28 November 2012

(Star)*ucking the Economy

A guest post from the Green Bean Counter aka Rebecca Boden, Professor of Critical Accounting at the University of Roehampton.

Starbucks insinuates itself into the fabric of our lives, branded as everyone’s friendly fellow citizen – a coffee shop with a convivial atmosphere where you can hang out on sofas, or have a business meeting. Starbucks’ image as our ever-present and commercially successful friend is somewhat tarnished by the recent news that it pays virtually no UK corporation tax (the tax on corporate profits) on its 700 or so stores. In the world of accounting that I inhabit this is correct because Starbucks makes virtually no profit. You might think that they're really bad business people after all - but you'd be wrong.

In fact, Starbucks are very good to their shareholders, as they would claim they are legally obliged to be. They also have very good (coffee) bean counters who use two primary tactics to move profits out of the UK and into countries where the tax charge is lower.

First, they buy the coffee they sell to us from themselves. The bit of Starbucks that sells the coffee to other bits is a separate legal entity based in Switzerland. Even though it's selling to itself, it doesn't sell cheaply: the coffee traders make a healthy 20% profit on their transactions with the rest of Starbucks. This increases the expenses of the UK coffee shops, reducing their UK profits. Whilst this makes a big profit appear in the Swiss company, the advantage is that there is a much lower rate of tax on corporate profits there.

All of this is just bookkeeping - the coffee never actually goes near Switzerland, although it is bought and sold through there. Such 'transfer pricing' manoeuvres move money (and, usually, profit) from one country to another by fixing a sale price that has little to do with open markets and everything to do with paying as little tax as possible.

The UK tax authority - Her Majesty's Revenues and Customs - does have powers to tackle transfer pricing by adjusting companies' taxable profits, substituting a fair market (arm's length) price for the selling-to-yourself price. But this is complex and the arguments fraught - companies like Starbucks might argue that they pay over the odds to guarantee security of supply or superior quality. These can be difficult arguments to dislodge because open market prices are inherently subjective.

Second, Starbucks asserts that it is its branding that lets it sell so much coffee. The brand is owned by another Starbucks company - this time based in the Netherlands. This collects profit-reducing royalty payments equivalent to 6% of turnover from the coffee shops and moves them to the Netherlands where, again, they seem to enjoy very favourable tax treatment. Again, this manoeuvre can, in principle, be attacked by HMRC. But you could also have endless, and irresolvable, arguments about the value of a brand in selling a cup of coffee.

Starbucks argues that they do pay over a lot of tax to HMRC. True – but the overwhelming majority of that is not tax on Starbucks but tax which falls on others that it collects on the government’s behalf. This includes the personal income taxes and national insurance contributions payable by employees (which are deducted at source in the UK). Starbucks does also pay national insurance contributions itself in respect of its employees. But it’s important to remember that these pay for workers’ benefits, like pensions or sick pay, and therefore relieve employers’ costs. Then there is Value Added Tax, the final incidence of which falls on the end consumer but which is collected by the seller - Starbucks. And Starbucks does pay fairly minor local property taxes - but this is to provide all of the services like street cleaning etc. that help make Starbucks profitable in the first place, so could really be seen as business costs. Local property taxes are property-related, not profit-related. This puts Starbucks, with its economies of scale, at a significant advantage over more local and smaller-scale businesses which would pay the same taxes for the same premises.

What Starbucks doesn’t pay much, if any, of is tax on is its underlying profit – the profit it would make it its transactions were all at arm’s length rather than to itself. The routing of coffee ownership through Switzerland and the paying of royalties to the Netherlands are mere strokes of the keyboard, yet they create an accounting reality which leads to the entire surplus value of the business being spirited abroad. And the opportunity cost is even greater than the tax loss – the decimation of locally-owned (and therefore locally responsible) business and the creation of clone-town Britain.

27 November 2012

Has Capitalism Been Overthrown?

The general acclaim that greeted the announcement of Mark Carney as the new Governor of the Bank of England immediately roused my suspicions. Surely somebody could have raised a peep of disagreement with the fact that he is the greatest central banker the world has ever seen and second in credentials to only the Messiah himself? What could explain this universal fawning, I wondered, while I listened to the regaling of his impressive cv. My mind stumbled over one crucial fact: he has worked for Goldman Sachs. Carney has worked for the global financial corporation in Tokyo, New York and London.

I have told the sad tale of the takeover of the US Treasury Department by Goldman Sachs in an earlier post: a story that culminates in the move of Tim Geithner from Goldman to the Treasury. This safe pair of hands could cover the hole in my otherwise flawless theory: the fact that Ben Bernanke has not worked for Goldman Sachs. But on the upside Mario Draghi served his time there, before taking over the European Central Bank, serving as vice-chairman between 2002 and 2005. The revolving door between Goldman Sachs and the world's central banks is no secret, providing material for a Bloomberg blog last year. The implications of the fact that global finance is now running national monetary policies across the world receives little critical comment, however.

My own candidate for the job, Professor Richard Werner of Southampton University - the man who invented quantitative easing - was probably not surprised that his phone remained silent yesterday. After all, he has suggested that we allow the bank to produce enough cash to buy back our debts and end the Age of Austerity. Whose political interests would that serve? He is also unfashionably German. As when Sven-Göran Eriksson took over as England manager there were some quaint comments about Carney being the first 'foreign' governor, as though nation-states have any nostalgic import for these masters of money who only really identify with the offshore fantasy island labelled 'Cash' and resembling the Big Rock Candy Mountain for those who can gain access.

Perhaps I am just being naive here. Was there ever a time when capitalism meant a large number of small companies competing for investment capital as well as for customers? Was there ever a time when governments played a role for their citizens rather than being operatives of Central Bank Inc.? (Leo Panitch tells an interesting tale of the state-finance relationship.) In Marx's day the many-tentacled banking machines travelled under the name of Rothschild. Perhaps we should celebrate the democratic widening of the global economy demonstrated by the fact that the bankers governments are serving today are at least not all members of the same family.

24 November 2012

How Big is your Green Stimulus?

Moving on from my earlier post about the green paradox of thrift I have been paying some attention to the discussions about green stimulus. The idea is for the government to either borrow or leverage indirectly private-sector money to be invested in sectors considered 'green'. Since how we define green industry or even the green economy is contested this has been a process subject to considerable lobbying and tendentious argument.

The world leader in terms of green stimulus is Korea, which according to a report from the UN’s Environment Programme update on the Global Green New Deal has sent 79% of its investment money in the direction of green sectors, compared with 34% for China, 18% for France, 13% for Germany and 12% for the USA. Korea plans to invest the equivalent of US$83.6 billion by 2013 including US$44 billion on building energy security and US$22 billion building up its green production sectors. In absolute terms, China’s green stimulus of US$ 218 billion is the largest of the G20 countries: China is investing massively in its railways (48%) and in energy efficient buildings (35%). The investment in Green Keynesianism from the UK is too small to feature in these comparisons.
French energy journalist Yves de Saint Jacob describes how France's traditional commitment to a state industrial policy has been redirected towards apparently green sectors. In sympathy with the tone of this paper he raises the question: 'Is economic revival compatible with sustainable development, or, to turn the problem on its head, perhaps a little cynically, is recession the only effective means of reducing CO2 emissions?' before describing the really significant investments made since Sarkozy's election in 2012. France is investing massively in its rail network and its canals with public finance of €8bn. and the hope of leveraging in more from the private sector. The aim is to emerge from the recession with significant improvements to non-road transport including a new tunnel between Turin and Lyon and a new Seine-Nord canal linking Europe's northern ports to Mediterranean markets. In addition there are significant investments across the country's already impressive TGV network and significant investments in so-called green production sectors: €500m. is being spent on incentives to encourage the development of greener cars, while consumers are being offered €1000 when they trade in their older car (at least ten years old) if they buy a lower-emission replacement. In the construction sector €850 is being spent on refurbishment to improve energy efficiency.

Amongst pro-environmental economists and lobbyists the call has been for a Green New Deal, this time explicitly echoing the largest Keynesian response to the Depression: Roosevelt's New Deal programme of infrastructure investment and job creation. This call began in the UK with the report from the Green New Deal Group that grew out of Colin Hines’s work with the New Economics Foundation. Rather than the flagship-style policies of Sarkozy and Obama, this group focused instead on the urgent need to ensure safe and warm homes for elderly people with energy prices rising rapidly. It was a form of human-scale development approach to Green Keynesianism that would have warmed the cockles of Schumacher's heart as much as the living-rooms of elderly pensioners. From an economic perspective it proposed a triple win: health for the vulnerable, jobs for the workless, and stimulus for the economy. It was almost totally ignored, with the government instead proposing its Green Investment Bank, another example of using public money to leverage private money but socialising the risks and making no attempt to ensure socially beneficial allocation.

The Green European Foundation has funded a thorough comparison of the progress of such Green New Deals across the members of the EU. The research, conducted by the Wuppertal Institute, confirms the widely differing sizes of stimulus packages as well as the proportions directed towards green transitional investment. In both cases the UK is well towards the bottom of the rankings. In Figure 5 the UK is shown to be one of only two countries whose green economy actually shrank between 1999 and 2004 (the other being Greece). While Finland’s eco-industry grew by 54% during this period that of the UK shrank by 18%. This is clear evidence of the misallocation of resources that results from an over-emphasis on finance. The country's reliance on the financial sector to gain foreign exchange also explains the UK’s apparently positive performance in terms of the efficiency of its GDP in energy terms. If your wealth is earned through invisibles such as insurance and financial products and your production has been off-shored this can mask an underlying failure to invest in green transition which can threaten long term energy security and economic viability.

23 November 2012

Life without the Car

For my generation the car represents freedom and I am struggling to evolve. I spent an exhausting six weeks without my car some years ago. It meant a lot of cycling in the rain and a greatly reduced social life, since I live in rural Gloucestershire where there are no buses after 6pm or on a Sunday. Now I spend some of my life in London and my daughter has left home I am inspired to try again. The difficulty of overcoming the indication is made clear by the fact that, since my car broke down more than a month ago, it has been sitting on my drive. I will not get it mended but I cannot give it up.

How cheering it was, then, to find a short film that indicates how little younger generations are attached to the car. This emerged from some teaching I did at Masaryk University in Brno. The students were asked to make a film about any aspect of 'green economics' and one group chose reducing their carbon footprint. The university is internationally focused and so they were able to interview students from across the world, asking them which of a number of energy-balanced aspects of their lifestyle they would sacrifice to reduce their carbon footprint.

Of course this film was made in Brno, where the trams are a delight and the transport system is integrated in terms of timetables and ticketing. And these young people do not yet have children and are still for the most part energetic and healthy. But what cheers me most is that for people of this generation the car is no longer a symbol of freedom or a source of glamour. As a recent episode of Costing the Earth reported, young people no longer find psychological satisfaction in car ownership in the way we did: bikes and buses are cooler than a shiny set of wheels.

22 November 2012

Cold Comfort

Age UK have offered their regular and timely alert about the cost to the country of our inadequate housing stock, but this year they have tailored their message for the age of austeria. Is it more likely to achieve the desired response from policy-makers when couched in terms of saving money to the NHS? Do we really care so little about life that merely listing the numbers of thousands who die because of the cold is no longer enough?

The figures, although seemingly rather dubious, are none the less impressive: illnesses caused by cold homes cost the NHS £1.36bn. per year. The cold puts pressure on most bodily systems but stress on the heart and lungs leads to strokes, heart attacks and respiratory diseases all thriving in the cold months. There are at least 27,000 deaths that need not have happened if we had a properly insulated housing stock.

This situation is not new - the English, after all, invented the draft and being cold inside your home is a particularly British habit, as those who have travelled in central or northern Europe can attest. So why is it not tackled? First, is the problem of its lack of glamour. It is so much more thrilling for a politician to be seen by a model of the next airport or the vast Severn Barrage. Surely there is also something cultural hanging over from the cold dormitories in which so many of our politicians spent their childhoods. Perhaps they still believe that it was chilblains and cold baths that made the empire great.

But there are also important economic reasons. Huge infrastructure projects such as high-speed railways generate the sorts of balance-sheets where large sums can be siphoned off through various consultancy roles and offer lucrative contracts to the sorts of corporations that have the government's ear. The persistent work of improving the quality of our homes offers jobs in the local community for people who have only their vote to offer. The Green Party has been arguing for the local solution for years, proposing £2bn. to £4bn. per year investment to insulate four million homes per year at the last election. This is not glamorous and receives little media attention, short of failed attempts to rubbish the figures.

The failure to invest in energy insulation is demonstrative of our failure to tackle the issue of climate change as a whole within an economy focused on profit and individualism. The deaths of old people this winter are the price we pay for having such an economic system, as is the legacy of ill health for many children who grow up in cold homes. During my visit to Berlin recently the most obvious indication that I was in former east rather than former west Berlin were the huge district heating systems linking properly insulated buildings to sources of state-generated power. It is one of the lessons of a planned rather than market system that when the state makes providing you with a warm home its business, standards of energy efficiency are likely to be much higher. While few of us would welcome a centralised planning system, the failure to tackle effectively either cold homes or energy efficiency suggests that this is another area where the market is failing - and with lethal consequences.

13 November 2012

Modelling a New Economy

Yesterday I received copies of my new book, The Bioregional Economy. This is always an exciting moment, and also a nerve-wracking one. In the book I make a strong proposal for rethinking the economy to achieve maximum human well-being within the frame of the 90% reductions of carbon emissions that the Tyndall Centre says we need to avoid the worst of climate change. This means some really radical changes to how we work, the level at which decisions are made, and how resources are owned and controlled. I do not shy away from any of these difficult decisions.

I was presenting the proposal to the Geography Department at Glasgow University last week. Afterwards a Greek colleague came up and told me that the proposal is obvious. While this isn't the sort of thing you like to hear when you have spent time writing a book about a radically new proposal, I know what he meant. It turns of that Theo Kromydas co-wrote the Wikipedia entry on Epicurus, and so I am taking this as evidence that, as all good ideas must, I have backing from an ancient Greek philosopher. The book's subtitle is 'Land, Liberty and the Pursuit of Happiness', and it seems that this might have been written by Epicurus, whose philosophy was based on the understanding that humans, like all animals, seek pleasure.

According to Kromydas, Epicurus has a sophisticated view of pleasure, which included ethical behaviour. Bodily pleasure that causes intellectual or moral distress is not the sort of pleasure we should be seeking. His definition of happiness is a mind free from disturbance and a body free from pain, a state he referred to as 'ataraxia'. One of the points I make most strongly in my book is that, while fossil-fuelled capitalism has produced a bewildering array of material products, it has not brought us peaceful minds and hence cannot claim to have achieved happiness even in the Western countries.

I will be launching the book in the Convent Parlour at Roehampton University on 12 December at 5pm. Since my lucky number is 12 I could not have a more auspicious day. If you can help me publicise the book either by organising a local meeting or writing a review for a publication or online outlet please get in touch. My esteemed corporate publisher is also offering a fairly hefty discount on the book until 14 December, so an opportunity to do some Christmas shopping.

11 November 2012

The Fall of Public Man

The mayhem at yet another of our key public institutions is adding to the sense of living through deeply unsettling times. It is also an example of when we need to read between the news, partly because political forces are at play, and partly because journalists are especially unreliable when they are reporting on their own.

I have been waiting for the time when news as gossip began to cause problems: the child abuse panic is, it seems to me, the first serious outcome of the confusion between social media and journalism. We have always known that journalism is about opinion as much as truth, but before the burst of electronic information there was some editorial control over the use of information. Once BBC correspondents began reading Tweets, collecting information from the internet, and broadcasting films from anonymous mobile phones - sources of information whose provenance they had no way of establishing - news lost any claim to being reliable or in any way attached to Truth.

In a democratic society this is problematic. We cannot possibly afford to obtain or sift all the information available to us: we need to rely on trusted channels. When the trusted channel we ourselves fund for this purpose has resorted to gossip we are really in trouble. It was back in 1974 that Richard Sennett wrote about the loss of distinction between public and private, but his theories have demonstrated themselves in ever-widening circles as we are encouraged to take an interest in the views of low-grade celebrities that would far better be kept to themselves. As he wrote back then:

'Masses of people are concerned with their single life histories and particular emotion as never before; this concern has proved to be a trap rather than a liberation', he wrote. Given that each self is 'in some measure a cabinet of horrors, civilised relations between selves can only proceed to the extent that nasty little secrets of desire, greed or envy are kept locked up'.

We should also be deeply suspicious about the timing of all of this. With the Leverson Inquiry due to report soon,  and to call for political regulation of the media, those who seek to maintain their unaccountable power are manoeuvring against any control. We should be asking why the Savile story emerged when it did? Who knew about the cancelled Newsnight story? And how did they obtain that information? The gutter press have a role here, but so also do the police, who are implicated in both the North Wales paedophile ring and the failure to investigate it fully.

We have seen the fall of George Entwhistle, generally regarded as a decent chap of the old school: a real journalist. He has been replaced, if only temporarily, by somebody who has no journalism experience and apparently is a marketing and management expert. The BBC has been under considerable political and financial pressure by those who would seek the fall of public broadcasting. I hope we can rally to the corporation's cause and defend our right to information with as much determination as we defend our right to health.

7 November 2012

We Are All Greeks

Over the weekend I was able to engage in some discussions about events in Greece. It is an increasingly desperate situation akin to similar situations in democratic countries put under pressure by finance capitalism. Political views are polarising between the extremes. Syriza, the coalition of left parties, is building towards a majority, but the fascists Golden Dawn are handing out bread and simple slogans - and they are also infiltrating the police. When people are hungry enough they may vote for a socialist party; whether that party is allowed to take control of the country is another matter.

Our comrades from Greece spoke movingly about how supported they felt by the use of the slogan 'We are all Greeks', that has been seen increasingly in recent months. It goes beyond the need for solidarity; it goes beyond the need to attack racism, however subtle; it goes to a deep understanding that the nature of capitalism as a system that requires co-operation if it is to serve human needs without leading to war. The rules of the global system need to be focused on balance and prosperity for all, rather than enabling the stronger, larger economies to profit at the expense of the rest.

This was the argument made by Keynes at Bretton Woods, in his desperate and failed bid to create a global financial and trade system that would not set us on the path to future wars. It is simple: in a system of exchange one country's success will inevitably lead to another country's failure and so rules have to be introduced to enable the weak to gain as well as the strong. Economic policy should be based on the principle of circulation rather than accumulation. While Germany refuses to recirculate its accumulated wealth in Greece it will not only damage the Greeks and increase tensions, but ultimately damage itself.

Keynes argued for the bancor, a neutral trading currency, and for countries to be fined for holding trade surpluses as well as trade deficits. What was agreed was the dollar as the trading currency and no rules to achieve trade balance. The euro was created to enable Europe to compete against the dollar, but it created its own imbalances which are the responsibility of the system designers, not the Greek people.

4 November 2012

Fiat Luxemburg

I am spending the weekend in Berlin as part of an expert group exploring creative and just responses to the financial crisis, funded by the Rosa Luxemburg Foundation. As a Green, this is an interesting experience for me: finding out where the radical left are on the issues of the day. Most encouragingly many amongst their number are recognising the ecological crisis as the defining issue of our times and considering how this might be taken into their worldview and political platform.

The most stimulating contributions have been from the Greek delegates, two of whom are contributing to the policy of the Greek left coalition Syriza. Greece is portrayed as a laboratory for the next phase of rapacious neoliberalism, with the debt crisis being used to facilitate the fire sale of valuable national assets, including the large amounts of land that is owned by the state in Greece. In such a situation default can seem like a liberation. As charmingly argued by Sergio Tzotzes from the University of Crete, 'The sinking of the titanic was an unexpected liberation for the lobsters in the kitchen of the luxury liner.'

As the first default under EU rules, it is important that we study the conditions that were placed on Greece, which were notoriously draconian. Greece defaulted to the extent of €105bn on an original debt of €360, but new loans of €130bn were taken on, meaning that Greece was immediately in trouble again. Worryingly, these agreements have not been passed democratically by parliament but rather signed off by ministers. As the price of this restructuring there was a devaluation of pensions and savings of 90%. This was a default on the private debt, leaving the public debt unaffected. The default was governed by British and Luxemburg law, which is creditor friendly, and the terms imposed by the EU were more savage than have traditionally been imposed by the IMF in similar situations.

My own contribution to the seminar was about moving towards a diversity of forms of money operating at different levels with different objectives and under different forms of control. I think it fair to say that my proposal was roundly condemned. Marxist theory says that money is a commodity like any other and that it is the productive economic that is primary: money will follow decisions made about production. To me this directly contradicts the evidence of recent years and undermines attempts to tackle the way money enables the tiny minority who control money to use this power to also control the key productive and consumption resources.

The Left feels like a rump of something that was once exciting and dynamic. I am surprised by their friendliness to somebody who is basically an interloper but I do find them labouring with some dogmatic ideas that hold back creative thought, especially in terms of solutions. It is important to remember, though, that while it is the machinations of the neoliberals that have brought us to this mess, it is the weakness of the organised left that has allowed them to get away with it. I am not nostalgic for the 1970s but I do recognise that it was the withering of the Left since those years that has permitted the downgrading of my job and attacks on our public sector.