Who runs our countries: us, or global finance? It can be us

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Stuart Fraser

Stuart Fraser of the City of London Corporation

Stuart Fraser is the former head of the powerful Policy & Resources Committee of the peculiar City of London Corporation, and an influential figure in Britain. He’s quoted in The Price We Pay, a recent documentary on tax havens and corporate tax avoidance.  He says in the film:

“Many politicians have an illusion that they actually run their country, when actually they run their country within the confines that the global financial system places on them.”

Now then. You’ve probably heard this before. 

Let’s call this “Fraser’s View.” But the funny thing is, you’re probably more likely to hear this kind of thing from a left-winger: and Fraser certainly wouldn’t describe himself in those terms.

Has this statement become an article faith on both the left and the right?

Before answering that question, let’s ask a more important question – a much more important question: to what extent is Fraser’s statement true?

This, if you think about it, is one of the great questions of our age.

To answer it, let’s start with a comment by Martin Wolf, the Financial Times’ chief economics commentator (the quote’s from 2005 but he told us in general terms that he stands by what he said then.) 

Wolf notes, as we do, that “Fraser’s View” is held both on the right (beneficient markets force evil governments not to fleece their people) and on the left (beneficient governments can’t shield their people from nasty global forces). He then summarises:

“Both agree that impotent politicians must now bow before omnipotent markets. This has become one of the clichés of the age. But it is (almost) total nonsense.”

To see why he thinks it is nonsense, read our summary of Wolf’s chapter, Sad about the State in his pre-crisis book Why Globalization Works. It’s worth reading, if you haven’t.

The ‘competitive’ race to the bottom

All this raises some fundamental points.

We at Fools’ Gold are regularly exercised by the question of what to do about the ‘race to the bottom’ between jurisdictions in things like taxing wealthy people or corporations; or financial regulation. The race goes a bit like this:

  1. Cries of “don’t tax or regulate us too much or we’ll run away to Geneva!”
  2. Politicians in Country A quail and shower subsidies on them, in the desperate hope that they’ll stay.Bank regulation cup
  3. Country B thinks ‘if only we can offer them an even bigger subsidy, they’ll come here!” They do this, offering a corporate tax cut or loophole or a new financial regulatory wheeze, or a new union-crushing wage policy, or whatever.
  4. First country is then back to Square One, and has to wheel out still more goodies, to stay in the race.
  5. etc. etc. etc., ad nauseam.

The ‘winning’ country looks like this. (Really sorry about the bad art: but it was fun.)

This race leads to ever greater government handouts to capital and its owners, wealthy folk, multinational corporations, global banks, and so on – paid for by the sweat of everyone else. And, as we keep reminding people, the race to the bottom doesn’t stop at zero: there is literally no limit to which owners of capital would like to free-ride off the public goods provided by society.

The standard formula for tackling a race to the bottom, with an apparent ‘prisoner’s dilemma‘ at its heart, is to co-ordinate and co-operate, so that everyone plays by a set of rules. And there are various international initiatives out there to try and do this: the OECD’s recent BEPS project to tackle corporate tax shenanigans, for instance.

But of course the miscreants have incentives to cheat on these co-operative arrangements – and cheat they do. International co-ordination is hard.

Can anything else be done?

Yes it can.

Global co-operation isn’t the only way

And in general terms, some of us at Fools’ Gold think that the alternative approach is far more powerful than international co-operation, in the long run.

Go back to those dynamics behind the race to the bottom. What’s driving this process forwards, above all, is a belief system. A belief in Fraser’s View. A belief that you have to do this, or you will lose out in the race. A belief in TINA: that There Is No Alternative.

UK tax barrister Jolyon Maugham poses this as a question.

“Do they need to” compete is the question. The conventional view – the perception of Governments around the world – is that regimes need to be competitive. Prove that perception wrong and you’ve put policy making back into the hands of nation states.”

That’s what at stake here.

We have already built a significant body of analysis here on Fools’ Gold – with plenty more to come – to ‘prove that perception wrong.’ Once you have that, you can simply opt out of the race to the bottom, and suffer no penalty for doing so.

Your country doesn’t have to ‘compete’ in this way. Your country, taken as a whole, won’t lose out – even if particular interest groups will. Your country is likely to prosper by not cutting corporate taxes, for instance.

Others race to the bottom all they like. It’s a recipe for self-harm.

There is no prisoner’s dilemma. There is a very simple choice: a fully democratic choice, too. All that’s needed, really, is a bit of political courage: to stop hiding behind global forces, and to stand up to them instead.

But who is ‘the left?’

All this raises one last question about Martin Wolf’s statement. Is it true that Fraser’s View is held by “the left?”

Actually, this probably isn’t quite true. Who is this “left?”. What is true is that only some of those on the left would subscribe to Fraser’s View.

Who are these people? Well, there is no neat distinction, but if we were to look at the UK, it might perhaps be simplest to say that it is the “Blairites” who use the c-words a lot and are terrified of frightening global Capital.  And it’s perhaps no coincidence that Paul Krugman, in his excoriation of the Competitiveness Agenda, cited (apparently economically illiterate) then US President Bill Clinton – whom one could argue was Tony Blair’s US counterpart – as saying that each nation is

“like a big corporation competing in the global marketplace.”

In the UK, the Blairites were recently routed in Labour elections, at the hands of people who typically don’t display such fawning terror of global capital markets.

Interesting times.

And now for a gratuitous plug: The Price We Pay, that film about corporate tax that we mentioned at the beginning, featuring Stuart Fraser. It really is good, though we would say that: it features some Fools’ Gold contributors.

It isn’t just us, though.

“Amazing documentary…a fascinating film…deeply moving”

“There have been a number of films about inequality. This one is brilliant.”

“ … exacting … disturbing … enlightening … must be heard.”

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