve that minor difficulty.

Otherwise: “If you have them by the balls, their hearts and minds will follow.” This unseemly aphorism was said to have been originated with Charles “Chuck” Colson, an ardent supporter of Richard Nixon. Nixon would have warmly approved of the sentiments.

  • First, introduce a steeply progressive tax rate for those at the top end of the reward spectrum in order to make the point to the looters that their looting days are numbered.
  • Second, bring in a steeply progressive tax rate on pensions for those at the top end of the pensions spectrum.
  • Third, review the case to reverse Tory plans to raise the inheritance tax threshold.
  • Fourth, review the case to bring in a steeply progressive property tax with the objective of returning the wealth fortuitously acquired back to the community.
  • Ensure that demonstrably poor performance in senior jobs is followed by the prompt issue of a P45. The widespread practice whereby failure must be stopped.
  • Sixth, ensure that tax laws and tax rules are stripped of the notorious ambiguity which serves to make nice work for tax lawyers, and enables the rich to flout the intentions behind those laws and the rules.
  • Seventh, curb the activities of the vultures now circling ominously above the vulnerable holders of cash withdrawn from pension funds.
  • And eighth, make it clear a Labour government would take all possible steps to end the dash for cash performed tirelessly and by those in a position to do so.

HMRC: a suitable case for treatment

The performance of HM Revenue and Customs before and after the 2008 crisis and has been notably shaky. This has been especially pronounced in the dealings between HMRC and the senior managers of major private sector organisations as attempts were made to resolve a complex variety of company taxation issues.

At one stage, HMRC was led by Dave Hartnett. His modus operandi of choice was to allow those suspected of tax avoidance/evasion to wine him and dine him. At some stage during the proceedings a settlement figure would be agreed between the two parties – a figure that was thought to verge on generous by the cynical.

Hartnett was followed by Lin Homer. She stayed long enough at HMRC to be made a Dame of the British Empire and then, disconcerted by the tsunami of abuse that followed her elevation, hastily called it a day.

Some cynics have suggested that she was unaware of concerns about her suitability for the task because members of the public seeking to contact her by phone to make this point faced painfully protracted delays in getting through.

It is clear that no policy designed to curb the excesses of the top earners will succeed without first taking robust steps to sort out HMRC. Scarcely a week goes by without yet another scandal being unearthed by the media, usually highlighting not only the pay gap but also between the effectiveness of tax collection for the great majority and the ineffectiveness of it for those at the top.

Their reluctance to pay their taxes is understandable. What is rather less clear is why their collective reluctance is so tolerated by HMRC.

Those who thought that matters regarding the setting and collection of taxes would improve with the departure of Lin Homer were mistaken. The media were still complaining about George Osborne as a breakthrough, between HMRC and Google. Google had generously agreed to pay a rate well below the tax rate levied on businesses.

The Chancellor was premature in his euphoria. His spin-doctors may still be working overtime to extricate him from the fiasco.

Tax rates and the various exemptions and allowances are set by central government It is the job of HMRC to collect the taxes as per the requirements of the government of the day.

When is the present Government going to get this right by simplifying the complex rules, most of which appear to have drafted by advisors to the affluent so as to contain the maximum of ambiguity?

It would be prudent for Jeremy Corbyn and Labour to set up a tax policy review with the twin remit of simplifying the tax system and of using it remedy the failures of capitalism.

We need tightly regulated capitalism flourishing to benefit all of us rather than the greedy few at the top.

A major measure to improve matters would be the setting up of a system for the setting and collection of taxes seen to simple, transparent and fair.

Tax payments must be seen not as optional but mandatory.

Given that effective competition is rightly seen as the engine of capitalism, we need the renationalisation of those sectors currently operated by private monopolies and oligopolies.

A draconian tax structure should be introduced to encourage senior business managers to concentrate on their job performance rather than on  opportunities to maximise their remuneration.

Matthew Parris has initiated a valuable debate about issues that are central to the message and direction of all political parties and Labour in particular.

We must hope that his concerns are assuaged by the implementation of effective measures to control and discourage the greedy while simultaneously enabling the honest and honourable both to create wealth and enjoy wealth.

This article was first published in Tribune on April 5, 2016

Image courtesy of LinkedIn.com


Author: holdenforth

50 years in management - mostly as a sharp-end man. Occasional contributor to Tribune.

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