Wednesday, 30 May 2018

How to defeat fake news: Lessons from Ireland's abortion referendum

Fintan O'Toole in The Guardian

In all the excitement of what happened in Ireland’s referendum on abortion, we should not lose sight of what did not happen. A vote on an emotive subject was not subverted. The tactics that have been so successful for the right and the far right in the UK, the US, Hungary and elsewhere did not work. A democracy navigated its way through some very rough terrain and came home not just alive but more alive than it was before. In the world we inhabit, these things are worth celebrating but also worth learning from. Political circumstances are never quite the same twice, but some of what happened and did not happen in Ireland surely contains more general lessons.

If the right failed spectacularly in Ireland, it was not for want of trying. Save the 8th, one of the two main groups campaigning against the removal of the anti-abortion clause from the Irish constitution, hired Vote Leave’s technical director, the Cambridge Analytica alumnus Thomas Borwick.

Save the 8th and the other anti-repeal campaign, Love Both, used apps developed by a US-based company, Political Social Media (PSM), which worked on both the Brexit and Trump campaigns. The small print told those using the apps that their data could be shared with other PSM clients, including the Trump campaign, the Republican National Committee and Vote Leave.

Irish voters were subjected to the same polarising tactics that have worked so well elsewhere: shamelessly fake “facts” (the claim, for example, that abortion was to be legalised up to six months into pregnancy); the contemptuous dismissal of expertise (the leading obstetrician Peter Boylan was told in a TV debate to “go back to school”); deliberately shocking visual imagery (posters of aborted foetuses outside maternity hospitals); and a discourse of liberal elites versus the real people. But Irish democracy had an immune system that proved highly effective in resisting this virus. Its success suggests a democratic playbook with at least four good rules.



Fake ‘facts’: A Save The 8th no campaign poster. Photograph: Laura Hutton/Alamy Live News

First, trust the people. A crucial part of what happened in Ireland was an experiment in deliberative democracy. The question of how to deal with the constitutional prohibition on abortion – a question that has bedevilled the political and judicial systems for 35 years – was put to a Citizens’ Assembly, made up of 99 randomly chosen (but demographically representative) voters. These so-called ordinary people – truck drivers, homemakers, students, farmers – gave up their weekends to listen to 40 experts in medicine, law and ethics, to women affected by Ireland’s extremely restrictive laws and to 17 different lobby groups. They came up with recommendations that confounded most political and media insiders, by being much more open than expected – and much more open than the political system would have produced on its own.

It was these citizens who suggested entirely unrestricted access to abortion up to 12 weeks. Conservatives dismissed this process, in Trump style, as rigged (it wasn’t). They would have been much better off if they had actually listened to what these citizens were saying, and tried to understand what had persuaded them to take such a liberal position. The Irish parliament did listen – an all-party parliamentary committee essentially adopted the proposals of the Citizens’ Assembly. So did the government. And it turned out that a sample of “the people” actually knew pretty well what “the people” were thinking. If the Brexit referendum had been preceded by such a respectful, dignified and humble exercise in listening and thinking, it would surely have been a radically different experience.

Second, be honest. The yes side in the Irish debate handed its opponents a major tactical advantage but gained a huge strategic victory. It ceded an advantage in playing with all its cards turned up on the table. Technically, the vote was merely to repeal a clause in the constitution. There was no need to say what legislation the government hoped to enact afterwards. But the government chose to be completely clear about its intentions. It published a draft bill. This allowed opponents of reform to pick at, and often distort, points of detail. But it also completely undercut the reactionary politics of paranoia, the spectre of secret conspiracies. Honesty proved to be very good policy.


Yes campaigners did not assume that an elderly lady going to mass in a rural village was a lost cause

Third, talk to everybody and make assumptions about nobody. The reactionary movements have been thriving on tribalism. They divide voters into us and them – and all the better if they call us “deplorables”. The yes campaigners in Ireland – many of them young people, who are so often caricatured as the inhabitants of virtual echo chambers – refused to be tribal. They stayed calm and dignified. And when they were jeered at, they did not jeer back. They got out and talked (and listened) without prejudice. They did not assume that an elderly lady going to mass in a rural village was a lost cause. They risked (and sometimes got) abuse by recognising no comfort zones and engaging everyone they could reach. It turned out that a lot of people were sick of being typecast as conservatives. It turned out that a lot of people like to be treated as complex, intelligent and compassionate individuals. A majority of farmers and more than 40% of the over-65s voted yes.

Finally, the old feminist slogan that the personal is political holds true, but it also works the other way around. The political has to be personalised. The greatest human immune system against the viruses of hysteria, hatred and lies is storytelling. Even when we don’t trust politicians or experts, we trust people telling their own tales. We trust ourselves to judge whether they are lying or being truthful. Irish women had to go out and tell their own stories, to make the painful and intimate into public property.

This is very hard to do, and it should not be necessary. But is unstoppably powerful. The process mattered, political leadership mattered, campaigning mattered. But it was stories that won. Exit polls showed that by far the biggest factors in determining how people voted were “people’s personal stories that were told to the media”, followed by “the experience of someone who they know”.

Women, in the intimate circles of family and friends or in the harsh light of TV studios, said: “This is who I am. I am one of you.” And voters responded: “Yes, you are.” If democracy can create the context for that humane exchange to happen over and over again, it can withstand everything its enemies throw at it.

Tuesday, 29 May 2018

'It's only a beer': the unwritten contracts between men and women

Attention from unfamiliar men is implicitly transactional, and a failure to pay the price can result in some traumatic consequence writes Kira Smith in The Guardian

 
 Illustration: Molly Mendoza


The first time I failed to pay up, I was a high school student at a bowling alley in my small town in central Pennsylvania. An older man bought me a beer and talked to me while he shot pool. Smoking and drinking in that grungy bowling-alley bar in the seediest part of town, I felt cosmopolitan and mature. I was oblivious to the transaction taking place: by drinking his beer, I was entering into an implicit and unwritten contract in which I was expected to fulfill a sexual obligation. One of my more astute and experienced friends told the man that I had a boyfriend and had no intention of being intimate with him. He became irate and threw a lit cigarette into my hair as I left the bar. I went home scared and confused as to why my acceptance of a beer and friendly conversation had gotten me into a terrifying mess.

What I learned that day is that attention from unfamiliar men is implicitly transactional, and a failure to pay the price can result in some traumatic consequence. I admit that on this point, I have been proven wrong repeatedly over time. But I have also had enough disturbing experiences that every male stranger is suspect. It’s always possible that I am going to be expected to acknowledge a tacit, unwritten contract and obey its terms and conditions. It’s a contract only a man can create, and sometimes it feels like only a man can break it. Women are expected to sign on the dotted line.

In my early twenties, while in Galway, Ireland, I accepted a drink from an older man in a bar the night before I was to board a ferry for more remote islands off the Irish coast. I wouldn’t be in another city for a while and was craving human voices and activity. I declined the offer of a drink and company at first, aware that I might regret accepting. But after his second offer and his insistence that it was “only a beer”, I decided that I could use some conversation.

I was up front about having no intention of sleeping with this man, and I offered to pay for a round of beers. I asked him questions about things that piqued my curiosity: his opinions on Irish politics, the economy and the European Union. I thought that by being direct, I could evade the contract, or that my company alone had value since we were two solitary souls away from home on a rainy night. But after a short while he became increasingly insistent and my rejections became harsher, until we were directly debating whether I would sleep with him. I left the bar in a disappointed huff, only to have him follow me out.

I ran away from him up the tangled Galway cobblestone streets as he yelled obscenities.

Last week at a concert, a woman friend told me that during the course of her day, she is most terrified during the brief period when she gets to the door of her house but doesn’t yet have her keys prepared to unlock the door and is momentarily vulnerable on the doorstep. When I hugged her goodbye, she slipped mace into my hand and offered to drive me to my car only two blocks away.

Another told me of a man who walked behind her into her downtown apartment building when she had been out late. He followed her into her apartment and sat on her couch while she nervously repeated that she would be expecting her boyfriend any minute and he needed to leave.

Or the countless friends who have shared stories of dates they’ve been on where the men pushed against asserted boundaries and assaulted them, even after they had said no.

The de facto existence of violence is acknowledged between women and has likely always been acknowledged by women in the private sphere. Our shared accounts allow us to relate to one another. They turn statistics into flesh and bone, and form the basis for a mutual understanding that something isn’t right. The vocalization of pain and fear is cathartic. As I’ve written this essay and taken opportunities to share my interest in this topic with other women, I’ve found that the conversation almost always leads to swapping stories of threatening encounters, of validating each other’s fears and sharing our coping mechanisms.

My conversations happened during the #MeToo movement, which even a troglodyte like me was exposed to on social media feeds. The use of the phrase “Me Too” to vocalize solidarity with assault survivors was started in 2006 by Tarana Burke, an African American woman and civil rights activist. Many brave people posted stories on media websites about their experiences of sexual harassment and violence in and out of the workplace. This accumulation of stories proved to be powerful, and the current hashtag movement sparked an unprecedented wave of accusations against men who’ve used their positions of power in Hollywood and other highly visible industries to abuse the women who were subordinate to them.

This year, many women and gender-nonconforming people participated in the #MeToo movement, but my own response was very different. I felt deeply uncomfortable and disquieted as the movement’s popularity and exposure grew. Despite my identity as a staunch feminist and my education, which allows me to contextualize my experiences as a woman, I was reluctant to participate. To share my stories would be to relinquish control over them and to expose the inner life that I have constructed. Sharing invites pushback that could invalidate my story and perhaps even lead to violence. Sharing invites conversations with my parents and former partners that I am not prepared to have. Sharing is discouraged thanks to the same mechanisms that force me to be polite to men, even the ones I wish would leave me alone. If I name the violence, then it follows that I am a victim of it, and therefore lack agency.

How did we get to the point where the sharing of women’s everyday experiences is a national news story? How did women become socialized into silence in the first place? How does a hashtag improve conditions for poor Appalachian teenagers smoking cigarettes in shady small-town bars?

As a budding academic, I presented my research in my field – geography – at a large conference when I was still an undergraduate. With my sights set on graduate school, I was glad for the opportunity to learn and network. I met many other academics and talked about my interest in doctoral programs and continuing research. One night during the conference, a fellow student, a young woman, told me that older men at the conference had been hitting on her all day by feigning interest in her work and then giving her their contact information. The stack of business cards on my hotel room nightstand assumed a more sinister aura, and I flipped through them thereafter with suspicion. The cards reflected the current data from the National Center for Education Statistics about gender equity in academic institutions, with the most influential full-time faculty positions awarded to white males, and women working a higher proportion of the part-time adjunct positions. How could I ever be sure that any of the men who had offered to help me were interested in my research or career? What if, instead, my naive gullibility had landed me with a list of numbers from older men trying to sleep with me, rather than legitimate professional opportunities? What if I met with one of them and the encounter turned confrontational?

I never contacted any of the men I met at that conference or any other, thereby reinforcing and reproducing the relations of power within the academy.

Although I crave platonic and professional relationships and interactions with men, the process of creating these relationships feels dangerous. When a man I don’t know speaks to me in public, I am both intrigued and distressed by the potential outcomes, which range from overt violence to friendship and compassion. I want to dissolve the boundaries of gender socialization that keep us all isolated and that ensure I will never know the struggles of the masculine nor they the feminine. But the threat of latent violence makes me turn my head, pretend I didn’t hear, resisting the possibility of engagement and almost always saying no.

On a spring day when I was twenty-four and in graduate school at Portland State University, I stopped on my way home to get a beer and french fries, and to read for class at an outside picnic table. As I was waiting for my fries, a man two tables in front of me asked me if I wanted to join him. I declined, thinking of the previous experiences I’d had when accepting beers from men in bars.

A few minutes later, he asked again, in a humble sort of way. His casual tone was tempting, and I hesitantly agreed.

I joined him at his table. He was friendly and interesting, an eye doctor from the South who had fallen on hard times after his medical practice went under and he lost his home, his car, his savings. But on that day he had been offered his first job in years and was looking for someone to celebrate with. We talked for hours, even moving inside when it started to rain, comparing our experiences in graduate versus medical school, talking about money and moving to Portland from the East Coast.

When I finally got up to leave, he didn’t ask for my number.

The financial scandal no one is talking about

Accountancy used to be boring – and safe. But today it’s neither. Have the ‘big four’ firms become too cosy with the system they’re supposed to be keeping in check?

By Richard Brooks in The Guardian


In the summer of 2015, seven years after the financial crisis and with no end in sight to the ensuing economic stagnation for millions of citizens, I visited a new club. Nestled among the hedge-fund managers on Grosvenor Street in Mayfair, Number Twenty had recently been opened by accountancy firm KPMG. It was, said the firm’s then UK chairman Simon Collins in the fluent corporate-speak favoured by today’s top accountants, “a West End space” for clients “to meet, mingle and touch down”. The cost of the 15-year lease on the five-storey building was undisclosed, but would have been many tens of millions of pounds. It was evidently a price worth paying to look after the right people.

Inside, Number Twenty is patrolled by a small army of attractive, sharply uniformed serving staff. On one floor are dining rooms and cabinets stocked with fine wines. On another, a cocktail bar leads out on to a roof terrace. Gazing down on the refreshed executives are neo-pop art portraits of the men whose initials form today’s KPMG: Piet Klynveld (an early 20th-century Amsterdam accountant), William Barclay Peat and James Marwick (Victorian Scottish accountants) and Reinhard Goerdeler (a German concentration-camp survivor who built his country’s leading accountancy firm).

KPMG’s founders had made their names forging a worldwide profession charged with accounting for business. They had been the watchdogs of capitalism who had exposed its excesses. Their 21st-century successors, by contrast, had been found badly wanting. They had allowed a series of US subprime mortgage companies to fuel the financial crisis from which the world was still reeling.

“What do they say about hubris and nemesis?” pondered the unconvinced insider who had taken me into the club. There was certainly hubris at Number Twenty. But by shaping the world in which they operate, the accountants have ensured that they are unlikely to face their own downfall. As the world stumbles from one crisis to the next, its economy precarious and its core financial markets inadequately reformed, it won’t be the accountants who pay the price of their failure to hold capitalism to account. It will once again be the millions who lose their jobs and their livelihoods. Such is the triumph of the bean counters.

The demise of sound accounting became a critical cause of the early 21st-century financial crisis. Auditing limited companies, made mandatory in Britain around a hundred years earlier, was intended as a check on the so-called “principal/agent problem” inherent in the corporate form of business. As Adam Smith once pointed out, “managers of other people’s money” could not be trusted to be as prudent with it as they were with their own. When late-20th-century bankers began gambling with eye-watering amounts of other people’s money, good accounting became more important than ever. But the bean counters now had more commercial priorities and – with limited liability of their own – less fear for the consequences of failure. “Negligence and profusion,” as Smith foretold, duly ensued.

After the fall of Lehman Brothers brought economies to their knees in 2008, it was apparent that Ernst & Young’s audits of that bank had been all but worthless. Similar failures on the other side of the Atlantic proved that balance sheets everywhere were full of dross signed off as gold. The chairman of HBOS, arguably Britain’s most dubious lender of the boom years, explained to a subsequent parliamentary enquiry: “I met alone with the auditors – the two main partners – at least once a year, and, in our meeting, they could air anything that they found difficult. Although we had interesting discussions – they were very helpful about the business – there were never any issues raised.”


 
A new ticker about the Lehman Brothers collapse in New York in 2008. Photograph: Alamy

This insouciance typified the state auditing had reached. Subsequent investigations showed that rank-and-file auditors at KPMG had indeed questioned how much the bank was setting aside for losses. But such unhelpful matters were not something for the senior partners to bother about when their firm was pocketing handsome consulting income – £45m on top of its £56m audit fees over about seven years – and the junior bean counters’ concerns were not followed up by their superiors.

Half a century earlier, economist JK Galbraith had ended his landmark history of the 1929 Great Crash by warning of the reluctance of “men of business” to speak up “if it means disturbance of orderly business and convenience in the present”. (In this, he thought, “at least equally with communism, lies the threat to capitalism”.) Galbraith could have been prophesying accountancy a few decades later, now led by men of business rather than watchdogs of business.

Another American writer of the same period caught the likely cause of the bean counters’ blindness to looming danger even more starkly. “It is difficult to get a man to understand something”, wrote Upton Sinclair, “when his salary depends upon his not understanding it.”
For centuries, accounting itself was a fairly rudimentary process of enabling the powerful and the landed to keep tabs on those managing their estates. But over time, that narrow task was transformed by commerce. In the process it has spawned a multi-billion-dollar industry and lifestyles for its leading practitioners that could hardly be more at odds with the image of a humble number-cruncher.

Just four major global firms – Deloitte, PricewaterhouseCoopers (PwC), Ernst & Young (EY) and KPMG – audit 97% of US public companies and all the UK’s top 100 corporations, verifying that their accounts present a trustworthy and fair view of their business to investors, customers and workers. They are the only players large enough to check the numbers for these multinational organisations, and thus enjoy effective cartel status. Not that anything as improper as price-fixing would go on – with so few major players, there’s no need. “Everyone knows what everyone else’s rates are,” one of their recent former accountants told me with a smile. There are no serious rivals to undercut them. What’s more, since audits are a legal requirement almost everywhere, this is a state-guaranteed cartel.

Despite the economic risks posed by misleading accounting, the bean counters perform their duties with relative impunity. The big firms have persuaded governments that litigation against them is an existential threat to the economy. The unparalleled advantages of a guaranteed market with huge upside and strictly limited downside are the pillars on which the big four’s multi-billion-dollar businesses are built. They are free to make profit without fearing serious consequences of their abuses, whether it is the exploitation of tax laws, slanted consultancy advice or overlooking financial crime.




KPMG abandons controversial lending of researchers to MPs


Conscious of their extreme good fortune and desperate to protect it, the accountants sometimes like to protest the harshness of their business conditions. “The environment that we are dealing with today is challenging – whether it’s the global economy, the geopolitical issues, or the stiff competition,” claimed PwC’s global chairman Dennis Nally in 2015, as he revealed what was then the highest-ever income for an accounting firm: $35bn. The following year the number edged up – as it did for the other three big four firms despite the stiff competition – to $36bn. Although they are too shy to say how much profit their worldwide income translates into, figures from countries where they are required to disclose it suggest PwC’s would have been approaching $10bn.

Among the challenges PwC faced, said Nally, was the “compulsory rotation” of auditors in Europe, a new game of accountancy musical chairs in which the big four exchange clients every 10 years or so. This is what passes for competition at the top of world accountancy. Some companies have been audited by the same firms for more than a century: KPMG counts General Electric as a 109-year-old client; PwC stepped down from the Barclays audit in 2016 after a 120-year stint.

As professionals, accountants are generally trusted to self-regulate – with predictably self-indulgent outcomes. Where a degree of independent oversight does exist, such as from the regulator established in the US following the Enron scandal and the other major scandal of the time, WorldCom – in which the now-defunct firm Arthur Andersen was accused of conspiring with the companies to game accountancy rules and presenting inflated profits to the market – powers are circumscribed. When it comes to setting the critical rules of accounting itself – how industry and finance are audited – the big four are equally dominant. Their alumni control the international and national standard-setters, ensuring that the rules of the game suit the major accountancy firms and their clients.

The long reach of the bean counters extends into the heart of governments. In Britain, the big four’s consultants counsel ministers and officials on everything from healthcare to nuclear power. Although their advice is always labelled “independent”, it invariably suits a raft of corporate clients with direct interests in it. And, unsurprisingly, most of the consultants’ prescriptions – such as marketisation of public services – entail yet more demand for their services in the years ahead. Mix in the routine recruitment of senior public officials through a revolving door out of government, and the big four have become a solvent dissolving the boundary between public and private interests.
There are other reasons for governments to cosset the big four. The disappearance of one of the four major firms – for example through the loss of licences following a criminal conviction, as happened to Arthur Andersen & Co in 2002 – presents an unacceptable threat to auditing. So, in what one former big-four partner described to the FT as a “Faustian relationship” between government and the profession, the firms escape official scrutiny even at low points such as the aftermath of the financial crisis. They are too few to fail.

The major accountancy firms also avoid the level of public scrutiny that their importance warrants. Major scandals in which they are implicated invariably come with more colourful villains for the media to spotlight. When, for example, the Paradise Papers hit the headlines in November 2017, the big news was that racing driver Lewis Hamilton had avoided VAT on buying a private jet. The more important fact that one of the world’s largest accountancy firms and a supposed watchdog of capitalism, EY, had designed the scheme for him and others, including several oligarchs, went largely unnoticed. Moreover, covering every area of business and public service, the big four firms have become the reporter’s friends. They can be relied on to explain complex regulatory and economic developments as “independent” experts and provide easy copy on difficult subjects.

Left to prosper with minimal competition or accountability, the bean counters have become extremely comfortable. Partners in the big four charge their time at several hundred pounds per hour, but make their real money from selling the services of their staff. The result is sports-star-level incomes for men and women employing no special talent and taking no personal or entrepreneurial risk. In the UK, partners’ profit shares progress from around £300,000 to incomes that at the top have reached £5m a year. Figures in the US are undeclared, because the firms are registered in Delaware and don’t have to publish accounts, but are thought to be similar. (In 2016, when I asked a senior partner at Deloitte what justified these riches, he sheepishly admitted that it was “a difficult question”.)

Targeting growth like any multinational corporation, despite their professional status, the big four continue to expand much faster than the world they serve. In their oldest markets, the UK and US, the firms are growing at more than twice the rate of those countries’ economies. By 2016, across 150 countries, the big four employed 890,000 people, which was more than the five most valuable companies in the world combined.

The big four are supremely talented at turning any change into an opportunity to earn more fees. For the past decade, all the firms’ real-terms global growth has come from selling more consulting services. Advising on post-crisis financial regulation has more than made up for the minor setback of 2008. KPMG starred in the ultimate “nothing succeeds like failure” story. Although – more than any other firm – it had missed the devaluation of subprime mortgages that led to a world banking collapse, before long it was brought in by the European Central Bank for a “major role in the asset quality review process” of most of the banks that now needed to be “stress-tested”.

The big four now style themselves as all-encompassing purveyors of “professional services”, offering the answers on everything from complying with regulations to IT systems, mergers and acquisitions and corporate strategy. The result is that, worldwide, they now make less than half of their income from auditing and related “assurance” services. They are consultancy firms with auditing sidelines, rather than the other way round.

The big firms’ senior partners, aware of the foundations on which their fortunes are built, nevertheless insist that auditing and getting the numbers right remains their core business. “I would trade any advisory relationship to save us from doing a bad audit,” KPMG’s UK head Simon Collins told the FT in 2015. “Our life hangs by the thread of whether we do a good-quality audit or not.” The evidence suggests otherwise. With so many inadequate audits sitting on the record alongside near-unremitting growth, it is clear that in a market with very few firms to choose from, poor performance is not a matter of life or death.

 
The ‘big four’ accountancy firms. Composite: Getty / Alamy / Reuters

These days, EY’s motto is “Building a better working world” (having ditched “Quality in everything we do” as part of a rebrand following its implication in the 2008 collapse of Lehman Brothers). Yet there is vanishingly little evidence that the world is any better for the consultancy advice that now provides most of the big four’s income. Still, all spew out reams of “thought leadership” to create more work. A snapshot of KPMG’s offerings in 2017 throws up: “Price is not as important as you think”; “Four ways incumbents can partner with disruptors”; and “Customer centricity”. EY adds insights such as “Positioning communities of practice for success”, while PwC can help big finance with “Banking’s biggest hurdle: its own strategy”.

The appeal of all this hot air to executives is often based on no more than fear of missing out and the comfort of believing they’re keeping up with business trends. Unsurprisingly, while their companies effectively outsource strategic thinking to the big four and other consultancy firms, productivity flatlines in the economies they command.

The commercial imperatives behind the consultancy big sell are explicit in the firms’ own targets. KPMG UK’s first two “key performance indicators”, for example, are “revenue growth” and “improving profit margin”, followed by measures of staff and customer satisfaction (which won’t be won by giving them a hard time). Exposing false accounting, fraud, tax evasion and risks to economies – everything that society might actually want from its accountants – do not feature.

Few graduate employees at the big four arrive with a passion for rooting out financial irregularity and making capitalism safe. They are motivated by good income prospects even for moderate performers, plus maybe a vague interest in the world of business. Many want to keep their options open, noticing the prevalence of qualified accountants at the top of the corporate world; nearly a quarter of chief executives of the FTSE100 largest UK companies are chartered accountants.

When it comes to integrity and honesty, there is nothing unusual about this breed. They have a similar range of susceptibility to social, psychological and financial pressures as any other group. It would be tempting to infer from tales such as that of the senior KPMG audit partner caught in a Californian car park in 2013 trading inside information in return for a Rolex watch and thousands of dollars in cash that accountancy is a dishonest profession. But such blatant corruption is exceptional. The real problem is that the profession’s unique privileges and conflicts distil ordinary human foibles into less criminal but equally corrosive practice.

A newly qualified accountant in a major firm will generally slip into a career of what the academic Matthew Gill has called “technocratism”, applying standards lawfully but to the advantage of clients, not breaking the rules but not making a stand for truth and objectivity either. Progression to the partner ranks requires “fitting in” above all else. With serious financial incentives to get to the top, the major firms end up run by the more materially rather than ethically motivated bean counters. In the UK in 2017, none of the senior partners of the big firms had built their careers in what should be the firms’ core business of auditing. Worldwide, two of the big four were led by men who were not even qualified accountants.

The core accountancy task of auditing can seem dull next to sexier alternatives, and many a bean counter yearns for excitement that the traditional role doesn’t offer. As long ago as 1969, Monty Python captured this frustration in a sketch featuring Michael Palin as an accountant and John Cleese as his careers adviser. “Our experts describe you as an appallingly dull fellow, unimaginative, timid, lacking in initiative, spineless, easily dominated, no sense of humour, tedious company and irredeemably drab and awful,” Cleese tells Palin. “And whereas in most professions these would be considerable drawbacks, in chartered accountancy they’re a positive boon.” Palin’s character, alas, wants to become a lion tamer.

The bean counter’s quest for something more exciting can be seen running through modern scandals like Enron and some of the racy early-21st-century bank accounting. One ex-big four accountant told me that if there was a single thing that would improve his profession, it would be to “make it boring again”.

Where once they were outsiders scrutinising the commercial world, the big four are now insiders burrowing ever deeper into it. All mimic the famous alumni system of the past century’s pre-eminent management consultancy, McKinsey, ensuring that when their own consultants and bean counters move on, they stay close to the old firm and bring it more work. The threat of an already too-close relationship with business becoming even more intimate is ignored. In 2016, EY’s “global brand and external communications leader” waxed biblical on the point: “You think about the right hand of greatness; actually the alumni could be the right hand of our greatness.”

The top bean counter’s self-image is no longer a modest one. “Whether serving as a steward of the proper functioning of global financial markets in the role of auditor, or solving client or societal challenges, we ask our professionals to think big about the impact they make through their work at Deloitte,” say the firm’s leaders in their “Global Impact Report”. The appreciation of the profound importance of their core auditing role does not, alas, translate into a sharp focus on the task. EY’s worldwide boss, Mark Weinberger, personifies how the top bean counters see their place in the world. He co-chairs a Russian investment committee with prime minister and Putin placeman Dmitry Medvedev; does something similar in Shanghai; sat on Donald Trump’s strategy forum until it disbanded in 2017 when the US president went fully toxic by appeasing neo-Nazis; and revels in the status of “Global Agenda Trustee” for the World Economic Forum in Davos.

The price of seats at all the top tables is a calamitous failure to account. In decades to come, without drastic reform, it will only become more expensive. If the supposed watchdogs overlook new threats, the fallout could be as cataclysmic as the last financial crisis threatened to be. Bean counting is too important to be left to today’s bean counters.

Monday, 28 May 2018

In silencing Euroscepticism, Italy’s president has gifted its far right

Yanis Varoufakis in The Guardian

Italy should be doing well. Unlike Britain, it exports considerably more to the rest of the world than it imports, while its government spends less (excluding interest payments) than the taxes it receives. And yet Italy is stagnating, its population in a state of revolt following two lost decades.




Italian president names interim prime minister until fresh elections


While it is true that Italy is in serious need of reforms, those who blame the stagnation on domestic inefficiencies and corruption must explain why Italy grew so fast throughout the postwar period until it entered the eurozone. Was its government and polity more efficient and virtuous in the 1970s and 1980s? Hardly.

The singular reason for Italy’s woes is its membership of a terribly designed monetary union, the eurozone, in which the Italian economy cannot breathe and which consecutive German governments refuse to reform.

In 2015 the Greek people elected a progressive, Europeanist government with a mandate to demand a new deal within the eurozone. In the space of six months, under the guidance of the German government, the European Union and its central bank crushed us. A few months later, I was asked by the Italian daily newspaper Corriere della Sera if I thought European democracy was at risk. I answered: “Greece surrendered but it was Europe’s democracy that was mortally wounded. Unless Europeans realise that their economy is run by unelected and unaccountable pseudo-technocrats, committing one gross error after another, our democracy will remain a figment of our collective imagination.”

Since then, the pro-establishment government of Italy’s Democratic party implemented, one after the other, the policies that the unelected bureaucrats of the EU demanded. The result was more stagnation. And so, in March, a national election delivered an absolute parliamentary majority to two anti-establishment parties which, despite their differences, shared doubts about Italy’s eurozone membership and a hostility to migrants. It was the bitter harvest of absent prospects and withering hope.

After a few weeks of the kind of post-election horse-trading common in countries like Italy and Germany, the Five Star Movement and League leaders Luigi Di Maio and Matteo Salvini struck a deal to form a government. Alas, President Sergio Mattarella used the powers bestowed upon him by the Italian constitution to prevent the formation of that government and, instead, handed the mandate to a technocrat, a former IMF employee who stands no chance of a vote of confidence in parliament.

Had Mattarella refused Salvini the post of interior minister, outraged by his promise to expel 500,000 migrants from Italy, I would be compelled to support him. But, no, the president had no such qualms. Not even for a moment did he consider vetoing the idea of a European country deploying its security forces to round up hundreds of thousands of people, cage them, and force them into trains, buses and ferries before sending them goodness knows where.

No, Mattarella chose to clash with an absolute majority of lawmakers for another reason: his disapproval of the finance minister designate. Why? Because the said gentleman, while fully qualified for the job, and despite his declaration that he would abide by the EU’s rules, had in the past expressed doubts about the eurozone’s architecture and has favoured a plan of EU exit just in case it was needed. It was as if Mattarella declared that reasonableness from a prospective finance minister constitutes grounds for his or her exclusion from the post.

What is so striking is that there is no thinking economist anywhere in the world who does not share concern about the eurozone’s faulty architecture. No prudent finance minister would neglect to develop a plan for euro exit. Indeed, I have it on good authority that the German finance ministry, the European Central Bank and every major bank and corporation have plans in place for the possible exit from the eurozone of Italy, even of Germany. Is Mattarella telling us that the Italian finance minister is banned from thinking of such a plan?


Beyond his moral failure, the president has made a major tactical blunder

Beyond his moral failure to oppose the League’s industrial-scale misanthropy, the president has made a major tactical blunder: he fell right into Salvini’s trap. The formation of another “technical” government, under a former IMF apparatchik, is a fantastic gift to Salvini’s party.

Salvini is secretly salivating at the thought of another election – one that he will fight not as the misanthropic, divisive populist that he is, but as the defender of democracy against the Deep Establishment. He has already scaled the moral high ground with the stirring words: “Italy is not a colony, we are not slaves of the Germans, the French, the spread or finance.”

If Mattarella takes solace from the fact that previous Italian presidents managed to put in place technical governments that did the establishment’s job (so “successfully” that the country’s political centre imploded), he is very badly mistaken. This time around he, unlike his predecessors, has no parliamentary majority to pass a budget or indeed to lend his chosen government a vote of confidence. Thus, the president is forced to call fresh elections that, courtesy of his moral drift and tactical blunder, will return an even stronger majority for Italy’s xenophobic political forces, possibly in alliance with the enfeebled Forza Italia of Silvio Berlusconi.

Truth behind PayTM - Dhruv Rathee


Friday, 25 May 2018

Whether Armenia, the Nazis or Isis – if you're going to commit genocide, you can’t do it without the help of local people

Robert Fisk in The Independent


How do you organise a successful genocide – in Turkish Armenia a century ago, in Nazi-occupied Europe in the 1940s, or in the Middle East today? A remarkable investigation by a young Harvard scholar – focusing on the slaughter of Armenians in a single Turkish Ottoman city 103 years ago – suggests the answer is simple: a genocidal government must have the local support of every branch of respectable society: tax officials, judges, magistrates, junior police officers, clergymen, lawyers, bankers and, most painfully, the neighbours of the victims.
Umit Kurt’s detailed paper on the slaughter of the Armenians of Antep in southern Turkey in 1915, which appears in the latest edition of the Journal of Genocide Research, concentrates on the dispossession, rape and murder of just 20,000 of the one and a half million Armenian Christians slaughtered by the Ottoman Turks in the first holocaust of the 20th century. It not only details the series of carefully prepared deportations from Antep and the pathetic hopes of those who were temporarily spared – a story tragically familiar to so many stories of the Jewish ghettoes of Eastern Europe – but lists the property and possessions which the city authorities and peasants sought to lo ot from those they sent to their deaths.

The local perpetrators thus seized farms, pistachio groves, orchards, vineyards, coffee houses, shops, watermills, church property, schools and a library. Officially this was called “expropriation” or “confiscation”, but as Umit Kurt points out, “huge numbers of people were bound together in a circle of profit that was at the same time a circle of complicity”. The author, born in modern-day Gaziantep in Turkey – the original Antep – is of Kurdish-Arab origin, and his spare, dry prose makes his 21-page thesis all the more frightening.

He draws no parallels between the Armenian holocaust – a phrase the Israelis themselves use of the Armenians – and the Jewish holocaust nor the current genocidal outrages in the modern Middle East. But no one can read Umit Kurt’s words without being reminded of the armies of ghosts who haunt later history; the collaborators of Nazi-occupied France, of the Polish collaborators of the Nazis in Warsaw and Krakow and of the tens of thousands of Sunni Muslim civilians who allowed Isis to enslave Yazidi women and destroy the Christians of Nineveh. These victims, too, found themselves dispossessed by their neighbours, their homes looted and their property sold off by the officials who should have protected them as they faced their own extermination.

One of the most powerful of Kurt’s arguments is that a central government cannot succeed in exterminating a minority of its people without the support of their fellow citizens: the Ottomans needed the Muslims of Antep to carry out the deportation orders in 1915 – rewarded with the property of those they were helping to liquidate – just as the local people needed the central authority to legitimise what we would today call war crimes.

Umit Kurt is one of the few academics to recognise the growing economic power of the Ottoman Armenians in the decades before the genocide; “the Muslim community’s envy and resentment,” he writes, “played a central role in the hatemongering atmosphere”. So, too, did repeated Ottoman claims that the Armenians were helping Turkey’s Allied enemies – the same “stab in the back” betrayal routine which Hitler used to rally the Nazis against communists and Jews in the Weimar Republic. In the Middle East today, it is the “infidels” – the “Crusader” (ie pro-Western) Christians – who have been fleeing for their lives for supposedly betraying Islam.

You would have to have the proverbial heart of stone not to be moved by the story of the Antep Armenians in the spring of 1915. Although initially harassed by the murderous Ottoman “Special Organisation” – Teskilat-i Mahsusa, the nearest equivalent to the Nazi Einsatzgruppen of the 1940s – and subject to temporary arrest, the Armenians of Antep were, at first, left alone. But they saw Armenian transports from other towns passing through Antep, the first containing 300 women and children, “injured, their wounds infected and their clothes in tatters”. For two more months, deportation convoys moved through the town and into a wilderness of suffering. “Armenian girls and boys had been kidnapped; women’s belongings and money had been plundered; they had been raped publicly with the active complicity of gendarmeries and government officials.”

Like the Jews of Europe who were initially left untouched by the genocide of their co-religionists, the Antep Armenians could not believe their possible fate. “In spite of everything that was happening around us…” one eyewitness wrote, “the number of those who buried their heads in the sand like an ostrich was not small. These people convinced themselves that they were happy, and they were trying to deceive themselves into believing that a similar deportation was not possible for Aintab [sic] and that nothing bad would happen to them.”

Like brave Polish families and the few Oskar Schindlers of Nazi Germany, a few courageous Turks opposed the Armenian genocide. Celal Bey, the governor of Aleppo – 61 miles from Antep – refused to deport Armenians. But he was dismissed. And the Christian Armenians of Antep were doomed.

On 30 July, 50 Armenian families were ordered to leave in 24 hours. First, only Orthodox Christians were sent away, leaving all their valuables behind. A survivor recalls that “our neighbours, the Turks, were singing from their homes, we could hear them…‘The dog is on its way’…” A week later, another 50 families were deported, only to be attacked by militia bandits led by the manager of the local Agricultural Bank. Inside Antep, women were raped and sent to local “harems”. A local village head (“mukhtar”) threw six Armenian children from a mountain to their deaths. The convoys grew larger – 1,500 Armenians from Antep on 13 August, for example – and sent, by train or on foot, to Aleppo and Deir ez-Zour. Then came the turn of Catholic Armenians.

A pitiful account survives of a thanksgiving service held by Protestants – the only Armenians to escape liquidation so far – in which one of their leaders miserably pleaded with his people to do nothing which might annoy the Turkish authorities. “Let no one take into his home a child or anyone else who has been told to go, whether they be of those passing through the city as refugees or from among our own friends and relatives in the town.” No good Samaritans there. But of course, the Protestants, too, were deported. Of 600 Protestant families, almost 200 had been annihilated at Deir ez-Zour by January 1916.

The local Antep police chief was promoted for his enthusiasm. In the so-called “deportation committees” who decided the Armenians’ fate could be found Antep’s local member of parliament and his brother, a variety of local officials, the president of the municipality, two officials in the finance department, two judges, a magistrate, the first secretary of Antep’s court, a former mufti, two imams, two ulema, two village sheiks, the secretary of a religious charity, a doctor, a lawyer and the director of an orphanage. “No member of these local worthies,” writes Umit Kurt, “did anything to protest the deportations, hide the vulnerable, or stop the convoys.” Of Antep’s 32,000 Armenians, 20,000 perished in the genocide.

But truly the ghosts survive.

By chance this week, I was finishing Martin Winstone’s shocking history of Nazi rule in the occupied “general government” of Poland, The Dark Heart of Hitler’s Europe, and discovered that the Jews – and Poles – of Warsaw, Krakow and Lublin often went through exactly the same process of false hope, collaboration and annihilation as the Armenians of Antep.

While most Poles behaved with courage, dignity and heroism, a minority of gentiles – and this is why the current government of Poland is threatening to punish anyone who talks of Polish collaboration with the Nazis – “participated directly in the murder process”, according to Winstone. They included the Polish “blue” police – ordinary cops in their usual blue uniforms – but also local peasants in the Lublin area, many of whom robbed their victims before beating them to death. Hundreds, perhaps thousands, of fugitive Jews fell victim to perpetrators “who were village heads, members of the village guards formed during the occupation, or blue policemen acting unofficially”. When 50 Jews were discovered hiding in Szczebrzeszyn, a “crowd looked on”. A powerful factor in the murder and denunciation of Jews, the author concludes, was “a lust for Jewish property”.

And today, in the Middle East, we know all too well this familiar pattern of local villainy turned against neighbours, Christian girls in Nineveh seized by Islamists, Yazidi families torn apart and their homes looted by local Sunni militias. When Isis fled the town of Hafter, east of Aleppo, I found the documents of the local Isis courts; they proved that Syrian civilians had betrayed their cousins to the Egyptian judges of the Islamist courts, that neighbours had sought financial reward by denouncing those who had lived beside them for decades. In Bosnia in the 1990s, as we know, Serb neighbours slaughtered their Muslim compatriots, raped their women and seized their homes.

No, this is not something new – but it is something we too often forget. When my own father was asked by the British government in 1940 to name those in Maidstone, Kent, who might collaborate with the Nazis after an invasion, he put one of his best friends, a local businessman, on his list of those who would assist the Germans. Ethnic cleansing, genocide, mass sectarian atrocities might be directed from Constantinople, Berlin, Belgrade or Mosul. But war criminals need their people to complete their projects or – to use an old German expression – “to help to give the wheel a push”.

How Britain let Russia hide its dirty money

For decades, politicians have welcomed the super-rich with open arms. Now they’re finally having second thoughts. But is it too late? By Oliver Bullough in The Guardian


In March, parliament’s foreign affairs committee asked me to come and tell them what to do about dirty Russian cash. As a journalist, I’ve spent much of my career writing about financial corruption in the former Soviet Union, but the invitation came as something of a surprise. After all, ever since I was at school in the 1990s, British politicians have welcomed Russian money to our shores. They have celebrated when oligarchs have bought our football clubs, cheered when they’ve listed their companies on our Stock Exchange. They have gladly accepted their political donations and patronised their charitable foundations.

When journalists and academics pointed out that these murky fortunes could buy influence over our democracy and undermine the rule of law, they were largely dismissed as inconvenient Cassandras warning MPs to beware Russians bearing gifts. But earlier this year, after the poisoning in Salisbury of the former spy Sergei Skripal and his daughter Yulia, those little-heeded prophecies jumped straight into the pages of Hansard. “To those who seek to do us harm, my message is simple: you are not welcome here,” Theresa May told the House of Commons on 14 March, in a speech that blamed Russia for the attack. “There is no place for these people, or their money, in our country.”

Britain’s entire political class joined the prime minister in this screeching handbrake turn. MPs who had long presented the nation’s openness to trade as a great virtue suddenly wanted to be seen as tough on kleptocrats, tough on the causes of kleptocrats. Having allowed so much Russian money into Britain, these MPs were now seized with concern that Vladimir Putin might, through his power over his nation’s super-rich, be able to influence our institutions. Were we selling Putin the rope with which he would hang us, they wondered.

That is why, on 28 March, I took a seat in committee room six, a chamber high up in the Palace of Westminster, with heavy furniture, a view over the River Thames, and a carpet like a migraine. The foreign affairs committee exists to monitor the work of the Foreign Office – essentially, to keep an eye on Boris Johnson – but its members can investigate any subjects they choose. This time, they had chosen to look into the money Putin and his cronies hold in Britain and its overseas territories, with a view to exploring fresh opportunities for sanctions.

I had brought along a list of things I wanted to talk about: how we should improve our defences against money laundering; how we need transparency about who owns property; how MPs themselves must stop taking money from dodgy ex-Soviet oligarchs if they want others to do the same.


Oliver Bullough talking to the the Foreign Affairs Committee in March. Photograph: parliamentlive.tv

But the first question, from Priti Patel, the former international development secretary, threw me: “Can you give the committee a sense of the scale of so-called ‘dirty money’ being laundered through London?” she asked.

It is a vast question, worthy of a book in itself, and one that even the National Crime Agency would struggle to answer, let alone me. Then came her second question: “What assets has that hidden money gone into?”

I tried my best – I mentioned property, private schools, luxury goods – but I think she and I both knew I’d fluffed it. I should have brought along specific examples, with times and dates and names. The embarrassing truth is that, although I have written about Russia and its neighbours for two decades, during which I have increasingly specialised in analysing corruption, it had never really occurred to me to ascertain precisely how much stolen Russian money had found a home in the UK, or to chart exactly where it had ended up.

If someone like me had been this culpably incurious, it is hardly surprising that politicians with dozens of other priorities have had to scramble to understand what we’re facing. But for the past couple of months, I have belatedly tried to discover an answer to the foreign affairs committee’s questions.

It turns out that the situation is even more worrying than I had suspected.
One way to begin investigating exactly how much Russian money there is in Britain – and how much of it is dirty – is to look at the official data. According to Russia’s Federal State Statistics Service, at the end of September, Russian investors held financial assets in the UK worth a total of $3.5bn (£2.6bn). Our own Office of National Statistics provides a broader measure of all Russian investment in the UK, and assessed it – at the end of 2016 – at £25.5bn.

That seems like a lot of money but, on a national scale, it’s small change. Investors from Finland alone have a stake in Britain worth twice that much, and we don’t lose sleep over the Finns destabilising our democracy. Sadly, the statistics are telling a misleading story. Russian money that moves through another jurisdiction before arriving in Britain isn’t counted as Russian and, since the overwhelming majority of money that enters and leaves Russia does so via tax havens such as Cyprus and the Bahamas, this means the official figures reflect only a small portion of the money the MPs were interested in.

Over the past decade, £68bn has flowed from Russia into Britain’s offshore satellites such as the British Virgin Islands, Cayman, Gibraltar, Jersey and Guernsey. That’s seven times more money than has flowed directly from Russia into the UK. (On top of that, some £94bn has poured out of Russia into Cyprus, £13bn into Switzerland, and £23bn into the Netherlands, which has its own network of tax havens.)

This wealth is not actually in the offshore centres – it is just registered there, which helps to obscure its origins. If you’re a Russian official whose wealth is wildly disproportionate to your salary, this anonymity allows you to spend your money in London without anyone realising you’re a crook. The French economist Thomas Piketty estimates that more than half of Russians’ total wealth is held offshore in this manner – some $800bn (£597bn) – and by a tiny number of people, perhaps just a few hundred. “Rich Russians live between London, Monaco and Moscow,” Piketty wrote in a blogpost in April. “Post-communism has become the worst ally of hyper-capitalism.”

This means that there is not a single sewer pumping dirty Russian cash into the UK to which we can attach a meter, so as to measure its output. Instead, the cash is diluted into the great tidal flows of liquid capital that pour in and out of the City of London every day, from every corner of the globe. The ordure churned out by Russian crooks and kleptocrats is thus, thanks to the skilled attentions of the tax havens’ best brains, indistinguishable from ordinary investment.

Gorey harbour in Jersey, a UK crown dependency and international finanical centre. Photograph: Brian Lawrence/Getty Images

One of the few studies to forensically address this phenomenon came from analysts at Deutsche Bank, who, in 2015, looked at discrepancies in the records of money that flows into and out of the UK, and concluded that since the early 1990s, £133bn had arrived here without ever being publicly accounted for. They estimated that “less than half” of that sum was likely to be Russian, which means that Russians could have secret holdings here of up to £67.5bn, on top of the officially declared figure. (That is still a small amount compared with the holdings of German, American or French investors.)

So whose money is this? How is it getting here? The bank’s analysts didn’t look into that question. However, had they wanted to, they could have walked down the hall and asked their colleagues, since it turned out that Deutsche Bank itself was a significant culprit in spiriting money out of Russia without informing the authorities. Less than two years after the report – called Dark Matter – was published, Deutsche Bank traders in Moscow were caught secretly moving $10bn (£7.5bn) of their clients’ money out of Russia by illegally exploiting the stock market. (As a result, the bank had to pay finesof $425m (£317m) in the US and £163m in the UK.)

With institutions as sophisticated as Deutsche Bank working to hide Russian money, it is unsurprising that the total amount in the UK remains vague. So there is no real answer to the foreign affairs committee’s first question, except to say that the volume of Russian money in Britain is far larger than the official statistics would have us think.

There are two reasons why we should be worried about this. The first is the low-probability but high-impact chance that Putin is hiding money here in the financial equivalent of sleeper cells, ready to slip out and buy influence when a crisis comes. The second is more significant: no one steals money if they can’t keep it. By letting Putin’s allies launder their stolen fortunes, and hide them in our country, we are drawing a line under their crimes, and rewarding them for actions we should not be condoning. Do we really want Britain to be the Kremlin’s fence?

To attempt an answer to Priti Patel’s second question – what assets has all this money gone into? – we need to look at how wealthy Russians responded to the collapse of communism. They chose to spend their newly freed money on assets they had long been denied, and ones that could not be taken away from them. Above all, they bought luxury goods and property outside their own country, particularly in London.

In early 1993, rich Russians were enough of a novelty for the Independent to report that three of them had bought flats in Kensington – at prices between £200,000 and £320,000 – under the headline “Property – a haven for rich refugees”. A month later, a Russian tycoon dropped £1.1m on a house in Hampstead, and then bought all the contents, too. “All he took into the house were four televisions and a vanload of carrier bags from Harrods,” an estate agent told the Evening Standard.

Those purchases were the first ripples of a tsunami of wealth that crashed over the whole south-east of England, with spectacular consequences. In 2013, an analysis by the estate agency Knight Frank estimated that almost a tenth of all buyers at the top end of the London market came from the former Soviet Union, while rival estate agents Savills calculated that Russians like to buy the biggest houses of any group of purchasers. Average house prices in Kensington have risen eightfold over the past two decades, at least partly thanks to the influx from Russia.
The poster boy for ostentatious expenditure has been the oligarch Roman Abramovich, who bought Chelsea football club in 2003. But even his London house – valued at £125m – was second division in the spending league. In April 2011, a Ukrainian bought the world’s most expensive flat – the penthouse at One Hyde Park – for £136.4m. Five months later, a Russian bought Park Place, a stately home near Henley-on-Thames, for £140m. Russians who acquired homes valued merely in the tens of millions barely deserved notice.

Among those lesser buyers was a banker called Grigory Guselnikov, a boyish 42-year-old who moved to London in 2008. He and his family came on tier 1 investor visas, which provide successful applicants with residency in exchange for an investment (of, at the time, £1m) in government bonds. In the eight years to September 2015, Russian citizens made up 764 of the 3,396 people who paid for these so-called golden visas – making them the second largest group of applicants, after Chinese citizens. This arrangement brought in around £800m of Russian investment, but the flow dropped markedly after April 2015, when the UK authorities began to check the origin of the money used to buy these government bonds. Once rigorous checks were put in place and the price of the visa was doubled, the number of applications fell sharply. In the final quarter of last year, just 16 Russians applied for a golden visa.

Guselnikov believes that politicians’ sudden panic about Russian money in Britain is misplaced. When we met in his office in a grand terraced house on Grosvenor Square, he began by pointing out that Russian money had less influence over British business than people think. “I can’t recall any big enterprise controlled by Russians, or any big company. They open restaurants, wine shops, they buy luxury stuff like football clubs.

“Where the impact is significant is real estate,” Guselnikov continued. “And primarily real estate in London.” His most high-profile investment was the shop that houses the Rolex concession on the ground floor of One Hyde Park, which he bought in 2011 for £12m (and sold for £20m three years later), and which demonstrates the peculiar dynamics at the top end of the property market, where the price of residential property is inflated beyond any conceivable income it could generate. “There is a shop, with advertising, 300 sq metres and the price is £12m. The flat above has no advertising, no shop, no ability to make money; it’s the same size, 300 sq metres, and cost £25m. The shop was two times cheaper than the flat, that was really funny,” he said, with a laugh.

His second point was that it was a misconception to think Russians are Machiavellian masterminds buying up slabs of Britain in order to undermine us from within. “You have to understand why people buy real estate abroad – they see it as their pension, they want to diversify the risk. In Russia, you have to be ready to lose everything, you never know what will happen,” he said. “They just spend money here. They don’t invest, they spend.”

One reason the Russian super-rich come to Britain, Guselnikov said, was for education. His own children attended private schools, although they now have British passports, so they were not counted among the 2,806 Russian children attending schools surveyed by the Independent Schools Council last year. By multiplying that total with the average fees parents pay, we can calculate that a minimum of £48.3m comes to Britain’s private schools each year from Russia.

Guselnikov said banks had become more stringent in their checks on the provenance of money in the last few years, so it was unlikely that significant flows of dirty money were entering the UK from Russia any more. But he conceded things had been different in the past. “If any dirty money is invested in UK property, it was before 2008; or before 2011 at the latest, not now. I don’t think the UK’s attractive any more, I don’t think it’s possible any more,” he said.

It may well be that, as Guselnikov said, many honest Russian businesspeople have indeed been behind these purchases of London property. However, thanks to tax havens and skilled enablers from the world’s major financial institutions, their money has been mingled with the proceeds of theft, bribery and corruption. Imagining that Britain will be unscathed by this influx is the macro equivalent of letting a kidnapper, a bent copper, and a heroin trafficker move into your village, and still expecting warm chats at the school gates.

Transparency International published a report last year, which, relying only on public sources of information, identified 160 properties in the UK, together worth £4.4bn, that had been bought by what it called “high-corruption-risk individuals”. Most of those properties were in London, and half of them were within three miles of Buckingham Palace – and that is just a fraction of the true total. “There is currently no credible deterrent in place for money-laundering failings from estate agents,” the report noted.

Two years ago, a former fund manager called Bill Browder gave evidence to parliament’s home affairs committee in which he revealed how $30m (£22m) that had been stolen from the Russian state by a group of corrupt police officers and officials had come to the UK, via 12 different banks, and been spent on an array of luxury goods: $176,000 went on chartering a private jet; $192,000 on redecorating a yacht; $20,000 on private school fees; $41,000 on a wedding dress; $295,000 to pay off an exclusive women-only credit card that offers “the most privileged and luxurious service”.

Browder, who was born in the US but is a British citizen, ran a successful Moscow-based fund until 2007, when the corrupt officials fraudulently claimed ownership of two of his investment companies. They realised that, by fiddling the books, they could claw back the $230m in taxes that he had paid on the year’s profits, which is what they did. The $30m that ended up in the UK derived from this act of grand larceny. When Browder’s lawyer Sergei Magnitsky exposed the fraud, he was arrested and detained in jail, where he was beaten and denied treatment for pancreatitis until he died. Browder has devoted the years since Magnitsky’s death to seeking justice for his lawyer, and punishment for those responsible. He employs a team of forensic accountants, who have traced the movement of the money that was stolen from the Russian budget.

The spending that he described to parliament fitted the pattern laid out by Guselnikov: it was being blown on luxury goods, rather than being invested to win influence over British politics or society. But that doesn’t mean we shouldn’t be concerned about it. This money should have been paid as taxes and spent on hospitals, schools and other services in Russia. Instead, it had been stolen from taxpayers and splashed on an absurd array of goodies. This is the kind of money Britain has been happily fencing for decades. Even now, British MPs only seem to care about it because its owners might harm our national security, rather than because it should be returned to the people it was originally stolen from.

Browder told the home affairs committee that he had traced chunks of the stolen money to 11 other countries – including France, Switzerland and the US – and investigators in every one of those countries had opened criminal cases based on the information he provided. But in Britain – where he had spoken to the Metropolitan police, the Serious Organised Crime Agency (now part of the National Crime Agency), the Serious Fraud Office, and HMRC – he had been turned away every time.

Why was Britain the only country that declined to act on the information Browder provided? His conclusion was that too many influential people – lawyers, bankers, accountants, property developers – were dependent on dirty Russian money for their livelihoods. “If that money was stopped,” he said in 2016, “certain people would find themselves without businesses, and I think those people have political weight in this country.”

Many British institutions have indeed accepted donations from wealthy Russian businesspeople: Sadiq Khan’s City Hall from Elena Baturina, whose husband was mayor of Moscow; the Conservative party from Lubov Chernukhin, whose husband was one of Putin’s ministers, and who paid £160,000 to play tennis with Boris Johnson and David Cameron in 2014.

 
Prime minister David Cameron with Russian president Dmitry Medvedev in Moscow in 2011. Photograph: Stefan Rousseau/PA

But it is not venal politicians who are stopping British police conducting investigations into the laundering of Russian money in the UK. According to Tristram Hicks, who was the detective superintendent in charge of economic crime at the Met until 2009, and who now acts as a freelance consultant to police forces around the world, the problem is far more serious than that.

In order to prosecute a foreign crook in Britain, you need to prove their money originated in a crime of some kind, and that requires evidence from overseas. Essentially, if you want to prosecute a Kremlin insider, you need evidence from the Kremlin, which naturally it will not provide, and that stops investigations from progressing. And this is not just a British problem. After France, Switzerland and the Netherlands received information from Browder that some of the stolen $230m had been spent in their countries, they froze the assets in question – but their criminal investigations are yet to secure convictions. Only US prosecutors have managed a result, and even that was just an out-of-court settlement, without an admission of guilt by the defendant. “You cannot underestimate the technical hurdle that is bringing the evidence to a British standard for a British court,” Hicks said.

That isn’t the only obstacle to investigating money laundering. Given that all wealthy Russians have political connections – otherwise, they wouldn’t be wealthy – if the UK does gain cooperation from Russian investigators in a prosecution, the defendant will invariably claim, often with good reason, that he is being politically persecuted, which allows his lawyers to discount the evidence being used against him.

Take Andrey Borodin, the owner of that £140m house in Henley-on-Thames. He arrived in Britain in 2011, pursued by Russian charges of having defrauded his own bank. Borodin insisted the charges were politically motivated, and gained asylum here. Had prosecutors brought charges in the UK, his lawyers could have discounted any evidence from Russia as the revenge of political rivals, and Hicks conceded this would essentially doom the prosecution’s case. “That’s hard to argue against,” he said.

There is also a third difficulty that Hicks didn’t address, which is just as serious. If a wealthy, ruthless Russian faces investigation, he can stop any chance of prosecution by killing the witnesses. This may well have been what happened to Alexander Litvinenko, who was murdered with radioactive polonium-210 in 2006, and who was working with Spanish and British authorities to expose Russian money flows. It may also explain the death of Alexander Perepilichny, a 44-year-old banker who was helping Browder’s team to understand the destination of the $230m stolen from the Russian budget, and who died while jogging in Surrey in 2012. Investigators at first thought he had suffered a heart attack, but it appears that he may have been poisoned with a rare plant extract.

In short, to bring a successful money-laundering prosecution against a wealthy Russian, officers need to win cooperation from Moscow, which is all but impossible; to convince a UK court that any cooperation that does result was not politically motivated, which is extremely difficult; and then to keep their witnesses alive, which has proven rather hard. In the circumstances, it’s not surprising that the NCA decided bringing a prosecution in the Magnitsky case was not the best use of its resources.

The amazing thing is that we have tolerated this situation for so long. Britain has consistently welcomed Russian money, and consistently ignored the warnings of those concerned about what it is buying. In March 2000, when Putin was still just acting president and had spent six months pulverising Chechnya, Tony Blair dashed to St Petersburg to be the first western leader to secure a meeting with the new man, and to urge more investment in each other’s countries.

At least Blair could claim not to have known what kind of man Putin was, but David Cameron had no such excuse. In September 2011, Cameron went to Moscow to seek business for the City of London, although most of the facts that are currently concerning MPs about Russia were already known. Litvinenko had been murdered five years previously, and Russia had given one of the Met’s suspects in the case a seat in parliament. Magnitsky had died in jail two years earlier, and his tormentors were walking free. But Cameron went to Moscow anyway.

“The whole point about trade is that we are baking a bigger cake and everyone can benefit from it and this is particularly true, perhaps, of Russia and Britain. Russia is resource-rich and services-light whereas Britain is the opposite,” Cameron told students at Moscow State University, on a trip that also involved meetings with Putin and his then placeholder president Dmitry Medvedev.

In his speech, Cameron boasted that Russian companies accounted for a quarter of share offerings on the London Stock Exchange. “Governments need to remember that businesses don’t have to invest in our country – they choose to. And we need to help them make that choice,” Cameron said. “It means minimising the burden of regulation so that business and entrepreneurship can flourish.”

With a prime minister who considered regulations on the origin of money to be a burden, it’s unsurprising that not many of them were made. This approach did not of course begin with Cameron, or even with Blair. In fact, it goes back to the mid-20th century. After the second world war, Britain was all but bankrupt, the City of London was somnolent, and economic power rested on Wall Street. City bankers wanted to get back into business, but were frustrated by the weakness of the pound, and its unsuitability as a means to finance the world’s trade.


  Vladimir Putin and Tony Blair in Downing Street in 2003. Photograph: Grigory Dukor/Reuters

Their salvation came from an unlikely quarter: the Soviet Union, which didn’t want to keep its dollar reserves in US banks. Instead, it kept them in London, where British banks began lending them to each other in an entirely unregulated market – they became known as “Eurodollars” – thus giving birth to offshore finance, and providing the City with the startup capital it needed to get back in business. By the end of the communist period, Soviet institutions routinely sent their money through Britain’s offshore territories, and the City was booming. The Central Bank in Moscow even had a shell company in Jersey, which it used to hide money from the government that it was supposedly a part of.

This is one of the problems with trying to ascertain the volume of dirty Russian money in London: how far back do we go? Do the fees Midland Bank received for banking Soviet money in the 1950s still count as Russian cash, and if so, are they dirty? Does the commission the estate agent earned by selling those flats in Kensington in the early 1990s count as dirty money? And what about the £800m that Russians paid for government bonds in return for golden visas? Or the $41,000 of Magnitsky money that was spent on a wedding dress in London? How many times does money have to circulate in the economy before we decide it’s not dirty any more?

This money is so deeply embedded in the UK that extracting it, or even identifying it, would be an unrivalled feat of investigation. “It would be impossible,” says Prem Sikka, professor of accounting at Sheffield University. “They have the big accountancy firms advising them where best to stash the money, to conceal it, to disguise it, all kind of things. The brains of this pinstriped mafia are available to everyone. They’re for hire.”

Recently, I spoke to Jon Benton, who led teams fighting dirty money at the Met and the NCA, and advised Cameron at the Cabinet Office, until his retirement in 2016. “We used to get these suspicious activity reports coming in, Russian ones, all the time. It would be for an investment or a property or a load of other things,” Benton said. “You’re looking at something that doesn’t look right, doesn’t smell right, but we had a tiny number of resources. To get caught up in some really complex Russian money-laundering case, when we weren’t going to get any assistance – you have to weigh it up. Do I try to throw lots of resources at this, when I know I’m really going to struggle to get the door open?”

Benton was optimistic about the introduction of so-called unexplained wealth orders, which came into effect in February this year. Once a UWO has been issued, property is frozen, and its owner has to respond and justify why they own it. But that will only confiscate property, Benton noted. It won’t put anyone in jail.

“The time when we might have been able to do something about this was 20 years ago, when it wasn’t particularly sophisticated, and the large sums of money were just arriving in the country,” he said. By ignoring the provenance of dirty cash, and allowing it to be spent on property, British authorities have cleansed it of its taint: it is legitimate investment now. “Unpicking all that is a real challenge. The reality is that it’s probably the hardest area to penetrate in the world.”

We don’t know how much dirty money there is in the UK, nor do we know exactly where it is, and there’s nothing we can do about it. Or rather, there’s nothing we can do about it with the laws as they stand, and without giving greater resources to law enforcement agencies. Almost 100,000 UK properties are currently owned via offshore companies, obscuring their ownership, many of them undoubtedly by Russian criminals and kleptocrats we could happily do without. The government has promised to force these offshore companies to disclose their true owners, but that won’t be until 2021. For the next three years, criminals will be free to profit from their property in the UK without admitting they own it. Why can’t we hurry that up? To answer both of Priti Patel’s questions – how much money is there, and where is it? – we need transparency.

The foreign affairs committee published its conclusions this week, drawing on the evidence that I and others gave it, and they were impressively robust. Its report demanded a more coherent government approach to the “assets stored and laundered in London (which) both directly and indirectly support President Putin’s campaign to subvert the international rules-based system, undermine our allies, and erode the mutually reinforcing international networks that support UK foreign policy”.

Earlier this week, it was reported that Abramovich is finding it hard to renew his British visa, and some newspapers are speculating that this suggests Britain is already pioneering a new approach to Russian money, one that demands checks on the fortunes even of the very richest, and even when there is no apparent evidence of corruption. We do not yet know the reasons for the delay in the Chelsea owner’s visa, but such checks should be welcomed anyway: in cases where evidence emerges that someone is corrupt, that person should be kept out of Britain. But this alone is insufficient; we need to find the dodgy money that is already here. Confiscating it and finding a way to return it to the Russian people would diminish those who mean us harm, while simultaneously helping those we wish to befriend.

That requires strengthening Britain’s investigative power. The National Crime Agency and the UK’s police forces currently lack the resources to bring the prosecutions that could really make a difference to criminals’ calculation about whether to bring their money here. If we wish to prevent Russian kleptocrats from buying our country, we need to start catching them and their enablers in the act, and prosecuting them. That is the only true deterrent.

Prospects for Indian Development

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The trouble with charitable billionaires

More and more wealthy CEOs are pledging to give away parts of their fortunes – often to help fix problems their companies caused. Some call this ‘philanthrocapitalism’, but is it just corporate hypocrisy? By Carl Rhodes and Peter Bloom in The Guardian


In February 2017, Facebook’s founder and CEO Mark Zuckerberg was in the headlines for his charitable activities. The Chan Zuckerberg Initiative, founded by the tech billionaire and his wife, Priscilla Chan, handed out over $3m in grants to aid the housing crisis in the Silicon Valley area. David Plouffe, the Initiative’s president of policy and advocacy, stated that the grants were intended to “support those working to help families in immediate crisis while supporting research into new ideas to find a long-term solution – a two-step strategy that will guide much of our policy and advocacy work moving forward”.

This is but one small part of Zuckerberg’s charity empire. The Initiative has committed billions of dollars to philanthropic projects designed to address social problems, with a special focus on solutions driven by science, medical research and education. This all took off in December 2015, when Zuckerberg and Chan wrote and published a letter to their new baby Max. The letter made a commitment that over the course of their lives they would donate 99% of their shares in Facebook (at the time valued at $45bn) to the “mission” of “advancing human potential and promoting equality”.

The housing intervention is of course much closer to home, dealing with issues literally at the door of Facebook’s Menlo Park head office. This is an area where median house prices almost doubled to around $2m in the five years between 2012 and 2017.

More generally, San Francisco is a city with massive income inequality, and the reputation of having the most expensive housing in the US. Chan Zuckerberg’s intervention was clearly designed to offset social and economic problems caused by rents and house prices having skyrocketed to such a level that even tech workers on six-figure salaries find it hard to get by. For those on more modest incomes, supporting themselves, let alone a family, is nigh-on impossible.

Ironically, the boom in the tech industry in this region – a boom Facebook has been at the forefront of – has been a major contributor to the crisis. As Peter Cohen from the Council of Community Housing Organizations explained it: “When you’re dealing with this total concentration of wealth and this absurd slosh of real-estate money, you’re not dealing with housing that’s serving a growing population. You’re dealing with housing as a real-estate commodity for speculation.”

Zuckerberg’s apparent generosity, it would seem, is a small contribution to a large problem that was created by the success of the industry he is involved in. In one sense, the housing grants (equivalent to the price of just one-and-a-half average Menlo Park homes) are trying to put a sticking plaster on a problem that Facebook and other Bay Area corporations aided and abetted. It would appear that Zuckerberg was redirecting a fraction of the spoils of neoliberal tech capitalism, in the name of generosity, to try to address the problems of wealth inequality created by a social and economic system that allowed those spoils to accrue in the first place.

It is easy to think of Zuckerberg as some kind of CEO hero – a once regular kid whose genius made him one of the richest men in the world, and who decided to use that wealth for the benefit of others. The image he projects is of altruism untainted by self-interest. A quick scratch of the surface reveals that the structure of Zuckerberg’s charity enterprise is informed by much more than good-hearted altruism. Even while many have applauded Zuckerberg for his generosity, the nature of this apparent charity was openly questioned from the outset.

The wording of Zuckerberg’s 2015 letter could easily have been interpreted as meaning that he was intending to donate $45bn to charity. As investigative reporter Jesse Eisinger reported at the time, the Chan Zuckerberg Initiative through which this giving was to be funnelled is not a not-for-profit charitable foundation, but a limited liability company. This legal status has significant practical implications, especially when it comes to tax. As a company, the Initiative can do much more than charitable activity: its legal status gives it rights to invest in other companies, and to make political donations. Effectively the company does not restrict Zuckerberg’s decision-making as to what he wants to do with his money; he is very much the boss. Moreover, as Eisinger described it, Zuckerberg’s bold move yielded a huge return on investment in terms of public relations for Facebook, even though it appeared that he simply “moved money from one pocket to the other” while being “likely never to pay any taxes on it”.

The creation of the Chan Zuckerberg Initiative – decidedly not a charity organisation – means that Zuckerberg can control the company’s investments as he sees fit, while accruing significant commercial, tax and political benefits. All of this is not to say that Zuckerberg’s motives do not include some expression of his own generosity or some genuine desire for humanity’s wellbeing and equality.

What it does suggest, however, is that when it comes to giving, the CEO approach is one in which there is no apparent incompatibility between being generous, seeking to retain control over what is given, and the expectation of reaping benefits in return. This reformulation of generosity – in which it is no longer considered incompatible with control and self-interest – is a hallmark of the “CEO society”: a society where the values associated with corporate leadership are applied to all dimensions of human endeavour.

Mark Zuckerberg was by no means the first contemporary CEO to promise and initiate large-scale donations of wealth to self-nominated good causes. In the CEO society it is positively a badge of honour for the world’s most wealthy businesspeople to create vehicles to give away their wealth. This has been institutionalised in what is known as The Giving Pledge, a philanthropy campaign initiated by Warren Buffett and Bill Gates in 2010. The campaign targets billionaires around the world, encouraging them to give away the majority of their wealth. There is nothing in the pledge that specifies what exactly the donations will be used for, or even whether they are to be made now or willed after death; it is just a general commitment to using private wealth for ostensibly public good. It is not legally binding either, but a moral commitment.

There is a long list of people and families who have made the pledge. Mark Zuckerberg and Priscilla Chan are there, and so are some 174 others, including household names such as Richard and Joan Branson, Michael Bloomberg, Barron Hilton and David Rockefeller. It would seem that many of the world’s richest people simply want to give their money away to good causes. This all amounts to what human geographers Iain Hay and Samantha Muller sceptically refer to as a “golden age of philanthropy”, in which, since the late 1990s, bequests to charity from the super-rich have escalated to the hundreds of billions of dollars. These new philanthropists bring to charity an “entrepreneurial disposition”, Hay and Muller wrote in a 2014 paper, yet one that they suggest has been “diverting attention and resources away from the failings of contemporary manifestations of capitalism”, and may also be serving as a substitute for public spending withdrawn by the state.

 
Warren Buffett announces a $30bn donation to the Bill and Melinda Gates Foundation, 2006. Photograph: Justin Lane/EPA

Essentially, what we are witnessing is the transfer of responsibility for public goods and services from democratic institutions to the wealthy, to be administered by an executive class. In the CEO society, the exercise of social responsibilities is no longer debated in terms of whether corporations should or shouldn’t be responsible for more than their own business interests. Instead, it is about how philanthropy can be used to reinforce a politico-economic system that enables such a small number of people to accumulate obscene amounts of wealth. Zuckerberg’s investment in solutions to the Bay Area housing crisis is an example of this broader trend.

The reliance on billionaire businesspeople’s charity to support public projects is a part of what has been called “philanthrocapitalism”. This resolves the apparent antinomy between charity (traditionally focused on giving) and capitalism (based on the pursuit of economic self-interest). As historian Mikkel Thorup explains, philanthrocapitalism rests on the claim that “capitalist mechanisms are superior to all others (especially the state) when it comes to not only creating economic but also human progress, and that the market and market actors are or should be made the prime creators of the good society”.

The golden age of philanthropy is not just about benefits that accrue to individual givers. More broadly, philanthropy serves to legitimise capitalism, as well as to extend it further and further into all domains of social, cultural and political activity.

Philanthrocapitalism is about much more than the simple act of generosity it pretends to be, instead involving the inculcation of neoliberal values personified by the billionaire CEOs who have led its charge. Philanthropy is recast in the same terms in which a CEO would consider a business venture. Charitable giving is translated into a business model that employs market-based solutions characterised by efficiency and quantified costs and benefits.

Philanthrocapitalism takes the application of management discourses and practices from business corporations and adapts them to charitable work. The focus is on entrepreneurship, market-based approaches and performance metrics. The process is funded by super-rich businesspeople and managed by those experienced in business. The result, at a practical level, is that philanthropy is undertaken by CEOs in a manner similar to how they would run businesses.

As part of this, charitable foundations have changed in recent years. As explained in a paper by Garry Jenkins, a professor of law at the University of Minnesota, this involves becoming “increasingly directive, controlling, metric-focused and business-oriented with respect to their interactions with grantee public charities, in an attempt to demonstrate that the work of the foundation is ‘strategic’ and ‘accountable’”.

This is far from the benign shift to a different and better way of doing things that it claims to be – a CEO style to “save the world through business thinking and market methods”, as Jenkins puts it. Instead, the risk of philanthrocapitalism is a takeover of charity by business interests, such that generosity to others is appropriated into the overarching dominance of the CEO model of society and its corporate institutions.

The modern CEO is very much at the forefront of the political and media stage. While this often leads to CEOs becoming vaunted celebrities, it also leaves them open to being identified as scapegoats for economic injustice. The increasingly public role taken by CEOs is related to a renewed corporate focus on their wider social responsibility. Firms must now balance, at least rhetorically, a dual commitment to profit and social outcomes. This has been reflected in the promotion of the “triple bottom line”, which combines social, financial and environmental priorities in corporate reporting.

This turn toward social responsibility represents a distinct problem for CEOs. While firms may be willing to sacrifice some short-term profit for the sake of preserving their public reputation, this same bargain is rarely on offer to CEOs themselves, who are judged on their quarterly reports and how well they are serving the fiscal interests of their shareholders. Thus, whereas social responsibility strategies may win public kudos, in the confines of the boardroom it is often a different story, especially when the budget is being scrutinised.

There is a further economic incentive for CEOs to avoid making fundamental changes to their operations in the name of social justice, in that a large portion of CEO remuneration often consists of company stock and options. Accepting fair trade policies and closing sweatshops may be good for the world, but is potentially disastrous for a firm’s immediate financial success. What is ethically valuable to the voting and buying public is not necessarily of concrete value to corporations, nor personally beneficial to their top executives.

Many firms have sought to resolve this contradiction through high-profile philanthropy. Exploitative labour practices or corporate malpractice are swept under the carpet as companies publicise tax-efficient contributions to good causes. Such contributions may be a relatively small price to pay compared with changing fundamental operational practices. Likewise, giving to charity is a prime opportunity for CEOs to be seen to be doing good without having to sacrifice their commitment to making profit at any social cost. Charitable activity permits CEOs to be philanthropic rather than economically progressive or politically democratic.

There is an even more straightforward financial consideration at play in some cases. Charity can be an absolute boon to capital accumulation: corporate philanthropy has been shown to have a positive effect on perceptions by stock market analysts. At the personal level, CEOs can take advantage of promoting their individual charity to distract from other, less savoury activities; as an executive, they can cash in on the capital gains that can be made from introducing high-profile charity strategies.

The very notion of corporate social responsibility, or CSR, has been criticised for providing companies with a moral cover to act in quite exploitative and socially damaging ways. But in the current era, social responsibility, when portrayed as an individual character trait of chief executives, has allowed corporations to be run as irresponsibly as ever. CEOs’ very public engagement in philanthrocapitalism can be understood as a key component of this reputation management. It is part of the marketing of the firm itself, as the good deeds of its leaders come to signify the overall goodness of the corporation.

Ironically, philanthrocapitalism also grants corporations the moral right, at least within the public consciousness, to be socially irresponsible. The trumpeting of the CEOs’ personal generosity can grant an implicit right for their corporations to act ruthlessly and with little consideration for the broader social effects of their activities. This reflects a productive tension at the heart of modern CSR: the more moral a CEO, the more immoral their company can in theory seek to be.

The hypocrisy revealed by CEOs claiming to be dedicated to social responsibility and charity also exposes a deeper authoritarian morality that prevails in the CEO society. Philanthrocapitalism is commonly presented as the social justice component of an otherwise amoral global free market. At best, corporate charity is a type of voluntary tax paid by the 1% for their role in creating such an economically deprived and unequal world. Yet this “giving” culture also helps support and spread a distinctly authoritarian form of economic development that mirrors the autocratic leadership style of the executives who predominantly fund it.

The marketisation of global charity and empowerment has dangerous implications that transcend economics. It also has a troubling emerging political legacy, one in which democracy is sacrificed on that altar of executive-style empowerment. Politically, the free market is posited as a fundamental requirement for liberal democracy. However, recent analysis reveals the deeper connection between processes of marketisation and authoritarianism. In particular, a strong government is required to implement these often unpopular market changes. The image of the powerful autocrat is, to this effect, transformed into a potentially positive figure, a forward-thinking political leader who can guide their country on the correct market path in the face of “irrational” opposition. Charity becomes a conduit for CEOs to fund these “good” authoritarians.


A protester outside the Nasdaq headquarters in New York marks Facebook’s IPO, 2012. Photograph: Alamy Stock Photo

The recent development of philanthrocapitalism also marks the increasing encroachment of business into the provision of public goods and services. This encroachment is not limited to the activities of individual billionaires; it is also becoming a part of the activities of large corporations under the rubric of CSR. This is especially the case for large multinational corporations whose global reach, wealth and power give them significant political clout. This relationship has been referred to as “political CSR”. Business ethics professors Andreas Scherer and Guido Palazzo note that, for large corporations, “CSR is increasingly displayed in corporate involvement in the political process of solving societal problems, often on a global scale”. Such political CSR initiatives see organisations cooperating and collaborating with governments, civic bodies and international institutions, so that historical separations between the purposes of the state and the corporations are increasingly eroded.

Global corporations have long been involved in quasi-governmental activities such as the setting of standards and codes, and today are increasingly engaging in other activities that have traditionally been the domain of government, such as public health provision, education, the protection of human rights, addressing social problems such as Aids and malnutrition, protection of the natural environment and the promotion of peace and social stability.

Today, large organisations can amass significant economic and political power, on a global scale. This means that their actions – and the way those actions are regulated – have far-reaching social consequences. The balanced tipped in 2000, when the Institute for Policy Studies in the US reported, after comparing corporate revenues with gross domestic product (GDP), that 51 of the largest economies in the world were corporations, and 49 were national economies. The biggest corporations were General Motors, Walmart and Ford, each of which was larger economically than Poland, Norway and South Africa. As the heads of these corporations, CEOs are now quasi-politicians. One only has to think of the increasing power of the World Economic Forum, whose annual meeting in Davos in Switzerland sees corporate CEOs and senior politicians getting together with the ostensible goal of “improving the world”, a now time-honoured ritual that symbolises the global power and agency of CEOs.

The development of CSR is not the result of self-directed corporate initiatives for doing good deeds, but a response to widespread CSR activism from NGOs, pressure groups and trade unions. Often this has been in response to the failure of governments to regulate large corporations. High-profile industrial accidents and scandals have also put pressure on organisations for heightened self-regulation.

An explosion at a Union Carbide chemical plant in Bhopal, India in 1984 led to the deaths of an estimated 25,000 people. James Post, a professor of management at Boston University, explains that, after the disaster, “the global chemical industry recognised that it was nearly impossible to secure a licence to operate without public confidence in industry safety standards. The Chemical Manufacturers Association (CMA) adopted a code of conduct, including new standards of product stewardship, disclosure and community engagement.”

The impetus for this was corporate self-interest, rather than generosity, as industries and corporations globally “began to recognise the increasing importance of reputation and image”. Similar moves were enacted after other major industrial accidents, such as the Exxon Valdez oil tanker spilling hundreds of thousands of barrels of oil in Alaska in 1989, and BP’s Deepwater Horizon oil rig exploding in the Gulf of Mexico in 2010.

 
The Deepwater Horizon oil rig ablaze in the Gulf of Mexico, April 2010.
Photograph: Handout/Getty Images


Another important case was the involvement of the clothing companies Gap and Nike in a child labour scandal after the broadcast of a BBC Panorama documentary in October 2000. Factories in Cambodia making Gap and Nike clothing were shown to operate with terrible working conditions, involving children as young as 12 working seven days a week, being forced to do overtime, and enduring physical and emotional abuse from management. The public outcry that ensued demanded that Gap and Nike, and other organisations like them, take more responsibility for the negative human social impacts of their business practices.

CSR was introduced in order to reduce the ill effects of corporate self-interest. But over time it has turned into a means for further enhancing that self-interest while ostensibly claiming to be addressing the interests of others. When facing the threat of corporate scandal, CSR is seen as the vehicle through which corporate reputation can be boosted, and the threat of government regulation can be mitigated. Again, here we see how corporations engage in seemingly responsible practices in order to increase their own political power, and to diminish the power of nation states over their own operations.

The idea that organisations adopt CSR for the purposes of developing or defending a corporate reputation has put the ethics of CSR under scrutiny. The contention has arisen that, rather than using CSR as a means of “being good”, corporations adopt it merely as a means of “looking good”, while not in any way questioning their basic ethical or political stance. Even Enron, before its legendary fraud scandal and eventual demise in 2001, was well known for its advocacy of social responsibility.

CEO generosity is epic in proportions – or at least that is how it is portrayed. Indeed, on an individual level it is hard to find fault with those rich people who have given away vast swaths of their wealth to charitable causes, or those corporations that champion socially responsible programmes. But what CSR and philanthrocapitalism achieve more broadly is the social justification of extreme wealth inequality, rather than any kind of antidote to it. We need to note here that, despite the apparent proliferation of giving promised by philanthrocapitalism, the so-called golden age of philanthropy is also an age of expanding inequality.

This is clearly spelled out a 2017 report by Oxfam called An Economy for the 99%. It highlights the injustice and unsustainability of a world suffering from widening levels of inequality: since the early 1990s, the top 1% of the world’s wealthy people have gained more income than the entire bottom 50%. Why so? Oxfam’s report places the blame firmly with corporations and the global market economies in which they operate. The statistics are alarming, with the world’s 10 biggest corporations having revenues that exceed the total combined revenues of the 180 least wealthy nations. Corporate social responsibility is not making any real difference. The report states: “When corporations increasingly work for the rich, the benefits of economic growth are denied to those who need them most. In pursuit of delivering high returns to those at the top, corporations are driven to squeeze their workers and producers ever harder – and to avoid paying taxes which would benefit everyone, and the poorest people in particular.”

Neither the philanthropy of the super-rich nor socially directed corporate programmes have any real effect on combating this trend, in the same way that Zuckerberg’s handout of $3m will have a negligible effect on the San Francisco housing crisis. Instead, vast fortunes in the hands of the few, whether earned through inheritance, commerce or crime, continue to grow at the expense of the poor.

In the end, it is capitalism that is at the heart of philanthrocapitalism, and the corporation that is at the heart of corporate social responsibility, with even well-meaning endeavours serving to justify a system that is rigged in favour of the rich.

What is particular about this new approach is not that rich people are supporting charitable endeavours, but that it involves, as sociologist Linsey McGoey explains, “an openness that deliberately collapses the distinction between public and private interests, in order to justify increasingly concentrated levels of private gain”. 

In the CEO society, corporate logic such as this rules supreme, and ensures that any activities thought of as generous and socially responsible ultimately have a payoff in terms of self-interest. If there was ever a debate between the ethics of genuine hospitality, reciprocity and self-interest, it is not to be found here. It is in accordance with this CEO logic that the mechanisms for redressing the inequality created through wealth generation are placed in the hands of the wealthy, and in a way that ultimately benefits them. The worst excesses of neoliberal capitalism are morally justified by the actions of the very people who benefit from those excesses. Wealth redistribution is placed in the hands of the wealthy, and social responsibility in the hands of those who have exploited society for personal gain.

Meanwhile, inequality is growing, and both corporations and the wealthy find ways to avoid the taxes that the rest of us pay. In the name of generosity, we find a new form of corporate rule, refashioning another dimension of human endeavour in its own interests. Such is a society where CEOs are no longer content to do business; they must control public goods as well. In the end, while the Giving Pledge’s website may feature more and more smiling faces of smug-looking CEOs, the real story is of a world characterised by gross inequality that is getting worse year by year.