Corruption

A large guy east a pile of money while the small guy has next to nothing

Why is such a broken system in place and why is it not getting changed? Simple -because it is systemically corrupt…

We are hearing more these days about corruption within our banks, media and politics and this is just the tip of the iceberg.  Corruption is now systemically organised through the use of tax havens. Wealth is massively concentrated into the hands of the “1%” of people who own 57% of resources (this is discussed further in Distribution). Of this 1%, about 0.01% are the billionaires. Many of the rest have been termed “the pin stripe mafia” (of lawyers, financiers, accountants, etc) who are well remunerated to keep the system working for the 0.01%, allowing them to cream off obscene profits. (Susan George has called these folks The Davos Class).

Such inequality is fundamentally corrupting and rich companies and people buy themselves further advantage. These two quotes illustrate this well:

Nye Bevan:
“Poverty, great wealth and democracy are ultimately incompatible elements in any society.”

John Christensen (Tax Justice Network):
“Remember the Golden Rule: those with the gold make the rules.”

Corruption is important to understand for two reasons:

  • It clarifies how things have become so unequal – the system is self-serving.
  • It clarifies why mainstream media and thinking barely touch upon embedded  issues (and when they have to, they are generally approached as “dealing with the bad apples” rather than dealing with deep systemic problems) – a state of denial reigns, where our institutions are captive to the forces of corruption.

Shock Doctors and where corruption leads to
Naomi Klein’s book The Shock Doctrine is a “must-read” explaining the history and “methodology” behind the domination of a corrupt, neo-liberal system. Change has been forced on many countries, against the people’s will, either in secret, subtly or by brutal force. Those forcing through the change have profited wildly and captured media and political power as a result. The final conclusions of a neo-liberal system are gated communities, with private police forces for the very wealthy and grinding poverty for the rest.

Secrecy Jurisdictions – Tax Havens
Secrecy Jurisdictions (commonly known as tax havens and sometimes referred to as “offshore”) are places where:

  • You can hide what you are doing- they deeply lack transparency
  • There is little or no regulation of activities (or no serious attempt at compliance with what regulation exists)
  • Taxes are very low – so they facilitate tax avoidance in the countries where taxes are due. (Tax avoidance, by definition is legal, but against the spirit of the law. Tax evasion, is illegal – the lines between the two have to be decided in a court and there are thousands of cases waiting to be heard).

So, in a secrecy jurisdiction you can get up to no good, with no hindrance and people can’t find out what you are doing, then you pay very little tax on the profits you make!

There are around 80 Secrecy Jurisdictions in the world.  They are a core feature of contemporary capitalism: half of all world trade passes through them, so they are not just an exotic sideshow). They played a major enabling role in the financial crisis, by facilitating bad practices. The City of London is a major tax haven, sitting at the centre of a global web of satellite tax havens, such as Jersey and the British Virgin Islands.

Tax havens:

  • Hold between £13 and £20 Trillion of assets, excluding yachts and property ($21- $32trn: note that if you stacked dollar bills on top of one another, 4 trillion of them would reach the moon! Global annual economic product is estimated to be $63 trillion)
  • Are the supply side of corruption, used by dictators and to facilitate bribes (we, as suppliers, have enabled much of the corruption in developing countries which holds them back).
  • Allow (along with other tax avoidance and delay mechanisms) £120 billion of unpaid taxes in the UK annually almost enough to wipe out our deficit in one go and certainly making the politically motivated cuts unnecessary. (For comparison, taxes paid in the UK (tax receipts) 2011/12 were £548bn UK budget deficit in 2012: £170bn )
  • Facilitate illegal arms trading, market rigging, insider trading, bribery, drugs and human trafficking, illicit political donations, terrorism, tax evasion
  • Poverty: for every £1 in aid given to a developing country, that country loses at least £10 via tax havens. Natural resources in developing countries (which make them rich in principle) are plundered by multi-nationals and corrupt officials, who set up businesses based on secret (some get leaked), deeply unjust, “stabilisation clauses”, to set the conditions for their exploitation. Bribes, run through tax havens, get these clauses through without any public consultation.

Tax havens can be tackled – the Tax Justice Network has a comprehensive set of proposals to do this. What’s lacking is the political will. This should come as no surprise. For example, UK Prime Minister David Cameron’s family wealth was made offshore and UK Chancellor George Osborne avoided £1.6million in inheritance tax by going offshore.

Vested Interests vs. democracy
The concentration of wealth (therefore power) into the hands of the 1% allows a whole set of people and institutions to pay lip service to democracy, to create a different set of rules for themselves and to manipulate debate and discussion:

  • Tax havens are used to make illicit political donations.
  • There are 4000 people working professionally in the UK’s £2billion lobbying industry.
  • Tax rules are being decided by a committee dominated by Corporate Heads of Tax.
  • US figures show that for every $1 spent on lobbying a company can expect $100 return, so this is a tactical investment.
  • In the US, the “dirty 30” most aggressive tax avoiding companies donated $41m in the four most recent elections to 98% of all members of Congress. These companies collectively received $10.6 billion in tax rebates from 2008 through 2010.
  • Wealthy donors shape the focus of think-tanks and academic institutions
  • The media is dominated by vested interests. For example, it recently emerged that Murdoch and Thatcher met and agreed there would be no review by the Monopolies and Merger Commission, as he bought up the Times. They denied this at the time.
  • MP’s are given paid Directorships in companies, after they have finished their work in Government
  • 23 of the 29 members of the UK Cabinet are millionaires (going under the moto “we are all in this together”. Hmmm…)
  • Banks have been serial offenders in corrupt practices for many years (libor fixing and money laundering are recent news). Prem Sikka gives a brief overview here.
  • Banks have been caught doing the same illegal things dozens of times.  Each time they apologise and pay the fine: costing only 1% of their profits – “paying to break the rules” is just seen one of the costs of doing business.
  • Vested interests have paid for climate denial and distortion.

The fact of so little reporting on key issues of our day (climate change, species extinction, peak oil, resource depletion and much more) is itself a strong indicator of a corrupt system. Voices from the green/left are seen as extreme in the same way that the far right is given little voice. The idea that market led, neo-liberal, globalised economies are the right and only way to proceed (known as the “Washington Consensus”) dominate our media’s reporting and the offerings from the main political parties. Democracy is totally undermined- we have a “shamocracy”. In fact democracy ought to develop and deepen over time. The end point is not simply ensuring everyone has the vote (which remains to be achieved for young people). Democracy can be deepened and enhanced for example through “liquid democracy“. The strengthening of democracy increases civic participation and community life, which in turns strengthens democracy, in a virtuous circle (with the opposite being true as democracy is eroded).

Why are the forces of Corruption so powerful? Because they control the money, have most of it and keep the rest of us in Debt (we have to pay them interest)… so over to Debt next…

More details:
Treasure Islands, by Nick Shaxson is an excellent read, all about secrecy jurisdictions. Also see http://www.tackletaxhavens.com/ and listen to the excellent monthly “Taxcast” on the latest news about financial secrecy. There are a series of You-tube clips from John Christensen’s (Tax Justice Network) talk in Stroud.

Channel 4 news covered Action Aid research in the UK, showing 98 of the FTSE 100 companies have subsidiaries in tax havens.

To mention it again: Naomi Klein’s book, The Shock Doctrine, is a compelling well-researched piece about the corruptions of the current system.#

The Prostitute State– How Britain’s democracy has been bought, by Donnachadh McCarthy

Anthea Lawson of Global Witness speaks in Ted Talk about corruption in the City of London.

There are many useful papers and reviews on the website for the Association of Accountancy and Business Affairs. See also Prem Sikka’s compelling article on regulatory failures.

Jeffrey Sachs, once seen as the darling of neo-liberal economics, gives an impassioned speech to Occupy Wall Street (no loud speakers were allowed hence the repetition you will hear) on corruption.

In The Grip of Death by Michael Rowbotham the history of debt based economies (and monetary policy) are reviewed. One school of thought believes that Lincoln was assassinated by financiers, because his monetary policies threatened their status quo.

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