Austerity has never worked

It's not just about the current economic environment. History shows that slashing budgets always leads to recession

• 
• • Ha-Joon Chang
  • guardian.co.uk, Monday 4 June 2012 22.14 BST

David Cameron and EC president, José Manuel Barroso, at a meeting of EU leaders in Brussels. Photograph: Lionel Bonaventure/AFP/Getty Images

Last week saw a string of bad economic news reports. The eurozone leaders seem unwilling or unable to change from their austerity policies, even as Greece and Spain fall apart and the core eurozone economies contract. Britain watches on as its economy is heading for the third consecutive quarter of contraction, with an unexpectedly sharp fall in manufacturing. Last week's jobs figures confirmed that the US recovery is stuttering. The largest developing economies that have so far provided some support for world demand levels – especially India and Brazil but even China – are slowing down too. Four years after the financial crisis began, many rich capitalist economies have not recovered their pre-crisis output levels.

Even more serious is the unemployment problem. The International Labour Organisation estimates there are 60 million fewer people employed worldwide than if the pre-crisis trend had continued. In countries like Spain and Greece, overall jobless rates are approaching 25%, with youth unemployment over 50%. Even in countries experiencing "milder" unemployment problems, like the US and the UK, between 8% and 10% are out of work. If we include those who have given up looking for jobs or those who are forced to work part-time for want of fulltime opportunities, "real" unemployment could be easily over 15% even in these countries.

The remedies on offer are well known. Reduce budget deficits by cutting spending – especially "unproductive" social welfare spending that reduces growth by making poor people less willing to work. Cut taxes at the top and deregulate business (euphemistically called "cutting red tape") so that the "wealth creators" have greater incentives to invest and generate growth; and make hiring and firing easier.

It is increasingly accepted that these policies are not working in the current environment. But less widespread is the recognition that there is also plenty of historical evidence showing that they have never worked. The same happened during the 1982 developing world debt crisis, the 1994 Mexican crisis, the 1997 Asian crisis, the Brazilian and the Russian crises in 1998, and the Argentinian crisis of 2002. All the crisis-stricken countries were forced (usually by the IMF) to cut spending and run budget surpluses, only to see their economies sink deeper into recession. Going back a bit further, the Great Depression also showed that cutting budget deficits too far and too quickly in the middle of a recession only makes things worse.

As for the need to cut social spending to revive growth, there is no historical evidence to support it either. From 1945 to 1990, per capita income in Europe grew considerably faster than in the US, despite its countries having welfare states on average a third larger than that of the US. Even after 1990, when European growth slowed down, countries like Sweden and Finland, with much larger welfare spending, grew faster than the US.

As for the belief that making life easier for the rich through tax cuts and deregulation is good for investment and growth, we need to remind ourselves that this was tried in many countries after 1980, with very poor results. Compared to the previous three decades of higher taxes and stronger regulation, investment (as a proportion of GDP) and economic growth fell in those countries. Also, the world economy in the 19th century grew much more slowly than in the high-tax, high-regulation era of 1945-80, despite the fact that taxes were much lower (most countries didn't even have income tax) and regulation thinner on the ground.

The argument on hiring and firing is also not grounded in historical evidence. Unemployment rates in the major capitalist economies were between 0% (some years in Switzerland) and 4% from 1945-80, despite increasing labour market regulation. There were more jobless people during the 19th century, when there was effectively no regulation on hiring and firing.

So, if the whole history of capitalism, and not just the experiences of the last few years, shows that the supposed remedies for today's economic crisis are not going to work, what are our political and economic leaders doing? Perhaps they are insane – if we follow Albert Einstein's definition of insanity as "doing the same thing over and over again and expecting different results". But the more likely explanation is that, by pushing these policies against all evidence, our leaders are really telling us that they want to preserve – or even intensify, in areas like welfare policy – the economic system that has served them so well in the past three decades.

For the rest of us, the time has come to choose whether we go along with that agenda or make these leaders change course.

Do we want a society where 50% of young people are kept out of work in order to bring the deficit down from 9% of GDP to 3% in three years? A society in which the rich have to be made richer to work harder (at their supposed jobs of investing and creating wealth) while the poor have to be made poorer in order to work harder? Where a tiny minority (often called the 1% but more like the 0.1% or even 0.01%) control a disproportionate, and increasing, share of everything – not just income and wealth but also political power and influence (through control of the media, thinktanks, and even academia)?

Maybe we do, but these choices need to be made consciously, rather than by default. The time has come to choose the kind of society we want to live in.

Reclaim the BBC – starting with the Today programme

The Today programme's old boys' club style reveals just how out of touch the BBC is with its licence-fee payers

• Elinor Davies for our Beeb, part of the Guardian Comment Network
• guardian.co.uk, Friday 1 June 2012 11.39 BST

'Despite its veneer of neutrality [Radio 4's] Today programme gives us a very specific take on the world.' Photograph: Graeme Robertson

1. ourBeeb is a new website hosted by openDemocracy's OurKingdom section, which will debate the future of the UK's most important cultural institution

Like many people, I tune into the Today programme most weekday mornings before I go to work. It's a form of masochism, really, as I don't enjoy it much and I know full well I will end up swearing at the radio. But it covers the main stories of the day and makes me feel vaguely plugged into what's going on in the world. So why the expletives?

Despite its veneer of neutrality (a problematic concept anyway, of course) the Today programme gives us a very specific take on the world. It's a world in which the views of the establishment are unquestionable facts, and a needlessly aggressive interview style masquerades as incisive journalistic scrutiny.

In the programme's daily review of the newspapers the entrenched prejudices of the mainstream media regularly go unchallenged. The presenters read out quotes from a selection of the daily rags on a range of the day's stories. But who decides which papers, which quotes, which stories? Last Tuesday they covered the revelation by the Department for Work and Pensions that thousands of people on sickness benefit "had been discovered to be fit for work". This is a complicated news story – who decided they were fit for work? According to what measures? But not for Today. We get the illusion of bias-free reporting – they're only reading out what the papers say, after all. But what the presenters gave us were two very similar angles on the story, from the Daily Mail and the Sun, both of which unquestioningly used these statistics to bolster the editorial line that these scroungers should get back to work. Why quote from two papers with the exact same viewpoint?

Often, in an effort to provide two sides of a debate there is that familiar, pointlessly adversarial interview style that the Today programme specialises in. Last June, the writer Graham Linehan wrote this searing critique of the "squabbling that passes for debate" on Today. Linehan was writing after his experience on the programme, in which he had been invited on to discuss his stage adaptation of The Ladykillers, only to discover he was expected to provide one side in an "argument" about the value of adapting films for theatre. Of course, as Linehan admits, confrontational interviews sometimes make sense – we need them sometimes to get to the truth. But more often it is not the best way to get to the heart of a story. Such interviews have the air of a university debating society, where notions are challenged and argued merely for the fun of it. (They remind me a little too much of Chris Morris interviewing the organiser of the London Jam Festival on The Day Today.)

Paradoxically, when the Today presenters are confronted with the genuinely powerful, the interviews can be surprisingly lightweight, a case in point being John Humphrys' recent interview with David Cameron. Humphrys spent a tiresome five or so minutes haranguing him about Abu Qatada (and admittedly gave him a bit of a hard time about tax dodgers in government), but failed to challenge any of the Tory tropes that Cameron trotted out repeatedly throughout the interview, about being on the side of "hardworking people who do the right thing", making the country more "pro get up and go" and even "making sure our children aren't burdened with debt". Is it not Humphrys' job to pick apart such cliches and enquire what they actually mean? The interview descended into an infuriating kind of mateyness, in which the two men laughingly discussed Cameron's relaxed demeanour and his "date nights" with his wife. As if this wasn't nauseating enough, when the interview finished, the BBC's political editor, Nick Robinson, (known for his long-standing Tory associations) joined Humphrys for a nice cosy chat about the PM and the interview that had just finished. There was no mention, in either conversation, of NHS reform, of unemployment, or of the double-dip recession. It was all just one big jolly jape.

It is this lofty, old boys' club approach to the news – as if nothing really matters beyond the Today studios – that I find so irksome. There was a discussion on the programme a few weeks ago about the effect of the housing benefit cap on low-paid Londoners, between Grainia Long from the Chartered Institute of Housing and Mark Easton, the BBC's home editor. Both Long and Easton quoted statistics demonstrating rising rents and the massive financial pressure the cap places on people in the capital. But the discussion quickly became focused on the effect the cap would have on the flow of cheap labour into London. Easton speculated whether the government had really thought through the impact of this policy and wondered aloud just who was going to do these low-paid jobs in London if people couldn't afford to pay the rent.

It's a valid point of course, but Easton's observation did have a touch of the Today loftiness about it. Running through it seemed to be the assumption that listeners really only care about this issue because it means that there will be no poor people left to sweep the streets or serve coffees or empty the bins in their offices. The low-paid workers are not the participants in this discussion – they are merely objects, being talked about in so far as they are useful. Today does not belong to these people.

As Dave Boyle points out in his article for ourBeeb, the BBC is astonishingly unaccountable to its licence-payers and boy does it show. For me, nothing expresses the need to reclaim the BBC better than those smug exchanges between rich, powerful men on Today. We deserve better than this.

This Cruel Austerity Experiment has Failed

The facts are clear. This cruel austerity experiment has failed

While the human cost of economic stupidity is all too visible, the world's leaders are paralysed by their dogma

• 
• • Will Hutton
  • guardian.co.uk, Saturday 2 June 2012 21.00 BST

A woman receives a free meal from a soup kitchen organised by a Greek humanitarian group in Athens’ main Syntagma Square. Photograph: Kostas Tsironis/AP

Last week was an awesome warning of where go-it-alone austerity can lead. It produced some brutal evidence of where we end up when we place finance above economy and society. The markets are now betting not just on the break-up of the euro but on the arrival of a new economic dark age. The world economy is edging nearer to the abyss, and policymakers, none more than in Britain, are paralysed by the stupidities of their home-spun economics. Yanis Varoufakis, ex-speechwriter for former Greek prime minister George Papandreou and now an economics professor in the US, said last week: "There is precisely zero chance of austerity working. It is the same as thinking you can escape from gravity by waving your arms up and down."

It could hardly be more sobering. Money has flooded out of Spain, Greece and the peripheral European economies. Signs of the crisis range from Athen's soup kitchens to Spain's crowds of indignados protesting in the streets against austerity and a broken capitalism. Youth unemployment is sky-high. Less visible is the avalanche of money flowing into hoped-for safe havens in the US, Germany and even Britain. The last time the British government could sell government bonds at interest rates as low as today's was in the early 1700s.

George Osborne and his acolytes proclaim this as a triumph of the government's economic policies. They are gravely mistaken. Rather it portends fears that the international economic order may collapse because if so many countries are simultaneously pursuing austerity, where's growth to come from?

Virtually everywhere you look there are signs of a weakening world economy. At home, manufacturing suffered its biggest plunge for three years, and this in an economy already suffering its longest depression since the 19th century. American jobs growth is petering out. Unemployment in Europe averages 11%. Even China witnessed a sharp fall away in factory activity in May.

Yet none of this should be a surprise. We live in the aftermath of one of the biggest financial and intellectual mistakes ever made. For a generation the world, with the London/New York financial axis at its heart, surrendered to the specious theory that lending and financial contracts could grow many times faster than the underlying economy. There was a blind belief that in a free market banks could not make mistakes. Free markets didn't make mistakes – only clumsy bureaucratic states made economic mistakes. Or so they said. Financial alchemists, guided by the maxims of free market fundamentalism, could make no such errors.

Except that they did. The result was the financial crisis of 2008. Had governments not underwritten their overstretched banks with trillions of dollars, euros and pounds, an even worse global slump would have ensued. But while the banks could continue trading, the hundreds of trillions of loans and financial contracts they had made did not go away.

And because governments had guaranteed their deposits, as in Ireland, or had to inject capital into them as Spain has been doing all last week, this private bank debt has steadily become public debt. Here is a classic case where all the gains were privatised, and all the losses were socialised. It was the much-maligned state that had to step in and clear up the mess left behind by the private sector. The free market wasn't so free after all – in fact it proved astonishingly expensive for the public purse. People across Europe still pay the price.

This is no solution. Overstretched banks have become more cautious about lending new cash; and even strong banks are caught up in the backwash because if they step into the breach they could fall into a vortex of falling property prices and declining economic activity, becoming weak in turn. So as banks stand aside from their crucial function of generating credit, governments and central banks must step in to generate the demand that has now disappeared.

But they have not done so to a sufficient degree. Part of the problem is that the more bank debt that governments guarantee, the less room for manoeuvre they feel they have – especially as their stagnating economies forces up welfare spending and depresses tax revenues.

But the larger problem is intellectual. The dominant ideology of the day – from the same roots that delivered the crisis – forbids it. A consensus stretching from US Republicans through to Angela Merkel's Christian Democrats via George Osborne's Treasury continues to claim that the state is the source of economic bad. The state threatens enterprise, invites damaging taxation, and is the root cause of spreading inflation. The state must balance the books just as the private sector must.

This is not just an economic but a moral necessity, they argue. Living within one's means rather than "maxing" out on debt appeals to American, British and German individualistic Protestantism. Inflation is even more a sign of moral degradation: it means reneging on promises, rewarding spendthrifts and penalising savers. We had the good years. Now we must take our medicine. The public and private sectors must retrench simultaneously worldwide. Enterprise and free markets will do the rest. The "march of the makers" will step in to fill the void left by public austerity measures.

This is a first-order moral and economic mistake. Human beings need each other for mutual support. In economic terms this means that no individual, either as a person or a company, can manage existential risk by themselves. That risk needs to be shared and mitigated otherwise the risk is not accepted. There would be no enterprise or innovation – the risks of failure too great. That is why there is a role for both private and public sectors. It is governments who provide the means through which we express our social obligations and pool our risks.

This is the heart of Keynesian economics – a different set of moral and economic propositions than those which prevail. Today we can see an almost laboratory experiment on a global scale of why Keynes was right and his detractors wrong. There is no doubt what Keynes would advocate now: a government-sponsored increase in demand co-ordinated across as many countries as possible and an acceptance of a temporary but closely managed increase in inflation to reduce the real value of debt.
The enormous legacy of private debt – whether in Britain, Germany, Spain, the US or Greece – and the fiendishly complicated way so many of the loans have been organised and distributed around the world financial system cannot be easily unwound. Sir Philip Hampton, chair of RBS, warned this week it might take a generation for RBS investors to recover their money.

The choice is thus stark. To commit to decades of economic stagnation, the break-up of the eurozone, the risk of trade protection and autarchic economic policies, the dismantling of the west's social contracts, the imposition of high unemployment and the political fallout that will follow.

Or to change course.

The technical means are relatively simple. Governments must replace targets for inflation with targets for the growth of prices and growth of output combined. Central banks should inject money into their financial systems by offering to buy new bank loans made to support new investment, new innovation or new infrastructure – helped by partial government guarantees.

Governments also need to increase demand. They can do this directly – with targeted and time-limited tax cuts or spending increases. They can also move indirectly, taxing the rich more aggressively and re-allocating the proceeds in tax cuts to those on middle incomes and lower who tend to spend more – along the lines that both presidents Obama and Hollande have proposed. There is also a case for a financial transactions tax – both to raise crucial revenue and to cap the growth and frenetic speed of financial transactions. Finance has become too powerful. It needs constraining.

Will any of this happen? The west is at a cross-roads, and although such proposals will be fiercely opposed by the British, German and American right they need to be beaten back. After all, it is their ideas that have brought us to this pass. It is not too fanciful to argue that the future of western capitalism depends upon how this argument plays out – and how quickly, if at all, there is a change of course.

George Carlin on Religion and God

Eurozone needs a pre-nuptial

By Reuven Brenner

French President Francois Hollande has announced that he will be pushing for mutualizing European debt, which Germany, the Netherlands and Finland oppose. [1]

While there are historical precedents for mutualizing debts - Alexander Hamilton 1790 assumption of states' debts - there are significant differences between that situation and the one Europe is facing now. While the US eventually managed to shape an "American tribe" - though 70 years after Hamilton, a civil war was fought that shaped eventual features of this new tribe - the notion of a European "tribe" is not on the horizon.

The Balkan tribes are as divided as they have ever been; the Scots want to separate from the rest of the United Kingdom; Italy seems to be almost as divided between south and north as it was in Garibaldi's time; and the chances of Greeks, Italians, Spanish, French intermingling with Germans to shape a European tribe do not seem much closer today than they were in preceding centuries.

The above does not imply that crisis might not make for strange bedfellows, resulting in mutualizing some debts. If that happens, the problems raised with the demutualizing of the national debt during the 1995 referendum when Quebec almost separated from Canada (there was just 1% difference in the votes which prevented it) suggest what certain clauses should appear in the potential Eurozone debt offerings and prevent crises that lack of such anticipatory clauses would bring about.

Paragraphs in the draft bill of the Quebec government tabled on December 7, 1994, in the National Assembly, indicated ways in which constitutional, territorial issues, as well as those linked with currency, debts would be settled in case of separation. The document though never addressed the question how an independent Quebec would assume responsibility for its share of Canada's public debt. Yet these were questions raised then:

How do you credibly transfer responsibility for the debt in case of demutualization? What will Canada's creditors say about the transfer? What will be the price paid for it? Quebec had the following options: 1. The Quebec government convinces Canada's creditors to release Canada from their fraction of the debt, exchanging it for bonds issued by Quebec's government (or equities in enterprises); 2. Quebec issues bonds and deposits them with the Canadian government. The Canadian government continues then to bear responsibility for payments. In the European case, the countries that would not implement the policies agreed upon when the bonds are issued would also be facing these two options. If the eurozone bonds are issued, clauses in the bond contracts would have to deal with these two questions. Answers to them would indicate creditworthiness in case of mutualization, and potential demutualization. Let examine these answers. A public debt is backed by the government's right and ability to tax. The proposed euro-bonds would be backed by expectations that European Community's citizens can create sufficient taxable wealth. I highlight "taxable" because both Greece and Italy create wealth, just much of it does not pay taxes. Assume then that with the potential euro-bonds issue, Greece, Spain and Italy ("Club Med") would agree to a clause that in case of secession due to lack of performance, the bonds would be exchanged for those of the three national governments. Would creditors buy these new issues at lower interest rates that the Club Med countries are now trading? The answer is no. After all, the new paper would be backed by exactly the same thing that any governments' outstanding debt is backed by: governments' right and ability to tax. What happens with such clauses in place is that the European Community gives up the right to enforce payment on the seceding members, and that right is transferred to the seceding national governments. This is the core of the issue: Under what political umbrella can the debt be serviced more credibly? Is it under the European community umbrella, with its ability to speed up changes in fiscal, regulatory, monetary and immigration policies? Or are the Club Med countries separately, outside the European umbrella, more creditworthy in changing their fiscal, regulatory, monetary and immigration policies so as the service the debt? With these clauses in the proposed Eurozone bond, it is not clear that the issue would fly. The price buyers would pay would reflect the option that the Club Med countries would not change their policies, end up seceding, in which case the eventual national governments would be standing behind the debt. Now what happens if Germany, the Netherlands and Finland agree that the new public debt remains an obligation of the European countries, with some separate side agreements between the countries? In 1995, the assumption was that Quebec would remit to Canada the funds necessary to service the interest and the principal on the negotiated portion of its debt with a "Promise to Pay Agreement" for every issue, whatever the interest rate or the maturity. Could this work for Europe today and lower interest rates for the Club Med countries? The answers is again no. If Quebec was unable to convince lenders of its ability to service the debt under the federal umbrella, why wouldn't the rest of Canada have not the same doubts? After all, we are talking about the same amounts of money exactly. If Club Med countries are unable to raise funds now, why would the solvent European countries believe that if they back the Eurobonds now, the Club Med countries would pay them back in timely fashion? And if they do not, what are their options? To send in tax collectors, backed by armies? Thus we are back at the point where we started. Creditors know that government bonds are backed by governments' recognized rights and abilities to tax. If all Europe is held responsible for the additional debt, a credible promise that the debt will be serviced without interruptions or without imposing more taxes on Europe's solvent members, would mean that the stronger European countries would have sufficient influence on the weaker countries' fiscal and regulatory policies so that they would be changed in time and prevent default on payments. If solvent Europe does not have the stomach and ability to do this, its creditworthiness diminishes with the proposed euro-zone bonds. Briefly: no matter which of the two options is chosen, creditors must know that the entity who is responsible and held accountable for the debt is also the entity who has the right to tax and regulate. If the two are not the same, the eurozone bonds idea loses credibility. Either clauses in bond covenants or the side political agreements - if enforceable - are ways to increase such credibility. The above analyses is similar to "pre-nuptials" adapted to national levels. Such agreements are by now a common feature of marriage contracts in the United States. In France, they have a longer history. French novelist Honore de Balzac's classic Marriage Contract (1835) is dedicated to them, with perfect insight into human behavior and with broad implications relevant to today's Europe. The story is about Paul de Manerville, a wealthy gentleman who decides, against the advice of his friends, to get married at the age of 27. He marries the Spanish Natalie Evangelista, whose financial assets have been declining since the death of her father - the banker who nature furnished her with at birth. He does not see either that Natalie's loyalty is to her "tribe" - her mother, that is - and that outsiders, her husband among them, are way down the pecking order; that Natalie's mother is desperate to assure for her daughter the lavish lifestyle she believes to be her "right"; or that the various marriage intermediaries negotiating the marriage contract are trapping him. Paul ends up in an unhappy and childless marriage - with his wife happily playing the field. Reads like a good allegory for today's childless Europe; brought into a union by politicians blinded by a non-existent European "democratic ideal," misleadingly traced back to Greece (whose present population has nothing to do with Ancient Greece, except occupying the same real estate); and whose politicians sold every possible rights to their constituents - without requesting obligations. Although Germans and Dutch - not French - pay the bills, and the International Monetary Fund (IMF) and central banks play the roles of the intermediaries, reminding one of Balzac's self-interested negotiators, whom he despises, and whose wile he describes with devastating perfection. If Paul's friends had only managed to convince him to put some enforceable clauses in his marriage contract, linking "secession" to measures of future "productivity" - children, in his case (after all, that's the only source of future productivity) - perhaps Balzac's story would have had a happier ending. Perhaps German, Dutch and Finnish leaders could distribute the book before the next Group of Eight gathering, instead of dealing with IMF intermediaries' Keynesian nonsense and mindless statistics. Then they could discuss the aforementioned clauses in the mutualized debts contracts, and debate if they have the guts to enforce them, knowing that some Club Med countries would sure raise the specter of "Occupation". Note 1. Mutualizing debt involves guarantees whereby each member state not only pays for itself but also meet the obligations of any other country unable to meet its liabilities. Reuven Brenner holds the Repap Chair at McGill University's Desautels Faculty of Management, and serves on the Board and the Investment Committee of McGill's Pension Fund. He was appointed to be one of a seven member commission dealing with consequences of the 1995 potential secession of Quebec. The article draws on his Financial Options for Countries Wanting a Divorce (1995) and his Force of Finance (2002). (Copyright 2012 Reuven Brenner)

Auditors must be held to account

The shareholder spring is the perfect time to challenge the poor performance of unscrutinised accountancy firms

• 
• • Prem Sikka
  • guardian.co.uk, Thursday 31 May 2012 15.04 BST

'KPMG, PricewaterhouseCoopers, Deloitte and Ernst & Young, collectively known as the Big Four accountancy firms, audit around 99% of FTSE 100 companies.' Photograph: Action Press / Rex Features

Shareholder spring is in the air, with increasing numbers voting against fat-cat executive rewards for failure and mediocre performance. However, the same scrutiny is not being applied to the business advisers and consultants implicated in headline failures. They continue to receive huge financial rewards. Company auditors are good example.

PricewaterhouseCoopers (PwC), Deloitte, KPMG and Ernst & Young, collectively known as the Big Four accountancy firms, audit around 99% of FTSE 100 companies. These firms audited all distressed banks. At the height of the banking crisis they gave the customary clean bill of health to Northern Rock, Abbey National, Alliance and Leicester, Bradford & Bingley, HBOS, Lloyds TSB and Royal Bank of Scotland (RBS). Bear Stearns and Lehman Brothers went bust shortly after receiving the all-clear. A subsequent inquiry by the House of Lords economic affairs committee accused auditors of "dereliction of duty" (para 161) and "complacency" (para 167) and basking in a culture of "box ticking" (para 6) rather than delivering meaningful audits. Despite the damning criticisms, some partners in audit firms still charge over £700 an hour for their services.

In 2011, Barclays, the bank that forced the government to introduce retrospective legislation to combat its tax avoidance schemes, paid £54m to its auditors PricewaterhouseCoopers, including £15m for consultancy and advice on tax matters. PricewaterhouseCoopers, which once audited Northern Rock, collected another £48m from Lloyds Banking Group , including £10m for consultancy. HSBC has paid a whopping £56m, including about £8m for tax and consultancy services to its auditors KPMG, the firm that audited HBOS and Bradford & Bingley. RBS has paid £41m, including £7.4m for consultancy to Deloitte, the firm that audited Abbey National, Alliance & Leicester and Bear Stearns. Ernst & Young, the firm that audited Lehman Brothers, earned £36m in audit and consultancy fees from BP and another £28.5m from Aviva. At major companies, the fees paid to accountancy firms are larger than CEO salaries, but rarely attract sustained media attention. The auditor dependency on companies for vast fees neuters any impulse to deliver an independent opinion on company accounts. No one at any accountancy firm is ever promoted for blowing the whistle on dubious practices of companies and losing a client.

At company AGMs auditors are appointed often without any discussion. The resolutions on auditor appointment are not accompanied by any information on the composition of the audit teams; time spent on the job, audit and consultancy contracts, information obtained from directors, list of faults found with company accounts, regulatory action against auditors or anything else that might shed light on the quality of audit work or conflict of interests. With weak accountability measures, auditors deliver little of any social value.

The charges of "dereliction of duty" and "complacency" have not led to any worthwhile UK reforms though there is plenty of spin about encouraging auditors to be sceptical and tweaking auditing standards. There is no scrutiny of the basic auditing model which requires entrepreneurial accountancy firms to somehow invigilate giant corporations. The success of auditors is measured by private profits and they have no obligations to the state, or the public, which eventually bears the cost of bailouts and fraud. This mutual back-scratching has been a key factor in the debacles at Enron, WorldCom, Lehman Brothers and the banking crash. Yet no real change is in sight.

The EU is proposing minimalist reforms to check the collusive relationship between auditors and companies. These include a ban on the sale of lucrative consultancy services to audit clients and forcing companies to regularly change their auditors. At present, FTSE 100 companies change auditors every 48 years on average. Inevitably, major firms are using their financial and political resources to oppose even these modest proposals.

Major accountancy firms have got used to collecting mega fees for failure and mediocre performance. Shareholders should check that by turning the spotlight on them and demand refunds for poor performance. The government should sharpen liability laws so that auditors are forced to make good the damage done by their silence.

Viswanathan Anand shows the heart of a champion in winning Fifth World Title

They trash-talked him, ridiculed him, and wrote him off. They said he had slowed down, lost his flair and chutzpah, and become conformist and traditional in his play. But Viswanathan Anand took on everything the Russian-Israeli chess mafia and his growing band of critics threw at him and emerged on top yet again on Wednesday, winning the world chess title for the fifth time, and shutting up detractors for now.

For sure, they will carp and crib at Anand's struggle to retain the title, the same way critics put down Sachin Tendulkar when he's going through a lean patch, or plays conservatively. But these two heroes of India have set such stratospheric standards for themselves that any hint of a slowdown or downturn in form is enough for detractors to write finis to their careers.

However, 42 is not 24; even the greatest don't have the same reflexes and mindset they when they push 40 -- much less in the twilight of a career -- that they had in their teens and twenties. But when it comes to the crunch, great champions find a way of winning. The flesh and bones might have sagged a little, but a lifetime of experience and a capacious heart comes into play. That is pretty much what Vishy Anand summoned on Wednesday to win the world title in a tie-breaker after Boris Gelfand, an Israeli challenger from the Russian stable of chess greats, held him to a 6-6 tie in regulation play.

The stakes were enormous. Anand has not been in top form for several months now; he's given up several titles he routinely won on the chess circuit. He's also the happy father of a year-old son who is more important than anything on the board. And to top it all, the Russian chess mafia has long been smarting at the loss of the chess crown to the genial Indian after the Karpov-Kasparov combine dominated the game for decades.

Anand has taken on everything they have fired at him from since 2000, including a divided and discredited world title. But since 2007, he had been the undisputed world champion, defeating the Russian Vladimir Kramnik, whom Moscow regarded as the heir to the two Ks, and the Bulgarian Veselin Topalov in 2010.

In each instance, Anand has had to battle not just his opponent, but also a mighty chess establishment, and sometimes even forces of nature. In 2010, he had to drive from Spain to Bulgaria, a distance of nearly 3000 kms across Europe, after the volcanic ash disrupted flights and the (challenger's) host country refused to delay the start, citing TV rights issues. He got to Sofia just in time -- and went on to win.

This time too, the biases were evident. After the two players were tied 6-6 in regulation play, the Russian news agency Ria Novosti ran a preview that, citing ''Russian pundits,'' said ''Boris Gelfand is the favorite to dethrone India's world champion Viswanathan Anand now their title match in Moscow has gone to a rapid chess tie-break.'' This, despite Anand's well-known prowess in rapid and blitz chess.

So even the most cerebral of all sports was not exempt from mind games. In Tel Aviv, Israeli Prime Minister Benjamin Netanyahu had a giant screen installed in his office to follow the live telecast of the games, often conferring with his former cabinet colleague Natan Sharansky, a chess player himself, about the moves. In Moscow, Sergei Smagin, the Moscow chess federation vice-president, described Anand as being "in terrible shape, which forced him not to play to win, but to struggle all match long," demonstrating "a tremendous lack of confidence and lot of mistakes.''

The situation is likely to be the same at a tie-break, giving the Israeli better chances to win provided that he copes with nerves, Smagin added.

Smagin hadn't factored in the heart -- the heart of a champion.