Tag: Politics – UK

Fundamentalism and the EU “four freedoms”.

The single market of the EU is founded on four freedoms, the freedoms of movement of goods, services, capital and people. This is a wonderful piece of political branding, for who could possibly be against freedoms? Only a fool or a Brexiteer, if there is a difference in EU eyes. But in fact the package is one of several mechanisms (the Euro being the most notorious) by which a programme of market fundamentalism has been imposed on the people of Europe.

Market fundamentalism is a view which although under attack is still the dominant political ideology of our times, that markets know best. Markets decide and the rest of the social fabric must lie as it falls. And accordingly, the main effect of the treaty obligations by which the members have bound themselves is to reduce the power of governments to intervene in their own economies.

No wonder there is such contempt for democracy in the institutional arrangements of the EU and such horror when people are allowed to express a view. Democracy and market fundamentalism are incompatible, radically opposing views of how society should be shaped. Democracy implies that people can not only have aims not presented to them by the market, but make viable choices outside the market. To fundamentalists this is dangerous nonsense.

Looking at the freedoms themselves, it is not surprising that free movement of capital will largely benefit its owners, although predictable that capital will seek the cheapest sources of labour. But freedom of movement of goods sounds thoroughly benign – who wants their goods priced up by tariffs or held up by obstructive officials? Besides, trade in goods benefits everyone, comparative advantage providing both more guns and more butter as every schoolchild knows. But as always, it depends where you start. Just as every developing economy which has emerged in the last half century (ever?) has built up its industry from fragile beginnings behind the protection of tariff walls, so mature and even declining industries might need similar protection, if only to give people time to adjust. The tide perhaps cannot be held back, but sometimes a wall to keep out the worst storms is useful.

The timing of the EU single market could in this respect not have been worse. Industries already reeling from cheaper goods and lower labour costs outside Europe have had to face additional competition from within Europe. Whole cities and communities in the UK have been hollowed out as a result of the dual onslaught – I think of once prosperous Loughborough and Leicester near where I live, now shadows of what they used to be. In response the mantras of market fundamentalism are hypnotically repeated: markets are sovereign, governments cannot intervene and must step aside. But stepping aside is not a neutral act.

Besides accepting that markets are more important than people, inaction disproportionately benefits the multinational corporations within which something like two thirds of all international trade takes place. These corporations ARE the market – in other words most trade is a sort of fiction. These corporations are the same as show such aversion to paying taxes in countries where they operate, but this aside they might claim it is up to governments to look after their own people, while multinationals attend to their earnings. But even that saving balance has been lost.

Fundamentalist governments are gripped by the sense that all prosperity requires is to shrink the state and let markets provide. Gone, dismissed as leftist nonsense, is any sense that governments might have any duties of trusteeship towards their people. So the externalities of trade, the hollowing out which destroys communities in the old world and the pollution which destroys the environment in the new, are left unattended. Corporations inherit a scorched earth.

Then we have the free movement of people. This controversial freedom can be made to sound as if it restores the power of the worker – if firms in one country are not congenial, the workers will flow to those of another, onwards and upwards. Maybe this is true for a very small proportion of highly sought-after workers. But for most the reality is that any successful economy will be flooded with cheap labour. There will be consequent strains on public spending as public services are oversubscribed, reinforcing or excusing the fundamentalist view that shrinking the state is the only way forward.

But think what desperation anyway might cause a worker to uproot family, abandon home and possessions and travel thousands of miles to a country of different culture and language in the hope of work. Just as with the great emigrations of the nineteenth century, and indeed the economic refugees of today, the “free” movement of people is a cruel symbol of failure or abdication of responsibility by governments.

For indigenous workers, free movement of people acts only to depress pay, preventing them from sharing in any gains from trade and filling them with such rage and despair they will turn to whomever promises revenge. It is a freedom which comes with a heavy price. This is no liberal regret, for the greatest irony is how severely free movement attacks the basis of traditional conservatism, that attachment to place, tradition and evolved culture which at its best gives people roots and nurtures values.

So the four freedoms are not gifts to the people of Europe, they are pillars of market fundamentalism. Is it too late to think again? Certainly the damage done to older industries is probably irreversible. But we might stop compounding the damage with further economic vandalism. We could reflect on what might matter more in our lives than the profits of multinationals. We might even consider whether there might after all be such a thing as society, whether competition is really the only model for how we live together. Or we could carry on until the anger of the newly dispossessed elects more demagogues and dictators.

On grammar schools

A very long time ago when I was at school there was a process of selection – the 11+ exam – which sorted children into either the grammar school (pass) or secondary modern (fail). No doubt there were poor grammar schools and excellent secondary modern schools but broadly a pass in the exam meant access to a better, certainly more academic, education and generally better opportunities for the rest of your life. Since the majority of children failed (and were thus disadvantaged for the rest of their lives) this system was wasteful and unfair and it came increasingly under attack until within a decade of my leaving school the system had changed. The exam was abolished, grammar schools were abolished and “comprehensive education” became the established model.

Of course the comprehensive system had its own disadvantages, not least that it required exceptional management and leadership to organise the nurturing of the complete range of abilities and temperaments now housed within a single, often very large, school. Such exceptional leadership was always, well, exceptional. There were always political and parental mutterings against the “wilful destruction” of some very good grammar schools, many of which joined the private sector if they could. The gap between the private, fee charging sector and the state sector widened and it became more difficult for the clever children of uneducated parents to reach the levels required for further education, until the latter was massively expanded to the point where state financial support for further education had to be slashed, turning education into a luxury commodity.

Now the new UK government is proposing that grammar schools should be revived to increase educational opportunities for the brightest (or at least best coached) pupils. This may indeed produce better opportunities for some children, although the suspicion must be that they will not be from the most disadvantaged backgrounds because successful grammar schools will have a significant impact on local house prices. Also, the almost unavoidable effect is that in areas in which such schools exist the existing comprehensive schools will become, in effect, secondary moderns. The current fashion for league tables based on exam results will reinforce the idea that the comprehensives are sinks of underperformance, because whatever they do their percentage pass rates will be lower than selective schools.

But is this policy anyway not a sad failure of political and educational imagination? Sure, there were good things about grammar schools, very good things for those (like me) who were lucky enough to get in. But there were also incredibly negative things about a system which sorted children into winners and losers for life on the basis of a single exam at the age of 11. It may be, even on this policy’s own terms, that the perfect exam will find the brightest and most academically gifted children. But it could also be that in most cases the exam simply selects for people who are good at passing that exam, maybe because they have been intensively coached to do just that regardless of other abilities. Again, there were good ideas behind comprehensive education, alongside many dogmas and mistaken notions about both process and the needs of children with different aptitudes. But if the academic needs of the brightest children were not met, the system was (is) flawed and let down those children while robbing society of their contribution.

The real challenge now is the same as it ever was, to get the best for every child, the best being not some arbitrary or abstract standard but making the best of that child’s abilities, be they academic, technical, creative, athletic or not very distinguished at all. It is an incredibly difficult challenge, of course, as difficult now as it ever was. Surely, though, the right approach is to look very hard and without political prejudice at what structures and institutions can address that challenge today, not to hark back to a myth of a golden age when education was more “proper”.

I wish I could even outline an answer! I can’t, I don’t have anywhere near the knowledge and the experience. I understand too that politicians have always to pretend that they have the answer to whatever problem they face. But the better approach is surely just to search diligently, to learn from what worked and what didn’t work in the past, what works and doesn’t work elsewhere, what conditions we now face and so on. Then try to take a step forward in what seems to be the right direction. Leadership is not just about driving or cajoling people towards a simple goal, it is also about being responsible and judicious in setting the goals themselves. If the problem is complicated, the solution probably is as well. It is unlikely to be something whose flaws have already been fully exposed.

Baggini and representative democracy

I read two articles this week by the philosopher/journalist Julian Baggini brandishing the idea of representative democracy to decry in one case the result of the Brexit referendum and in the other Jeremy Corbyn’s refusal to abandon the mandate his membership gave him because his Parliamentary colleagues don’t like him being leader.
Democracy is such an important idea in our society that confusion about it is always interesting.We tend to assume that the idea needs no examination. In fact, if philosophy has any purpose at all it is to examine precisely those ideas we take for granted but put great weight on.
It is probably true that difficult decisions are best taken by those able to understand the implications of various courses. Leaders with a certain level of intelligence are a good thing, although they need many other qualities. This is not the same and should not be confused with the probably false idea that government is best left to experts or technocrats. Experts need to provide the known facts but all difficult decsions go beyond known facts and need some judgement about factual uncertainties and more importantly, values.
Moreover it is never obvious or even determinable in advance who will make what will turn out to be happy decisions. Complexity rules out government by continual plebiscite (technologically enhanced Athenian democracy) not because the people are too ignorant or too easily misled to know what is good for them but because the questions are too difficult to frame for a binary (yes/no) answer, not to mention the sheer number of decisions great and small which need to be taken. But this has nothing to do with a certain elite class or even elite individuals knowing better what is good for us collectively. The philosopher kings that Plato wished for do not and never will exist. In that sense, democracy is a process of eternal disappointment, but the alternative is to believe that someone has privileged access to the answers, which is the meaning of fascism (and what it has in common with theocracy).
So we select rulers as best we can, from a limited choice offered to us and bounded by whatever artificial constraints our particular voting system places on the method of choosing. The best ruler we can hope for is capable of understanding and taking into account the expert advice but not being dominated by it, best illustrated perhaps by the political command of a country’s armed forces. Even though we nearly always end up disappointed, we can at least reject those who have tried and failed and those we feel should not be allowed to try. And as long as we can all participate in this process in whatever way our system allows and most importantly revise our choice at suitable intervals, we are protected from at least some of the worst abuses of power. This is the value of democracy, it offers no miracles but a measure of protection well worth the two cheers Forster proposed.
Returning to Baggini’s two targets, it is certainly arguable that we should never have referendums and instead leave all major decisions to our elected rulers. With hindsight, our ex-PM might agree! But the argument, such as it is, is just about our constitutional arrangements, not about the intellectual capacity of the electorate. It is particularly weak in the case of Brexit because we have had several referendums on major constitutional questions before and even a referendum on the EU. An alternative view is that since we choose leaders within a given constitutional framework, major changes to the framework itself should not be taken by those leaders but put to the governed. In that view the referendum came rather late.
(Remainers, of which I think Baggini is one, seem always to assume that Leavers can only have been misled or stupid, but people voted Leave for many reasons, some good and some bad just like Remainers. Not least, although many supported a free trade area they simply did not see the point of a federal Europe, which is the goal and lodestar of the EU institutions and many of the member governments but for which interestingly no one argued a positive case.)
As for Mr Corbyn, it is hard to see why any idea of representative democracy even touches his decision not to stand down as leader of his party. A party, after all, is just a group of people hoping to convince the electorate at large to allow it to rule. That group can make its own internal governance arrangements but there is absolutely no reason why it should mirror those of the state. It could choose to privilege the opinions of those it has succeeded in getting elected into Parliament, but it need not and it has not. So, whether Mr Corbyn is right or wrong to stay as leader of his party against the wishes of his MPs just has nothing to do with the fact that we live in a representative democracy.

Brexit, common law and ethical thinking

I have just read two sharply contrasting articles in “Prospect” about Brexit. Jay Elwes runs out the already familiar “we woz robbed” line, embellished with quotes from Popper which could however equally be applied to either side. Roger Scruton on the other hand makes a far more interesting attempt to understand and interpret why people voted as they did, without the patronising assumption that only stupidity or gullibility can explain the vote. Whether he is right or wrong in his particular analysis – and in my view he is far more right than wrong on this occasion – this approach of taking the vote seriously as something whose meaning(s) must be sought and grasped rather than as a nonsensical aberration to be dismissed is surely the best way to move on past current turmoil and division.

In explaining some of the uneasiness the English in particular have always felt towards the EU, Scruton makes a very interesting point about the essential difference between the UK common law tradition and European (including Scottish) Roman law traditions. The first starts from cases, with rules and principles emerging as “precedent” only from the attempt to grapple with the complexities of the particular. The second starts from principles and seeks to apply them to particular cases, giving perhaps an appearance of greater intellectual consistency but at the expense sometimes of shoehorning some of the facts.

This “bottom up versus top down” dichotomy is an oversimplification of course (Sir Roger does not suggest otherwise) but nevertheless of vital importance and not only for understanding the Brexit vote. I have argued in the book that exactly this priority of the individual case over rules should be the hallmark of our ethical thinking across the board, but did not make the analogy that it produces a sort of moral common law, or perhaps simply “common ethics”. The big difference is that there are no judges or experts in the ethical field, we each have to decide our own cases. But the analogy with common law, trying constantly to tread a consistent line but too aware of the complexity of everyday life to take shelter in simple rules, may be helpful in getting a handle on what may otherwise seem a daunting approach to ethical reasoning.

“No one left behind”

Progressive politics, the only form of non-repressive politics, must be based on sound ethical foundations. That is one reason why the effort to articulate such foundations and show how they work both for individuals and communities is important.

Economic systems and solutions must be built on these same ethical foundations – that is where Marxism and many other forms of socialism went wrong because the economics came first, in the belief that economic relations are the determinants of everything else. Well, they may be, indeed they are in the world we have come to accept, but ONLY IF WE LET THEM. And the irony of this wrong approach is that politics becomes a question of which economic policies produce the greatest short term gain, rather than being about the kind of society we live in.

At a time of such political upheaval and revolt against the political establishment as we are now seeing it is high time that we reexamined the basis of that society. What kind of community do we want to create and live in and bequeath to future generations?

But the world, and my country, cannot wait for the outcome and general acceptance of what will always appear to many as abstruse intellectual ramblings. We live in a world of soundbites and we need a good one, quickly, now. We can unpack it later. What would you suggest? Here’s mine, not original but I think it works:

NO ONE LEFT BEHIND.

A thought about Brexit

If a UK exit from the EU (a Brexit) is as all-compassing an evil as our Prime Minister now tells us, leading to global recession, the outbreak of WW3, the economic collapse and isolation of the U.K., not to mention a dive in house prices and the death of all family pets (I may have made one of those up, but only one) – why did he even suggest a referendum which risks such outcomes in the first place?
Rhetorical question, of course, he did it for short term political advantage and did not think it through. But if half the things he now says are true, how reckless was his electoral promise to hold a referendum at all, with potential exposure, however slight, to all these claimed dangers which would not have arisen otherwise?

To be clear, I personally am glad that the people are being given a say, although depressed by the low standard of official debate which amounts on both sides to deliberately muddying waters and simple scaremongering of the kind that won the Scottish referendum. But that is not the point. I did not decide to hold a referendum nor do I think an “out” vote need be a catastrophe. In any field, if a person believes that one particular outcome of an event is as catastrophic as we are now being told Brexit would be and that person can decide whether or not the event should take place, why take even the slightest risk that the catastrophe will come about? It is a ludicrous gamble, like betting your house on a single card or worse, like Russian roulette. Surely it is the very epitome of recklessness and folly?
So, either he is wildly exaggerating – lying, as it is sometimes called – what he believes will be the consequences of Brexit or he is prepared to gamble with national – no, world, according to his own warnings – security to an extent bordering on treachery or madness. Whichever it is, is there anything in modern (OK, in pre-Trump!) times which compares to such political recklessness and shows anyone’s total unfitness for high office more clearly?

Work and welfare

Suppose that, through the use of machines, sufficient resources could be produced without full employment. The balance between the forms of work and welfare that we are used to would have to change. Since we are arguably in the middle of a transition to such a state now we need to think about how they might change. Otherwise, and we can already see this happening, we will move back towards three broad tiers of society – the top wealth owners who can easily live and even get richer on what are basically rents; those with relatively secure jobs or other job related incomes like pensions or small businesses; and the “precariat” as they have been aptly called, who rely on occasional work, zero hours contracts, welfare benefits etc and for whom poverty is never far away. So far, so Victorian, but the enormous danger is that this structure of society is not stable, not in equilibrium. It depends at the very least on the acquiescence of the precariat, whether through the modern equivalent of bread and circuses, through apathy and inertia or, more likely, through a conviction that the order of things is too complex to change, one of the main axioms of neoliberalism.

The era after the industrial revolution led both to unprecedentedly nasty wars which were in large part the spilling over of commercial (imperial) competition into violence and to violent revolutions within some societies. Although ultimately better conditions for workers were brought about particularly by pressure from unionism and the labour movement generally, in many societies it was a close run thing. This degree of progress was accompanied by a partly successful push towards democratic control of societies, but not universally and not without some dark diversions through dictatorships of different kinds. We cannot be confident that the outcome of re-running the experiment will be equally benign, especially when democracy has been corrupted to the point of uselessness by the introduction of deliberately undemocratic structures like the European Union on one hand and on the other, by the blatant manipulation of public emotions without regard for truth or balance which is what now passes as political skill.

Thus it is important to consider how work and rewards are or can be related in society. In the ancient world the balance was very different and NOT working was often the prerogative of the citizen. Slaves worked, citizens didn’t, at least well-to-do citizens didn’t. There may have been other civic obligations, like fighting in the army, but labour for income was not something on which citizens prided themselves.

In fact, in aristocratic societies both yesterday and today the elite do not work but own most of the wealth and receive and spend most of the income. Typically these have been rentier societies, with the income of the elite coming from wealth (generally land) and very little else. In more modern societies the particular form of work we call entrepreneurial activity became more valued, although much of what passes as high entrepreneurship today remains rent-seeking behaviour dressed up with bustle. But in the twentieth century income distribution generally became more tied to work and median incomes were gradually and slowly raised as labour pressed for their effort to be recognised in income distribution. That process has been reversed or at least halted in the last few decades by neoliberalism, with huge pressure on wages except at the very top to benefit profits. The highest “wages”, those of the most senior executives, have become in effect rents on the holding of high office in a company, out of all proportion to effort or effectiveness.

All this is worth reciting only to show that the relationship between work and reward is and always has been complicated. It is simply a myth that work and reward were always linked closely together. “If you don’t work you don’t eat” may sound robust and fair and may be so in some limited scenarios, but as a depiction of real societies it has seldom if ever applied and it has very rarely applied to elites. It is not a principle on which any complex society has been based and it is doubtful, even by the time all the humane exceptions to it have been allowed, whether it ever could be. So although the new predicament of how to distribute the goods and necessities of life if sufficient were available without everyone working needs to be thought about very carefully, the link it seems to threaten between work and reward is not universal, nor eternal, nor even particularly common.

Democracy and Europe

Democracy in a small enough context can mean that people can individually influence decisions that may affect them. It does not mean that they will get their own way, for of course they may be outvoted, so it may still happen that a democratic decision is imposed on the unwilling. Nor is there any guarantee that decisions will be good ones, for the majority may be wrong just as any individual can be wrong. But at least everyone has a chance to influence the decision. The tyranny of a majority you had a chance to be part of is somehow more palatable than a tyranny you were excluded from altogether.

This idea (sentiment?) has to be abandoned however when the number of people involved is too great. Even before that threshold is passed, decisions may be sufficiently complex that many individuals do not have the knowledge or experience to make an informed decision. They will then probably follow with their vote whomever they feel has the right expertise and commands their confidence. So we quickly arrive at the idea of representative or leadership democracy. If we cannot all participate in every decision, because of numbers or complexity, the next best thing is to have a say in who gets to make decisions. This is the basis of western democracy in its many forms.

The people get to choose periodically who will rule and crucially they get to remove leaders who no longer impress, so that the rulers must always bear this in mind in their decision making. Combined with checks and balances, such as divisions of power and rights of appeal, transparency and openness of information where these exist, this is the way most western states are organised. At its heart is the idea that power depends on and derives from the consent of the majority of the people for a given individual or group to lead, a consent which may be withdrawn if the results are unsatisfactory or unpalatable.

A significant part of the case against the European Union is that it has been deliberately designed to evade such democratic control. Despite the changes in the Lisbon Treaty, the unelected Commission not only holds great executive power and has the duty to enforce EU decisions against member states but has the sole right to propose legislation. Basically, much can happen just because the Commission wants it to happen and nothing can happen unless the Commission proposes it should. True, the European Parliament must now approve the appointment of the Commission initially and has the somewhat “nuclear” option to dismiss the whole Commission by a vote of no confidence. But whatever its supporters may say, this is far from being the same as the way governments are chosen in parliamentary democracies, where executive power goes to those who have participated in and won an election themselves. Besides, if the Parliament does refuse to ratify the commission it opposes itself to the Council of ministers rather than the Commisssion. And once ratified, to a large degree there are no democratic controls on the executive powers of the Commission. Yet it acts in many respects as the European Government. Indeed, it is charged to take its own view of what is best for Europe, in contrast to the council of ministers where national government interests are represented or the parliament which, however inadequately, represents the people directly.

Unfortunately, this is a highly technical issue which does not lend itself to soundbites. But significant reform in this area, possibly even abolishing the Commission or replacing it with a regulatory body without a stranglehold on legislation or wide executive powers, would go a long way to changing popular perception of the EU and making its institutions more accountable and responsive to its people. It should be central to the debate about whether the UK continues to be a member.

After all, that debate should not be about trade and whether membership adds or subtracts on balance from UK GDP, because nobody really knows about that and the putative answers that are touted are all compromised by self interest.

It should not be about whether the UK can again be a great power on its own, because the negative answer to that question is surely beyond debate and only nostalgia keeps the argument alive.

It should not even be about control of borders because as the current refugee crisis shows sheer numbers rather than laws are the issue there.

It should certainly not be about entitlement to welfare benefits which seems to have risen to the top of the U.K. wish list, maybe (is this too cynical?) because it can be settled very easily.

The debate should simply be about the way we in the UK relate to the rest of Europe. It makes no sense to have an antagonistic attitude to our nearest neighbours, we must surely cooperate on as many issues as possible. We must trade with them as much as possible and we need to find joint solutions to many problems, not least security and the environment, which in the modern world a single nation state cannot address in isolation. It does not necessarily follow however that we should all have the same laws, the same currency or the same policies, still less merge our national identities into a supra-national state.

But the combination of the Commission’s powers and the de facto position that it alone represents a European standpoint means that at the heart of all European legislation is a drive towards more and more integration – closer and closer union. It is no use the President of the Council (the key intergovernmental body) assuring the UK government that closer union is not an aim of the EU, nor the UK government interpreting that as an “opt-out” from closer union for the UK. The institutions of the EU and in particular the Commission enshrine integration as an objective and put incremental progress towards it beyond democratic control.

So the question is whether it is better for the UK to stay in the EU as it stands and try to reform it from within, or to leave and try to encourage it to evolve in a sensible, more democratic, non-integrationist direction from without. The pity is that the current renegotiation might have given us a unique opportunity to push for change, but it looks like the chance will be squandered for some relatively minor reform of welfare entitlements. It has to be said that a strategy of reform from within has failed miserably so far – and why wouldn’t it, when the powerful original members are pro-integration? Why then should we expect it to work in the future? Thus the choice is to accept a flawed and ill-founded set of institutions which reduce our freedoms and take us towards a destination none of us want, or leave and try to start again. Neither option is attractive or without danger. But Brexit may be the lesser of two evils.

One thing is certain. A “yes” vote in the referendum will mean business as usual. A “no” might mean that the will of the people is taken seriously in Brussels and Berlin and that renegotiation acquires new urgency even after the vote.

Replacing Trident

This is as much a profession of ignorance as anything else, I realise. But the thing is, I entirely see the old Cold War logic of deterrent nuclear missiles in submarines, targeted against an obvious, similarly armed potential foe, namely the Soviet Union. The submarines were supposedly difficult to find and destroy. In the event of an attack on the UK, which might even destroy all major cities and government institutions, a counter strike was still possible even if pointless, thus creating deterrence by mutually assured destruction.
However, I don’t understand the logic of replacing Trident with a similar setup, even though both our major national parties are currently committed to it. Whom are we deterring? At whom are the missiles to be aimed and potentially fired? If there were a crippling attack, presumably disrupting communications and the chain of command, what would be the submarine captains’ instructions? How would they know what to do?
Is this a classic example of fighting the last war, even if in this case the Cold War? Leaving aside the obvious observation that it is difficult to deter a suicide bomber by threats of destruction, the uncertainties are far too great for the deterrent strategy which worked in the Cold War to work today against terrorists and rogue states. So what are we doing trying to repeat it? Even if the greatest threat is deemed to come from a major power, which one is it and how does the isolated submarine captain know at the relevant time? If it is country X, what is to stop the enemies of country X launching a nuclear strike on the UK in the happy expectation that our submariners will launch their missiles?
Thus we could be made less not more secure by deterrence in modern conditions. Even if nuclear weapons are actually deemed essential options for our security rather than (as one sometimes suspects) the international prestige of our politicians, surely the strategy of missiles under the ocean cut off from outside interference is no longer relevant.
What are we doing? It’s not as if we couldn’t think of anything else to do with the cash, even if it were spent on other weapons. But the political class dare not voice such thoughts because to do so might be attacked as “soft”. So we blunder along into another expensive defence mistake. Plus ca change.

How can we tax multinationals fairly?

Large multinational companies can easily avoid paying tax in any particular jurisdiction, to the degree that many pay virtually nothing in the UK on massive business streams. But tax is and always has been a creature constructed by laws and if there is widespread abuse or unhappiness with the current results the only answer is to consider how best to change the laws. We have inherited certain taxes from the past, in this case most notably Corporation Tax which itself dates back only to the 1960’s. But the rules don’t seem to work for multinationals. Perhaps it is time to consider whether the notion of taxing profit, the net income of a company available to contribute to public purposes among other things, is outdated in an age when companies can choose where and how they manifest such surplus.

Moving profit around the world to minimise tax is nothing new, of course. For decades companies have tried transferring goods, intellectual property rights and licences, expertise and anything else they could think of so that costs appeared in higher tax countries and profits in low tax or no tax countries. For decades some governments have tried to keep up by disallowing each new device as it appeared, while others connived at avoidance by offering very low tax environments so that they would gain revenue at a low rate but on large volumes of diverted profit. The process was like a game, played for high stakes but relatively even sided until about the turn of the century. By then the ability to switch ownership, money, even the location of a sale with a few keystrokes had become an overwhelming advantage. It seems now that the game has been decisively won by the companies.

So if we believe that multinationals should contribute revenue for public purposes, it is no use tinkering with the rules of the game. We must change the game itself. One way to go might be to tax sales revenues rather than profits. Another would be to divide declared world profits according to sales revenues in each country, the so called unitary tax method which some US states tried to impose in the 1970’s but fell foul of international tax treaties. World profits are less understated than country profits because they are what justifies a company’s management to its shareholders and drives the share price on which executive bonuses often depend.

But both of these suggestions suffer from the same problem. When you buy something on the internet from the UK you may without even realising it be dealing with a company in a tax haven (such as Luxembourg) and that is where your purchase is filled. No UK-based company actually sells anything in this instance. The website says “UK” but the small print says otherwise.

So the solution has to be radical to take account of the radical change the Internet has brought about in the way business is done. Here is one idea. The location of the buyer rather than the seller could be legislated to be the determining factor of where a sale takes place for tax purposes. That location is not difficult to detect and police on the internet. Indeed, multinationals themselves could be required to log sales according to the location of the buyer and tax could then be based on “value of goods bought per country”. World profits, for example, could be divided up by this measure, or a new tax could replace tax on profits and be based on it.

This is not a trivial change. It would require alteration or even unwinding of international tax treaties and understandings built up over decades. It would of course be bitterly opposed by multinationals and their apologists. It would be opposed even in the forums which consider international tax matters like the OECD by countries who have done well out of providing a home for tax avoidance. It would obviously only work fully and equitably if it was adopted by many countries, and although it could work perfectly well unilaterally there would be the usual, inevitable and false scares that it would destroy jobs. In fact, it would only destroy jobs in the tax avoidance industry, because the location of customers is one factor even multinationals do not control. Of course, someone would eventually come up with a way to cheat the system (someone always does) but meanwhile multinationals might contribute a little more to the countries they harvest.

Taxing multinationals fairly is thus possible but it is not easy or quick. It requires radical changes in the way the taxation of multinational sales and profits are understood and in the way countries seek to divide tax sources between them. All the more reason to address the problem sooner rather than later, by getting such ideas onto the political agenda.