Will Corporate Social Responsibility remain another buzzword?

Madhavi Rajadhyaksha in Times of India

Volunteering, philanthropy and adopting causes are passé. Corporate Social Responsibility (CSR) seems to be the latest buzzword in the development sector, as was evident at the NGO India 2013 conference which brought together social sector professionals, corporate chiefs and social entrepreneurs in Mumbai, last week.

The buzz is not unfounded, given that an upcoming legislation, the Companies Bill, 2012 mandates CSR for companies above a certain threshold. The proposed legislation requires that companies with a net worth of Rs 500 crore or more, a turnover of Rs 1,000 or more or a net profit of five crores or more during a financial year must set up a CSR committee and come up with a CSR policy of their own. The bill which has been passed by the Lok Sabha and awaits the Rajya Sabha nod also mandates that companies spend at least two per cent of their average net profits made during the three preceding years towards CSR.

There is no denying the scope for corporate involvement in India’s social development. But there are many concerns about the government-mandated CSR that may be worth deliberating upon, even if we leave aside the core argument about whether making CSR compulsory for companies is justified or not.

There is concern in many quarters about how the practice of CSR is being conceived in the first place. Why is CSR something that is to be practised by a company after it reaches a certain level of profits rather than something every company incorporates in its practice? Why is it conceptualised as an external activity alone? Prerana Langa, CEO of YES Foundation validly pointed out that you can’t be doing CSR if you aren’t treating your employees’ right. Isn’t ethical procurement, equal opportunity employment, bridging pay gaps or environmental sustainability also part of the CSR agenda? Shouldn’t we be talking about how these practices too be measured, monitored and their impact assessed?

The bill leaves much flexibility as to activities that could be included in CSR. It cites some areas ranging from eradicating hunger and poverty, promotion of education, reducing child mortality and improving maternal health. It requires companies to “give preference to the local area and areas around where it operates” for spending its CSR budgets. Nisha Agrawal, CEO of Oxfam India voiced fear that this could make corporates veer only towards service delivery (usually popular health and education services) which were primarily the government’s responsibility.

There was a striking consensus among the experts gathered that there is a shortage of skilled workers to meet the needs of a sector that would be flush with funds, if the bill were to go through. Nikhil Pant, chief programme officer, National Foundation for CSR, ministry of corporate affairs assured that they were in the process of rolling out nine-month courses to train a cadre of CSR professionals. Praveen Agarwal, chief operating officer of Swades Foundation wondered if the government could encourage people to join the sector by offering some kind of tax incentives. It is worth questioning whether an able cadre would be ready, if the reporting was introduced from next year?

Whether CSR would help leverage true development in the country in the years to come, or merely become another audit book for companies to tick off, only time will tell.

The Murthys and the Maoists

HARISH KHARE in the hindu

  

Between the relentless demands of corporate leaders and the capacity of the underclass to match the state’s violence, India needs a vision for itself that is morally defensible.

In the first week of 2011, Prime Minister Manmohan Singh allowed himself to be persuaded to accept N.R. Narayana Murthy’s invitation to travel to Mumbai to preside over a function to give away the Infosys Social Science Prizes. The Prime Minister even agreed to attend a dinner that Mr. Murthy wanted to host in his honour after the function at the Taj Mahal Hotel. So far so good. A few days before the event, there was a massive behind-the-scenes dust up between the Prime Minister’s staff and Mr. Murthy. The rub was that Mr. Murthy thought that since he was paying for the dinner, he had a right to dictate not only the guest list but even the seating arrangement. However, there is something called protocol and the dignity of constitutional offices. If the Governor and the Chief Minister of Maharashtra were to be at the dinner, they had to necessarily be seated on either side of the Prime Minister, whereas the host thought he ought to be sitting next to Dr. Singh. Mr. Murthy, however, was not one to be so easily rebuffed. As soon as the first course was served, he sought to convert the evening into a grand intellectual conversation and proceeded to invite his son to open the bowling. And the young son wanted to know from the Prime Minister what the government proposed to do so that young men like him could come back to India.

All this is recalled because the young man is now back in India, as executive assistant to his father, who in turn has allowed himself to be persuaded to take charge of Infosys again. Nepotism, did you say? No; no sir. A private company is free to hire anyone. Fair enough, but not exactly.

Mr. Murthy is not just a private businessman, minding his own business. He has often sought to inject himself into the public domain, telling a thing or two to the political class about how to behave. He has been serenaded as an “iconic” entrepreneur. During the heyday of civil society triumphalism two years ago, there was even a suggestion that Mr. Murthy be made President of India. That was the time when India’s corporate leaders thought they had the ethical credentials to write open letters to the Prime Minister and preach virtues of good governance.

Also read 1. Just how corrupt is Britain
2. Prices, Profits and Markets
3. Dantewada and the Maoists

Like other corporate leaders, the Murthys, father and son, represent an unrepentant ideological approach to the Indian state, its morals, manners and policies and purpose, but they are not the only ones to do so. The Maoists — who once again made their presence felt last month when they massacred the Congress top political leadership in Chhattisgarh — too have a list of ideological claims of their own on the Indian state. Both groups are relentless; both are unforgiving.

The May 25 attack was the boldest ideological challenge that the Maoists have posed to the country’s political leadership. Violence makes a demand on all stakeholders. It was no surprise, then, that as soon as news trickled in of the attack on the Congress convoy in Bastar, the party’s vice-president, Rahul Gandhi, should have taken off for Raipur. It was a commendable journey of political solidarity. It would be interesting to find out if the bloody massacre in Sukma has helped Mr. Gandhi re-set his ideological compass.

Let it be recalled that this is the same Mr. Gandhi who had allowed himself to be persuaded in August 2010 to travel to the Niyamgiri Hills in Orissa, where he told the adivasis that he was their “sipahi,” or soldier in Delhi. Only two days before that visit, the Central government had pointedly withdrawn environmental permission to the Vedanta Group to mine the area for bauxite. For good measure, the young Gandhi had proclaimed that development meant that “every voice, including that of the poor and adivasis, should be heard.” It would be nice to know if Mr. Gandhi has resolved his ideological equivocations in the aftermath of the Chhattisgarh violence.

For two decades the Indian political class has gone about believing that “development” and “growth” are innocuous and painless. The prevailing orthodoxy insists that the Indian state has one and only one business: to get out of the businessman’s way. There is an unwillingness to acknowledge the basic nature of power: irrespective of its political arrangement, every society plays host to a ceaseless struggle over who gains what at whose expense. Growth and development invariably produce dislocation and dispossession. Good politics in a democratic idiom can go a long way in ameliorating the alienation and anger.

PRO-POOR INITIATIVES

The UPA’s approach has been to let the corporate marauders run amok while salving its democratic conscience with a slew of pro-poor, aam aadmi-centric initiatives. In the process, for the past nine years, the country has periodically been treated to a mock controversy over whether Sonia Gandhi’s National Advisory Council was usurping the government’s space and prerogatives, or, when this or that NAC member walks out in a huff, whether the government is not being sufficiently pro-poor. The UPA’s approach neither mollifies the corporate buccaneers nor satisfies the poor and the disadvantaged.

The corporates, however, have sized up the divided political leadership across the spectrum. They have finessed their tactics. If a government is slow to give them the policy breaks that they demand, the democratic space and its anarchic habits will be creatively used to unleash civil unrest on this or that pretext. There is always the age old anger against “corruption” to be tapped. And, as it were, one can always rely on an auditor or a judge to step in to divert attention away from corporate misdemeanours of the most serious kind.

PINCER MOVEMENT

No wonder, then, that the Indian state is caught in a pincer movement. From one side, the ideologues and practitioners of “growth” are unrelenting in their insistence that the country’s natural resources and citizens’ savings be made available to them for exploitation; and, from the other direction, the state is confronted by a vast underclass that is unwilling to see any reason to sacrifice its land and forests so that some others can enjoy the benefit of “progress.” Just as the corporates have served sufficient notice that they have no qualms in taking the state on and causing misery to its political functionaries, the underclass, too, is willing to match the state’s capacity for violence, bullet for bullet.

Both the Murthys and the Maoists are forcing the Indian state to take a stand. For too long, the Indian political leadership has refused to confront the Grand Conundrum: for whom does the state exist, whom does the state seek to reward and whom does it strive to protect against whom. The UPA leadership has neither the appetite for a brutal repression of the angry tribal, nor is it likely to be able to lure the Naxalites into a democratic engagement without a demonstrable capacity to stand up to corporate greed. A kind of alternative arrangement is already on the drawing board: the Gujarat model of no dissent, no trade unions, no civil society, no Medha Patkar, no tribal resistance, no protests.

The great sociologist, Edward Shils, once observed that every society needs grandiose visions and austere standards; the political and intellectual leadership is obliged to prod society to its own historical ideals — “elements which must be recurrently realized without even being definitively realizable, once and for all.” Perhaps we should be thankful that both the Murthys and the Maoists are inviting us to find a vision for India that is morally defensible.

Corporate power has turned Britain into a corrupt state

Westminster lobbying is the least of it. Revolving-door colonisation of public life is a corrosive threat to democracy

• 
• • Seumas Milne
  • The Guardian, Tuesday 4 June 2013 22.20 BST

'Hector Sants, head of the Financial Services Authority in charge of regulating banks until last year, who joined Barclays six months later. But he's only one of a stream of regulators who have made similar moves.' Photograph: Micha Theiner/City AM / Rex Features

If you're under attack, create a diversion. David Cameron and Nick Clegg have been floundering as the spectre of Westminster sleaze has returned to haunt them. Four years after the MPs' expenses scandal engulfed British politics, yet another alleged scam has been exposed. First a Tory MP and then a clutch of greedy peers were caught on camera apparently agreeing to take cash from journalists posing as representatives of foreign companies. "Make that £12,000 a month," grinned Jack Cunningham, Tony Blair's former "enforcer".

Cameron and Clegg had promised to deal with parliamentary influence-peddling, and done nothing about it. So on Monday they came up with a plan: to crack down on trade unions. Wrapped in a panic bill to set up a register of lobbyists are to be powers to police union membership lists and cut union spending in election campaigns. The first will make what is already the almost impossible task of holding a legally watertight strike ballot still harder. The second is a direct attack on Labour funding.

The contemptuous class cynicism of the coalition leaders' response takes some beating. Not only are unions the most accountable and only democratic part of the political funding system; but by including anti-union clauses in the new bill, Cameron and Clegg want to ensure Labour's opposition – all the better to change the subject and wrongfoot the opposition in the process.

Even Conservative MPs were embarrassed at the crude chicanery of it. Just as absurd is the fact that the register would have done nothing to prevent the latest lobbying scams – except help the puffed-up parliamentarians avoid getting stung in the first place. And the new law would apply only to lobbying firms, while directly employed corporate lobbyists would be exempt. Add to that the failure to bring elections to the House of Lords, and there will certainly be more jobs-for-life cronies cashing in with corporate clients in the years to come.

The truth is that parliamentary sleaze merchants are small fry in the corporate lobbying game. Before he became prime minister, Cameron predicted that secret corporate lobbying was "the next big scandal waiting to happen", adding: "We all know how it works." As a former lobbyist himself, he certainly did – and still does.

Cameron's own election adviser, the Australian Lynton Crosby, is a lobbyist – for tobacco, alcohol, oil and gas companies. Which is why the prime minister came under attack for dropping curbs on cigarette packaging and alcohol pricing. His party treasurer Peter Cruddas resigned after offering access to Cameron for a £250,000 party donation. His defence secretary, Liam Fox, resigned over his relationship with the lobbyist Adam Werritty.

But lobbying doesn't begin to cover the extent of corporate influence. More than ever the Tory party is in thrall to the City, with over half its income from bankers and hedge fund and private equity financiers. Peers who have made six-figure donations have been rewarded with government jobs.

But the real corruption that has eaten into the heart of British public life is the tightening corporate grip on government and public institutions – not just by lobbyists, but by the politicians, civil servants, bankers and corporate advisers who increasingly swap jobs, favours and insider information, and inevitably come to see their interests as mutual and interchangeable. The doors are no longer just revolving but spinning, and the people charged with protecting the public interest are bought and sold with barely a fig leaf of regulation.

Take David Hartnett, head of tax at HM Revenue & Customs until last year and the man whose "sweetheart deals" allowed Starbucks and Vodafone to avoid paying billions in tax. He now works for the giant City accountancy firm Deloitte, which works for Vodafone. The two-way traffic between the big four auditing firms and government is legendary: staff are sent on secondments to HMRC and the political parties and then return to devise new loopholes for corporate clients.

Then there's Hector Sants, head of the Financial Services Authority in charge of regulating banks until last year, who joined Barclays six months later. But he's only one of a stream of regulators who have made similar moves. The same goes for the 3,500 military officers and defence ministry officials who have taken up jobs in arms companies in the past 16 years – as it does for top civil servants and intelligence officials. The cabinet secretary, Jeremy Heywood, is the living embodiment of the revolving door, having moved effortlessly from the Treasury to Blair's office to the investment bank Morgan Stanley and back to work for Cameron.

That's before you get to the politicians. City directorships in opposition used to be a Tory preserve. But after New Labour embraced corporate power it became a cross-party affair. Blair is in a class of his own, of course, raking in £20m a year from banks and autocratic governments; but he is followed closely by dozens of New Labour ministers who moved out of government into lucrative corporate jobs, often for firms hustling for contracts from their former departments.

It defies rationality to believe that the prospect of far better paid jobs in the private sector doesn't influence the decisions of ministers and officials – or isn't used by corporations to shape policy. Who can seriously doubt that politicians were encouraged to champion light touch regulation before the crash by the lure and lobbying of the banks, as well as by an overweening ideology?

Privatisation has extended the web of lubricated relationships, as a mushrooming £80bn business uses jobs and cash to foist a policy that is less accountable, lowers standards and is routinely more expensive on the public realm. When 142 peers linked to companies involved in private healthcare were able to vote on last year's health bill that opened the way to sweeping outsourcing – and the City consultancy McKinsey helped draw it up – it's not hard to see why.

Britain is now an increasingly corrupt country at its highest levels – not in the sense of directly bribing officials, of course, and it's almost entirely legal. But our public life and democracy is now profoundly compromised by its colonisation. Corporate and financial power have merged into the state.

That vice can be broken, but it demands radical change: closure of the revolving doors; a ban on ministers and civil servants working for regulated private companies; a halt to the corrosive tide of privatisation; and a downward squeeze on boardroom pay to reduce the corporate allure. It's going to need a democratic backlash.

Globalisation isn't just about profits. It's about taxes too

Big corporates are gaming one nation's taxpayers against another's: we need a global deal to make them pay their way

• 
• • Joseph Stiglitz
  • The Guardian, Monday 27 May 2013 21.00 BST

Why should German taxpayers help bail out a country whose business model is based on avoidance and a race to the bottom? Illustration by Daniel Pudles

The world looked on agog as Tim Cook, the head of Apple, said his company had paid all the taxes owed – seeming to say that it paid all the taxes it should have paid. There is, of course, a big difference between the two. It's no surprise that a company with the resources and ingenuity of Apple would do what it could to avoid paying as much tax as it could within the law. While the supreme court, in its Citizens United case seems to have said that corporations are people, with all the rights attendant thereto, this legal fiction didn't endow corporations with a sense of moral responsibility; and they have the Plastic Man capacity to be everywhere and nowhere at the same time – to be everywhere when it comes to selling their products, and nowhere when it comes to reporting the profits derived from those sales.

Apple, like Google, has benefited enormously from what the US and other western governments provide: highly educated workers trained in universities that are supported both directly by government and indirectly (through generous charitable deductions). The basic research on which their products rest was paid for by taxpayer-supported developments – the internet, without which they couldn't exist. Their prosperity depends in part on our legal system – including strong enforcement of intellectual property rights; they asked (and got) government to force countries around the world to adopt our standards, in some cases, at great costs to the lives and development of those in emerging markets and developing countries. Yes, they brought genius and organisational skills, for which they justly receive kudos. But while Newton was at least modest enough to note that he stood on the shoulders of giants, these titans of industry have no compunction about being free riders, taking generously from the benefits afforded by our system, but not willing to contribute commensurately. Without public support, the wellspring from which future innovation and growth will come will dry up – not to say what will happen to our increasingly divided society.

It is not even true that higher corporate tax rates would necessarily significantly decrease investment. As Apple has shown, it can finance anything it wants to with debt – including paying dividends, another ploy to avoid paying their fair share of taxes. But interest payments are tax deductible – which means that to the extent that investment is debt-financed, the cost of capital and returns are both changed commensurately, with no adverse effect on investment. And with the low rate of taxation on capital gains, returns on equity are treated even more favorably. Still more benefits accrue from other details of the tax code, such as accelerated depreciation and the tax treatment of research and development expenditures.

It is time the international community faced the reality: we have an unmanageable, unfair, distortionary global tax regime. It is a tax system that is pivotal in creating the increasing inequality that marks most advanced countries today – with America standing out in the forefront and the UK not far behind. It is the starving of the public sector which has been pivotal in America no longer being the land of opportunity – with a child's life prospects more dependent on the income and education of its parents than in other advanced countries.

Globalisation has made us increasingly interdependent. These international corporations are the big beneficiaries of globalisation – it is not, for instance, the average American worker and those in many other countries, who, partly under the pressure from globalisation, has seen his income fully adjusted for inflation, including the lowering of prices that globalisation has brought about, fall year after year, to the point where a fulltime male worker in the US has an income lower than four decades ago. Our multinationals have learned how to exploit globalisation in every sense of the term – including exploiting the tax loopholes that allow them to evade their global social responsibilities.

The US could not have a functioning corporate income tax system if we had elected to have a transfer price system (where firms "make up" the prices of goods and services that one part buys from another, allowing profits to be booked to one state or another). As it is, Apple is evidently able to move profits around to avoid Californian state taxes. The US has developed a formulaic system, where global profits are allocated on the basis of employment, sales and capital goods. But there is plenty of room to further fine-tune the system in response to the easier ability to shift profits around when a major source of the real "value-added" is intellectual property.

Some have suggested that while the sources of production (value added) are difficult to identify, the destination is less so (though with reshipping, this may not be so clear); they suggest a destination-based system. But such a system would not necessarily be fair – providing no revenues to the countries that have borne the costs of production. But a destination system would clearly be better than the current one.

Even if the US were not rewarded for its global publicly supported scientific contributions and the intellectual property built on them, at least the country would be rewarded for its unbridled consumerism, which provides incentives for such innovation. It would be good if there could be an international agreement on the taxation of corporate profits. In the absence of such an agreement, any country that threatened to impose fair corporate taxes would be punished – production (and jobs) would be taken elsewhere. In some cases, countries can call their bluff. Others may feel the risk is too high. But what cannot be escaped are customers.

The US by itself could go a long way to moving reform along: any firm selling goods there could be obliged to pay a tax on its global profits, at say a rate of 30%, based on a consolidated balance sheet, but with a deduction for corporate profits taxes paid in other jurisdictions (up to some limit). In other words, the US would set itself up as enforcing a global minimum tax regime. Some might opt out of selling in the US, but I doubt that many would.

The problem of multinational corporate tax avoidance is deeper, and requires more profound reform, including dealing with tax havens that shelter money for tax-evaders and facilitate money-laundering. Google and Apple hire the most talented lawyers, who know how to avoid taxes staying within the law. But there should be no room in our system for countries that are complicitous in tax avoidance. Why should taxpayers in Germany help bail out citizens in a country whose business model was based on tax avoidance and a race to the bottom – and why should citizens in any country allow their companies to take advantage of these predatory countries?

To say that Apple or Google simply took advantage of the current system is to let them off the hook too easily: the system didn't just come into being on its own. It was shaped from the start by lobbyists from large multinationals. Companies like General Electric lobbied for, and got, provisions that enabled them to avoid even more taxes. They lobbied for, and got, amnesty provisions that allowed them to bring their money back to the US at a special low rate, on the promise that the money would be invested in the country; and then they figured out how to comply with the letter of the law, while avoiding the spirit and intention. If Apple and Google stand for the opportunities afforded by globalisation, their attitudes towards tax avoidance have made them emblematic of what can, and is, going wrong with that system.

Oxford University won't take funding from tobacco companies. But Shell's OK

If scholars don't take an ethical stance against corporate money, where's the moral check on power?

• 
• • George Monbiot
  • The Guardian, Tuesday 14 May 2013

Those in the strongest position to challenge climate change are instead lending it their ‘moral prestige'. Illustration by Daniel Pudles

In 1927 the French philosopher Julien Benda published a piercing attack on the intellectuals of his day. They should, he argued in La Trahison des Clercs (the treason of the scholars), act as a check on popular passions. Civilisation, he claimed, is possible only if intellectuals stand in opposition to the demands of political "realism" by upholding universal principles. "Thanks to the scholars," he said, "humanity did evil for two thousand years, but honoured good." Europe might have been lying in the gutter, but it was looking at the stars.

But those ideals, Benda argued, had been lost. Europe was now lying in the gutter, looking into the gutter. The "immense majority" of intellectuals, artists and clergy had joined "the chorus of hatreds": nationalism, racism, the worship of power and war. In doing so, they justified and magnified political passions. Across Europe, scholars on both the left and the right had become "ready to support in their own countries the most flagrant injustices", to abandon universal principles in favour of national exceptionalism and to proclaim "the supreme morality of violence". He quoted the French anarcho-syndicalist Georges Sorel, who eulogised "the superb blond beast wandering in search of prey and carnage".

The result of this intellectual support for domination, Benda argued, was that there was now no moral check on the pursuit of self-interest. Rather than forming a bulwark against popular delusions, Europe's thinkers turned them into doctrines. With remarkable foresight, Benda predicted that this would lead inexorably to "the greatest and most perfect war ever seen in the world". This war would be genocidal in intent, and would not be stopped by any treaties or institutions. In 1927, these were bold claims.

I'm not suggesting an equivalence between those times and these. I'm summarising Benda to highlight a general principle: the need for a disinterested class of intellectuals which acts as a counterweight to prevailing mores. Racism, nationalism and war are only three of the many hazards to which society is exposed if that challenge should fail: if, that is, most scholars side with the soldiers or the sellers.

Today the dominant forces have changed. Now the weak state, not the strong state, is fetishised by those in power, who insist that its functions be devolved to "the market", meaning corporations and the very rich. Economic growth and the forces that drive it, whether they enhance or harm people's lives, are venerated. And too many scholars seem prepared to support the new dispensation.

Two weeks ago I castigated the new chief scientist, Sir Mark Walport, for misinforming the public about risk, making unscientific and emotionally manipulative claims and indulging in scaremongering and wild exaggeration in defence of the government's position. Since then I have seen his first speech in his new role and realised that the problem runs deeper than I thought.

Speaking at the Centre for Science and Policy at Cambridge University, Walport maintained that scientific advisers had five main functions, and the first of these was "ensuring that scientific knowledge translates to economic growth". No statement could more clearly reveal what Benda called the "assimilation" of the intellectual. As if to drive the point home, the press release summarising his speech revealed that the centre is sponsored, among others, by BAE Systems, BP and Lloyd's.

Last week, two days before CO₂ concentrations in the atmosphere reached 400 parts per million, Oxford University opened a new geoscience laboratory named after its sponsor, Shell. Among its roles is helping to find and develop new sources of fossil fuel.

This is one of many such collaborations. Last year, for instance, BP announced that it will spend £60m on research at Manchester University partly to help it drill deeper for oil. In the United States and Canada, universities go further: David Lynch, dean of engineering at the University of Alberta, appears in advertisements by the Canadian Association of Petroleum Producers, whose purpose is to justify and normalise tar sands extraction.

As the campaign group People and Planet points out, universities help provide fossil fuel corporations not only with expertise but also with a "social licence to operate". Climate change is one of the great moral issues of our age, but the scholars in the strongest position to challenge the industry responsible are, instead, lending it what Benda calls their "moral prestige". Neoliberal economists, imperialist historians, war-mongering philosophers, pliable chief scientists, compromised energy researchers: all are propelling us into the arms of power.

In 1998, the vice-chancellors of the UK's universities decided that they would no longer take money for cancer research from tobacco firms. Over the past few days I have asked the Shell professor of earth sciences at Oxford, the university itself and the umbrella bodyUniversities UK to explain the ethical difference between taking tobacco money for cancer research and taking fossil fuel money for energy research. None of these great heads, despite my repeated attempts to engage them, were prepared even to attempt an answer.

So perhaps this is where hope lies: unlike Benda's scholars, these people have not yet developed a justifying ideology which permits them to excuse or glorify the compromises they have made with power. Perhaps we have not yet abandoned the redeeming hypocrisy of what Benda called "honouring good".

You think the government is fighting tax avoidance? Think again

George Osborne has pulled off a stunning confidence trick: he has bamboozled people into thinking he is fighting tax dodgers

• 
• • Richard Brooks
  • The Guardian, Sunday 17 March 2013 21.00 GMT

‘Chancellor George Osborne's new rules – as KPMG makes clear – give “UK-based multinationals an opportunity to significantly reduce their tax rate”.’ Photograph: Carl Court/AFP/Getty Images

Chancellors of the exchequer have never been entirely straight about their tinkering with the tax system. With his penchant for "stealth taxes", Gordon Brown certainly didn't always come clean with the British public. But when it comes to the vexed subject of tax avoidance, his successor George Osborne has taken the deception to a new level and, after three years, pulled off a stunning confidence trick.

"The parties agree that tackling tax avoidance is essential for the new government, and that all efforts will be made to do so," declared the coalition agreement in May 2010. The commitment was a victory for the Lib Dems and for their pre-election shadow chancellor Vince Cable in particular. A year earlier, Cable had responded to the Guardian's Tax Gap series by writing: "Systematic tax avoidance by rich individuals and UK-based companies strikes a particularly ugly note in these straitened times."

Cable's prize was to be a "general anti-avoidance rule", and soon enough one of Britain's leading tax QCs, Graham Aaronson, was dispatched to work up the scheme that Osborne has promised to introduce in this week's budget. But it will be what Aaronson describes as "narrowly focused", and apply only to the "most egregious tax avoidance schemes". For which, read convoluted arrangements involving multiple transactions that circumvent the spirit of the law – of the sort deployed by comedian Jimmy Carr before he saw the light (or the headlights of career death hurtling towards him).

Scheming of this type is, however, a relative minority sport, and is generally defeated by judges increasingly intolerant of tax avoidance anyway. Worse still, the senior tax inspectors' union argues that, by hitting just "egregious" cases, the new law risks "actually facilitating avoidance".

By far the costliest tax avoidance takes the form of the corporate structuring that has repeatedly hit the front pages in the last couple of years, whether through Starbucks' payment of royalties to Amsterdam, Amazon's Luxembourg sales hub or Vodafone's multibillion-pound internal financing arrangements through the same grand duchy. And,as the Lords economic affairs committee pointed out last week: "There is a misconception that Gaar [general anti-abuse rules] will mean the likes of Starbucks and Amazon will be slapped with massive tax bills. This is wrong, and the government need to explain that to the public."

Such corporate manouevrings do not officially constitute tax avoidance even if, on any commonsense view, that is exactly what they are. When a couple of years ago the BBC commissioned a ComRes survey on attitudes to tax avoidance, it defined the practice as "where people or businesses arrange their financial affairs to minimise the amount of tax they pay while remaining within the law". Eighty four percent of people favoured a clampdown on the behaviour, which clearly encompasses multinational's offshore structures.

Yet this is where the great tax trick is played. Outside the official definition of tax avoidance, the offshore schemes of Britain's biggest multinationals have not just escaped any clampdown, they have been rewarded with a rewriting of corporate tax law that makes them more irresistible than ever. Working closely with the companies most affected, in his last two budgets Osborne has relaxed – almost to the point of obsolescence – the so-called controlled foreign companies laws that were introduced by Nigel Lawson in the early 1980s to prevent companies shifting profits into their tax-haven subsidiaries.

From this year offshore financing structures such as Vodafone's, for instance, will be taxed at no more than 5%, while companies' tax-haven branches will be exempt from tax. Incredibly, the British government is subsidising the largest companies to send billions of pounds into the world's tax havens. And in the absence of any opposition from the Labour party – compromised by its own record of offshore tax relaxations and now advised by Vodafone's tax consultant PricewaterhouseCoopers – the new laws have arrived on the statute book unchallenged.

The big four accountancy and tax consulting firms that were hauled before Margaret Hodge's public accounts committee a few weeks ago are probably licking their lips. KPMG touts for business in one of its pamphlets by pointing out: "For every £1m of finance income received in the UK, the finance company regime could save cash tax of £165,000." And even better: "As the new rules have been designed and enacted by the government, this should represent a low-risk tax-saving opportunity." What could be sweeter than state-endorsed tax avoidance?

This surreptitious slashing of corporate tax bills is not something the government is keen to dwell on. Indeed, the rhetoric can be very different. In Davos, David Cameron said that businesses are "setting up ever more complex tax arrangements abroad to squeeze their tax bills right down ... Well, they need to wake up and smell the coffee". Given low corporate tax rates, soon to be 21% and by far the lowest among G8 countries, the PM insists they "should pay that rate of tax rather than avoid it".

But Osborne's new rules – as KPMG makes clear – give "UK based multinationals an opportunity to significantly reduce their tax rate". In other words, using "tax arrangements abroad" the largest multinationals won't pay even the new all-time-low headline tax rates.

Through the "general anti-avoidance rule" and a regular stream of smaller specific anti-avoidance announcements, such as this weekend's move against a national insurance dodge, Osborne will sustain the illusion that tax avoidance is being fought on all fronts, confident that his bamboozled audience will never notice the abject surrender on the most important one of all.

Blacklisting is the scandal that now demands action

 

Thousands have been driven out of work in Britain by corporate spying outfits. It's an outrage that calls for more than an inquiry 

• Seumas Milne
• The Guardian, Tuesday 4 December 2012 22.20 GMT

'Workers across Britain have been systematically and illegally forced into unemployment by some of the country's biggest companies.' Illustration by Matt Kenyon

 

As in the phone-hacking scandal, the evidence of illegality, surveillance and conspiracy is incontrovertible. In both cases, the number of victims already runs into thousands. And household names are deeply tied up in both controversies – though as targets in one and perpetrators in the other.

But when it comes to the blacklisting scandal, the damage can't only be measured in distress and invasion of privacy. Its impact has already been felt in years of enforced joblessness, millions of pounds in lost income, family and psychological breakdown, emigration and suicides.
It's now clear that workers across Britain have been systematically and illegally forced into unemployment for trade union activity – often on publicly funded projects and in collusion with the police and security services – by some of the country's biggest companies, using secret lists drawn up by corporate spying agencies.

Liberty has equated blacklisting with phone hacking, insisting that the "consequences for our democracy are just as grave". Keith Ewing, professor of public law at King's College London, calls it the "worst human rights abuse in relation to workers" in Britain in half a century.

But whereas David Cameron ordered a public inquiry into hacking, he rejected any investigation of blacklisting out of hand. And while a mainly anti-union media has largely ignored the scandal, all the signs are that it's continuing right now, in flagship public projects such as the £15bn Crossrail network across the south-east.

Thanks to leaks, tribunals, evidence to MPs and an information commissioner's raid, we now know that one of those private espionage outfits, the Consulting Association, had 3,213 names on its blacklist before it was shut down in 2009. Most were construction workers, based at sites from Clwyd to Croydon, but they also included environmental activists.

For an annual subscription of £3,500, 44 construction and outsourcing giants such as Balfour Beatty, Carillion, Sir Robert McAlpine and Wimpey paid £2.20 a shot for "intelligence" on the 40,000 names a year they ran past the association's database.

For that they could have access to such gems as "keeps extremely interesting company", "union activity", "brought in H&S issues", "politically motivated", "troublemaker", "recently seen at a leftwing meeting" and "girlfriend … involved in several marriages of convenience". Mostly, workers were branded "involved in dispute" or "company given details and not employed".

Through this covert power, building workers were driven on to the dole during a construction boom. Both Dave Smith, an engineer, and Steve Acheson, an electrician, were sacked from one major construction job after another after raising health and safety concerns (asbestos and lack of drying facilities) over a decade ago. They have never been able to work in the trade for more than a few weeks ever since.

Their cards had been marked by blacklisters. "Those people ruined my life," Acheson says. For some workers, they destroyed it. After hundreds involved in disputes on London's Jubilee line extension were blacklisted in 2000, at least two who were unable to find work committed suicide.

The Consulting Association, which used material the Information Commissioner's office said "could only be supplied by the police or security services", was fined £5,000 for breaching data protection law (paid by the Conservative donor Sir Robert McAlpine). Blacklisting was formally outlawed in 2010, but covert arrangements are by their nature difficult to expose.

Corporate managers who have been revealed to have been up to their necks in blacklisting are now running major publicly funded projects – including Crossrail and the Carillion-run PFI Great Western Hospital in Swindon – that are the focus of new blacklisting and bullying disputes.

Last week, Ian Kerr, the man who headed the Consulting Association, spoke in public for the first time, telling MPs there had been an "awful lot of discussion" between Crossrail contractors and his outfit, as well as those at the Olympic Park, Wembley stadium and other public construction projects. "Like it or not," he declared, blacklisting "will always be there".

Of course blacklisting isn't new. Throughout the cold war, the virulently rightwing Economic League ran a similar corporate espionage outfit, from where Kerr brought his database. And more recently civil servants, police and corporations have been shown to work hand in glove against climate change and other environmental activists.

Nor is blacklisting confined to construction, where unions still have real power. But in a deregulated economy – where union weakness has helped slash the share of wages in national income and an anti-union firm such as Starbucks can announce it's cutting staff benefits on the day it's in the public dock for tax dodging – this ugly corporate victimisation isn't just an outrage against civil liberties.

It's also a block on the revival of union organisation essential to turning the tide of inequality – and the defence of those paying the price of a failed economic model. Labour, which took 11 years to put its own ban on blacklisting into law out of deference to big business, now needs to commit to tougher rights at work. The scandal of corporate blacklisting doesn't just demand a public inquiry and compensation, but a real shift of direction on power in the workplace.

Met police corporate sponsorship: how about Samsung Yard?

Why not redesign uniforms, for example, and cover them in stylish logos like Formula One drivers?

• 
• • Stephen Moss
  • guardian.co.uk, Thursday 1 November 2012 16.14 GMT

'With the break-up of the UK imminent, Scotland Yard is clearly an inappropriate name. Why not Samsung Yard?' Photograph: Facundo Arrizabalaga/EPA

The Metropolitan police, one of the most sclerotic institutions in Britain, is at last making strides to join the modern world where money is short and everyone has to shape up or ship out. As well as considering the sale of New Scotland Yard in central London, which will make a very nice luxury hotel or HQ for a Middle Eastern sovereign wealth fund, and moving to a refurbished terraced house in Peckham, it is also now seeking to attract sponsors, with donors supplying an increasing amount of its equipment.

There are the usual leftwing critics (Boris Johnson would have a ruder word for them) who carp that this will undermine the independence of the police. But they need to get real. Policing is expensive and our police will know where the red lines have to be drawn to ensure that their view of McDonald's is not influenced by the fact that it is paying for police mountain bikes, or that the policing of matches involving Chelsea or Queens Park Rangers is not affected by the fact those clubs have kindly given the police much-needed football shirts.

Scotland Yard robustly defends the donations, saying it has a "long history" of working with commercial partners to tackle crime. It's time to move that history along. There is no reason why many aspects of police work shouldn't be paid for by commercial organisations, following the example of UK Payments Administration Ltd, which has donated £11.9m to fund the police's dedicated cheque and plastic crime investigation unit.

Let's start thinking creatively about this and get more companies involved. WH Smith could sponsor police notepads and pencils; Dyson could pay for anti-litter units; Yale locks would be an obvious sponsor for police units dealing with burglaries; Virgin could underwrite the Flying Squad; Ann Summers could produce branded handcuffs and truncheons; the Antiques Roadshow could sponsor the art theft unit; Visa and Mastercard will want to compete for the plastic card crime contract; there must be mattress companies that would want to sponsor padded cells (with extra pocket springs); and do Black Marias really have to be black – why not orange (EasyJail)?

New New Scotland Yard, down in Peckham, could itself be sponsored. With the break-up of the UK imminent, Scotland Yard is clearly an inappropriate name. Why not Samsung Yard? And why not brand individual police stations? Instead of Paddington Green, why not Paddington Bear?

Police personnel wear drab uniforms and for some bizarre reason walk around with their fingers tucked into their tunics. Why not redesign the uniforms and cover them in stylish logos like Formula One drivers? They will look and feel better about themselves, and their forces will be making some desperately needed dosh.

This isn't rocket science. It's simple commercial thinking that will transform the face of the police in this country. As a nation we have become fearful of change and commercialisation, losing out to more innovative countries in Asia and South America which don't have hang-ups about keeping public service and tawdry commerce separate. There are no Chinese walls in China! Unless we wake up, we will be eaten by the Asian tiger and the South American (subs – please fill in appropriate animal). The police, in embracing the need to find sponsors and reduce their dependence on the state, are showing what is possible. Now for the fire service … or rather the EDF fire service.

Stiglitz on FDI in India's retail

Nobel laureate Joseph E. Stiglitz is one of the world’s leading economists. A former chief economist at the World Bank and currently University Professor at the Columbia Business School, he was recently in India to attend an international conference on development and to promote his new book, The Price of Inequality. He spoke to Pranay Sharma about growing inequality in the world and the challenges facing India. Excerpts:

Your coinage, “one per cent versus 99 per cent”, has caught the imagination of different people in the world. What does that reflect?

It reflects a different view of society. The nomenclature, ‘one per cent and ninety nine per cent’, is a way of saying that almost everybody today is in one boat and a few people are in another boat. There is now that huge divide from the very top that is no longer class-based but money-based. So it’s really the redefining of the divisions within our societies.

And this is not specific to the US but something seen all over the world?

That’s correct, it’s all over the world. India has become famous for being the land with the highest per capita of billionaires. This is striking for a country which is average and has a large number of poor people.

“India’s famous for being the land with the highest per capita of billionaires. Striking for an average country with so many poor people.”

Some of your detractors describe you as “the prophet of gloom and doom”. Is that a correct assessment?

I had accurately perceived the crisis of 2008 and there were those who drew a rosy scenario and did not see it happening. The same people started seeing the ‘green shoots’ in 2009 which again did not happen and we did not get the recovery. Those who are described as ‘gloom and doom’ people are the ones who have predicted, as people jokingly say, five out of the last 10 recessions.

Everybody now talks about the global economic crisis and how it has affected countries across the world, including the US. But are you overstating the case about the US?

The statistics are what they are. The fact that the median income of a full-time worker is lower than what it was in 1968 is part of it. I have gathered some of the statistics that may not have been given sufficient attention by others, but those are facts. The question is, what do you make of those facts? Where the US economy is going is obviously a matter of interpretation. But some of the facts that I think are disturbing may be different from the facts that others are looking at.

What you describe in your book is not only an economic or political failure, but a systemic failure in the US. Is democracy in the US in crisis?

Yes, it is. We have changed the rules of the game to give more weight to money and moneyed interests just at the time when inequality is growing. So we now have an out-of-balance political system.

“There is that huge divide now from the very top that is no longer class-based but money-based...a redefining of divisions within societies.”

You say in your book that if the economic benefits were shared better, Americans would have forgiven many of the ‘sins’ of the US corporates. If that were to happen, then who would have paid the price, people in other countries?

What I was trying to suggest was two-fold. That people in America would not have been so concerned if the top had walked away with just a larger share and did not damage the environment too much. The typical American would have felt that he himself was getting better without asking a lot from the corporation. But part of what is going on in terms of global warming is that the price is being borne by people outside the US. People of America had not paid any attention to that at all.

In India, we have the experience of the Bhopal gas tragedy. An American national responsible for it paid very little compensation and refused to share the burden of guilt. Now we have a debate on ‘nuclear liability’ where the US government and American companies planning to set up N-plants in India are opposed to accepting a larger share of the burden if an accident occurs in any of their plants. How do you react to this?

This is a perfect example of why I say that we have a distorted market economy through politics. Markets don’t exist in a vacuum, we create frameworks. They give money to special interest groups—the one per cent. The nuclear industry is a good example. If the government had not been subsidising them, then in a calamity there would be no one to pick up the tab. They say they have insurance but that is a price no company is willing to pay. We pick up the cost of nuclear exposure, nuclear waste...nobody is willing to pay for that. So there is this massive subsidy given by the government to the nuclear industry.

“We have changed the rules of the game to give more weight to moneyed interests, just at the time when inequality is growing.”

So you think US companies planning to set up N-plants here should share a larger burden of that liability?

They should bear it all. In the global context, they don’t bear that in the US either. The nuclear industry exists only because of government subsidies. But subsidy in the form of liability; the oil industry is also protected in the same way. They have a law that limits the liability in the event of a spillover. If you look at the way the legal system is designed, many of those who are injured by the spill will never be compensated.

You have praised governments in China and India for intervening in the market to make globalisation work better for their respective people. How do you now see the performance of the two countries?

China represents what is the success of globalisation, where over 400 million people moved out of poverty. The gap between their income and that of people in the US has reduced enormously. Same is perhaps also true for India. But when you have rising aspirations in a country like China—which has been slow in implementing good working conditions—it can lead to agitations by workers.

What about India?

India has not grown as fast as China but it is growing significantly. There have been very significant successes, though there hasn’t been much reduction in poverty in a big way.

“US firms planning to set up N-plants should bear all the liability. But they don’t do that even in the US, state ‘subsidies’ protect them.”

PM Manmohan Singh announced a clutch of economic reforms recently, particularly in regard to allowing FDI in multi-brand retail. Do you think India needs to open up its market?

India is an unusual country and different from many other developing and emerging markets. It has a large entrepreneurial class and has lots of savings, wealth. And this entrepreneurial class is very talented. So that raises the question as to why India needs foreign entrepreneurs in any sector, particularly the retail or the financial sectors.

And what’s your answer to that?

I have not seen a good explanation yet. To me, as most economists say, a little competition is good. On the other hand, the worry is that a company like Walmart may owe some of their success to its power and ability to drive down prices. Because they can buy things out and if that’s the case then they will use that power to have Chinese goods displace Indian goods. The real harm will not be to the retail sector. That is not the real problem. The harm will be to the Indian supply chain going into the retail sector. The other concern is that Walmart has succeeded in expanding its business by adopting abusive labour relations.

“India has a large, talented entrepreneurial class, and lots of savings and wealth. Why should it need foreign entrepreneurs in any sector?”

Is that the experience of other countries where it has a presence?

That is the experience of other countries. It is a business practice that you don’t want to import to your country. Bribery in Mexico, free-riding on healthcare, a policy against unionisation, discrimination against women—a whole range of accusations, some of which have been proved and others that remain accusations but are hard to win in courts. Why would you want to import such business practices into India? Many economists see the breakdown in social contract as one of the reasons for inequality. There is also a worry that Walmart will break down the social contract in India that is already frail.

So how does one go about it?

The other reply to these concerns is for India to have legislations to ensure these problems don’t happen. You should have good protection from large multinationals.

Does President Obama have a shot at being re-elected?

I think he has a good chance. I think he has been more successful than what his critics say but far less successful than the expectations when he was elected in 2008. The reality is, if the Republicans do well in Congress then it will be a more defensive (move) to prevent things from getting worse. But also not allowing changes that’ll make the economy work.

“Corruption scandals have a resonance as people know the power of money. Money begets money and it begets via the political process.”

When you look at India what are the areas of concerns?

One of the things would be the huge inequality which is still there. It is very serious and it cannot be ignored. The existence of extreme wealth and extreme poverty, they are worse than many other countries.

Do you see the government intervening to tame the market?

I don’t see it that much...when you have so much of economic inequality, there is always the fear that political power will corrupt the government. A lot of the corruption scandals have a resonance because people understand the power of money. They know money begets money and it begets through the political process. It may be difficult to ascertain what happened in the coal block allocations. But these are people’s assets which have surely not been sold in efficient, transparent auctions that could raise the most money for the well-being of everyone in society. And that has a real resonance in a society that already has such inequality.