The ideologists of the Competitiveness Agenda

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Tax cuts

Image credit: Gradingstates.org

We’ve been using a term, the Competitiveness Agenda, to describe a pernicious ideology that’s emerged almost under our noses. As it’s been described:

“The Competitiveness Agenda involves special pleading to bestow perks (such as tax cuts) on Capital and its owners, on the basis that if they aren’t pampered they will flee to other more hospitable jurisdictions. (Whether they would actually do this is another matter: the point here is that the scaremongering is often effective in extracting subsidies for Capital.)”

In a profound way, this agenda is one of the most powerful engines that has been driving the Washington Consensus, and even neoliberalism itself. Soundbites such as “we wouldn’t want to become uncompetitive” are used as trump cards to destroy opposition to policies that shower goodies on capital – and few people raise voices are ever raised against such arguments — even though the whole concept is, as we and many others have demonstrated, populist, economically illiterate nonsense.

We haven’t yet focused very hard on the question of who is pushing this agenda. So here is a starter pack with some preliminary answers.

The generic answers are pretty simple: multinational corporations (and particularly large multinational corporations), wealthy people, big banks, and an army of ‘enablers and intermediaries’ – to use a tax justice term – particularly the Big Four accountants. They are not just enablers, facilitators and pushers of these kinds of economically and politically abusive (if often not clearly illegal) practices. They are ideologists too.

Beyond the obvious group of business lobbyists and their henchfolk, the ideologists of the Competitiveness Agenda can be grouped into several categories.

The Academics

A first group is the academics. These issues are extremely complex, and numbers can be sliced and diced any number of ways. The potential for mischief is immeasurable. We’ll start with a quote from the French economist Thomas Piketty:

“We know something about billionaire consumption, but it is hard to measure some of it. Some billionaires are consuming politicians, others consume reporters, and some consume academics”

This fascinating historical example about Charles Tiebout is a good place to start. We might also single out a few others. In the area of international corporate tax, one of the most widely cited bodies is the Oxford University Centre for Business Taxation. They produce a lot of interesting work – a huge amount – and they have some very clever people working there. And the words “Oxford University” give them immense gravitas, from the word ‘go.’ But they are heavily business-funded, and it probably isn’t surprising that their conclusions usually tend to be along the lines of ” . . . and so the answer is to cut corporate taxes”. Their Director Mike Devereux is adamant that their research is fully independent, but, well, read this article about how they were set up.  We could cite many others.

The site selection specialists

The next grouping is a rougher, scrappier crowd — the site selection firms — which are most active in the United States. Fools’ Gold recently pointed to it in a guest blog by Prof. Nikolay Anguelov of the University of Massachussetts, Dartmouth, in a post entitled New research: ‘competing’ aggressively on tax reduces growth. He wrote:

“Site selection firms broker recruitment deals between local governments and foreign investors, gaming the process for their own profit, which they earn based on winning the best incentive package for the global investor. Governments agree to lower and/or eliminate recurrent businesses costs, which are utility and tax rates. A winning bid technically translates into forgone public revenue sources. States lower tax rates, in what many call a ‘race to the bottom.’”

These players are powerful local propagators of the tax-cutting ideologies, as Greg Leroy of Good Jobs First outlines in a little more detail:

“The bottom of the iceberg – in every sense of the word – is tax breaks. Those granted by states – income, sales and excise – are the least visible, least accountable, and most corrosive ways states fund economic development. This system has a long history and many moving parts. It traces back to at least the 1930s and the Great Depression, and really matured by the 1970s. By then, most of the key actors were in place: secretive site location consultants who specialise in playing states and cities against each other; ‘business climate’ experts with their highly politicised interpretations of tax and jobs data; and an organised corporate network orchestrating attacks on state tax systems.

Today, this industry has spawned a more elaborate cast of characters: rented consultants packing rosy projections about job creation and tax revenue; subsidy tracking consultants who help companies.”

These players revel in a game of smoke and mirrors that Leroy, in his excellent book The Great American Jobs Scam, calls “Job blackmail – or how to get paid to do what you planned to do anyway.” A particular weasel word (or weasel term) that is popular Stateside as a popular alternative to ‘competitiveness’: the term is ‘business climate.’  This morning we got an email from Leroy which points to a superbly valuable debunking site, Grading the States.

Grading States

We’re particularly interested to hear if readers have examples of this kind of cottage industry in other countries, particularly developing countries.

Official ideologues

A third rough grouping of blind (and often rather invisible) ideologues comes from inside governments. Those who just want to see taxes cut on corporates or on the wealthiest sections, and are going to cherry-pick the data out there to get it. Again, the examples are legion: they are often so transparent that it doesn’t take much work to catch them red-handed.

We’ll settle on a rather sad example from the United Kingdom, concerning the top rate of income tax. We worked with John Thompson, a statistician who delved deep into the UK government’s claims about the top rate of income tax, which wealthy folk and their advisers and cheerleaders were saying was making Britain uncompetitive and wasn’t raising much revenue.  He did a painstaking piece of research, which essentially looked at a particular claim the government was making: that cutting the top rate of income tax would only reduce revenue by £100 million.

Astonished by what looked like a heroically low-ball estimate, Thompson then explored the basis for those claims, and whether they stood up or not. His core conclusion was that the government’s claims were

“so selective as to be unreliable and, if relied upon, worthless or worse.

For instance, the government claimed that one of its conclusions was backed by the work of the French economist Thomas Piketty. TJN sent its conclusion to Piketty, and he replied, saying:

“it is indeed quite surprising to learn that our paper with Saez and Stantcheva was used in this manner, given that we basically find the opposite.”

Sometimes, the ideologists are better-known names. This quote provides one among countless examples:

“In a world of global capital, in a world where we’re competing with each other, in a world where we want to send a message that we want you to build businesses, grow businesses and invest, I think it’s wrong to have completely uncompetitive top rates of tax.”
David Cameron, UK Prime Minister, June 2012

Enough said, for now.

The Big Four

Another vastly influential group – and perhaps the most influential of them all – is the Big Four Accountancy Firms. We cannot stress enough how important and influential that latter category is: governments around the world rely on the Big Four to help design large parts of their tax systems, and journalists and many others rely on their detailed knowledge when faced with all the compexity implicit in any tax system. And their world view – a rather libertarian, low-tax (or anti-tax), deregulatory one, gets propagated far and wide.

It’s pretty easy to catch these chancers red handed in pushing bogus studies – these people are bean counters and corporate lobbyists after all: they’re not even economists (not that economists should get off lightly.) Here’s just one example, culled from a recent report we highlighted about proposals to cut Australia’s corporate tax rates from 30 to 25 percent. Analysis by the Australia Institute highlight a host of horrors that would likely ensure: “none of these companies are likely to significantly change their behaviour as a result of any cut in company tax” – and there would be huge losses elsewhere. In the process they examined some creative myth-making by the Big Four firm PWC.

They note:

“In November 2015, accounting firm PwC released a two-page brief on company tax which was summarised in The Australian Financial Review as showing that a cut in the company tax ‘to 25 per cent from 30 per cent would deliver the economy a $291 billion growth dividend that would generate enough extra tax to more than pay for itself within five years’. One is of course immediately reminded of the unfortunate Laffer curve which counterintuitively suggested that the US could increase the tax collected by lowering the tax rate.”

It turns out that PWC had cherry-picked a single OECD study which was not applicable to Australia’s peculiar tax system, which was hedged with all sorts of caveats and underpinned with all sorts of assumptions it explicitly warned readers about. PWC (wilfully) ignored far more in-depth international research by the nonpartisan U.S. Congressional Research System which found no such thing, and identified a bunch of other mischief.

The Think Tanks

We hardly know where to start. This contribution is probably long enough as it stands, so let’s merely point readers to the role of think tanks described in this article, How To Cover the One Percent, in the New York Review of Books.

And, as an endnote, we’d urge to read this critique of Thomas Piketty’s work on inequality, by the U.S. economist Brad DeLong. His conclusion is:

“Right now money talks very loudly indeed. And I leave the Piketty debate more depressed about our ability to keep it from talking so loudly. What makes me more depressed? The Piketty debate itself does: The eagerness of so-many economists to aggressively make so many shoddy arguments that Piketty does not know what he is talking about.”

 

 

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