Forget Bermuda, Britain's tax havens are much closer to home

It's easy to point a finger at Amazon and co, but UK-based trusts make it easier than ever for the rich not to pay their share

• 
• • Polly Toynbee
  • The Guardian, Thursday 15 November 2012 21.00 GMT

There are many UK companies that offer trusts 'guaranteed to protect almost all your wealth from inheritance tax'. Photograph: Image Source/Alamy

The hottest ticket this week was a ringside seat for the public accounts committee's roasting of tax-avoiding Starbucks, Google and Amazon. Committee chair Margaret Hodge in full flight gave them a magnificent tongue-lashing, with Tories hot on her heels too, pouring derision on "don't be evil" companies' pretence to make next to no profit as they siphon cash into tax havens. Even the comptroller and auditor general lost his temperand called their evidence "insulting".

These are only opening salvos, as the Germans and French take aim too against companies pretending their profits arise in Bermuda or Luxemburg. John Lewis's managing director is calling on the Treasury to demand tax is paid in the country where profits are made:Amazon made £3.3bn in sales but paid zero UK corporation tax on any of the profits of that income. "They will out-invest and ultimately out-trade us," tax-paying John Lewis protests, unable to compete fairly with tax-shirkers. This should be easy to fix. Vince Cable says he's angry – but HMRC could refuse to accept these companies' accounts.

Everyone can point a shocked finger at foreign giants who bamboozle or intimidate our tax collectors. But the culture of avoidance runs deep. Labour tiptoed round the edge of the tax avoidance industry, chased off by City blusterers who called tougher tax collection a Labour stealth tax. But since the crash, the collapse in tax revenues has created soaring national debt, so the need for the Treasury to collect every penny owed has become more pressing. The culture of getting away with what you can has to give way to a popular understanding that one man's tax dodge is his own community's lost children's centres, libraries and swimming pools. So where does it all begin?

In a sedate Sussex hotel, St James's Place Wealth Management invited a flock of retired people of comfortable means to one of their genteel sales pitches on how to avoid tax. Observing unannounced, I listened to them selling their Rolls Royce anti-tax vehicles and investment funds: one fund was so stellar that it grew in 30 years from £30,000 to £2.7m – and how the room gasped in admiration. Yes, yes, we were all well warned that investments can go down as well as up, but the upside of that £2.7m looked more compelling than any risk. But the real seller for these elderly people concerned ways to avoid "uninvited guests at the sharing out of your estate". Those "uninvited guests" are the rest of the nation's taxpayers.

The atmosphere was impish and jocular, with the taxman as pantomime villain. Shocking stories were told of what befalls the estates of those without cunning advisers. Charles Clore lived abroad to avoid tax, but because he foolishly wanted to be buried "back home", the taxman deemed he was not really resident abroad at all and his whole estate was subject to inheritance tax. Gasps of shock. On screen, up came Prince Philip's whimsical remark that "All money nowadays seems to be produced with a natural homing instinct for the Treasury" – though in his case money makes the reverse journey from the Treasury to his trouser pocket. "Taking the worry out of wealth," was the theme, as one presenter promised: "We can protect your money from the dangers of tax," explaining how to offshore money.

But the big sell is trusts, special ones devised for this company's clients, guaranteed to protect almost all your wealth from inheritance tax. They are right, it can be done easily. Put all moveables and all cash and investments into a discretionary trust, and it passes to your heirs without tax as soon as you die, not even waiting for probate. It counts as a gift so the beneficiaries need pay no tax either. Called a "discretionary trust", as technically St James's are the legal trustees, the discretion in fact remains in all but name with you: the company will do whatever you ask, so you still control the fund and you can still take money from it. But for reasons that defy basic tax fairness, it avoids all inheritance tax. Why?

Even worse, hard-pressed local authorities are denuded by these trusts too. As St James's advisers eagerly pointed out, if you hide away your assets in a trust, it can't be counted when calculating how much you should contribute to your care if you need to go into a residential home. He warned that could be £1,300 a week in fees – more gasps – so why let your council take your money when you can salt it away safely in a trust? Let poorer taxpayers pick up the bill instead.

Richard Murphy, tax campaigner and adviser to the public accounts committee and others, says no one knows how much money passes through these trusts. They are opaque, unregistered and the taxman neither knows if they exist nor what's in them. Far more tax is probably avoided this way than the mere £3bn collected in inheritance tax: only 3.5% of estates pay it – and they may not be the richest. Why any Labour chancellor – or Tory for that matter – lets this dodge persist is a mystery. Inheritance is a neuralgic political topic, ever since the issue panicked Gordon Brown into ducking an election in 2007. But since so few estates pay it, it's hard to see why the 96.5% of ordinary taxpayers who never leave enough to get above the £650,000 couples' inheritance tax allowance would not support ending this loophole for the rich.

Meanwhile, the public accounts committee is summoning back Amazon after this week's "deliberately evasive" display of "outrageous" ignorance by one of their executives: he didn't know who owns their Luxembourg-based holding company that pays a fraction of the UK's tax rate. The return match is not to be missed. Margaret Hodge is calling for complete transparency to stop companies claiming "commercial confidentiality" to hide their accounts. She wants aggressive avoiders to be named and shamed and denied public contracts, and she suggests the public boycott tax avoiders.

On 8 December UK Uncut is protesting against Starbucks, setting up creches, libraries and women's refuges in the coffee shops, as payback for services that might stay open if Starbucks paid fair tax. Is it time the committee looked at how the likes of PricewaterhouseCoopers, KPMG, Accenture and McKinsey devise ever more elaborate tax dodges for their clients, yet with the other hand seize ever fatter contracts from the state they help strip bare of revenues?

Scientists find 'fidelity' hormone which keeps men from straying

The chemical oxytocin helped men in romantic relationships keep their distance from strangers they might find attractive.

They stayed about four to six inches further away when approaching or being approached by good-looking women than those given a dummy drug.

Dubbed the 'cuddle drug', oxytocin is naturally made in the body and is involved in sex, sexual attraction, trust and confidence.

It is released into the blood during labour - triggering the production of breast milk - and floods the brain during breastfeeding, helping mother and baby bond.

Researchers said their findings published in The Journal of Neuroscience suggest oxytocin could promote fidelity. In contrast oxytocin had no effect on single men. 

Dr René Hurle­mann, of Bonn University in Germany, said: "Previous animal research in prairie voles identified oxytocin as major key for monogamous fidelity in animals.

"Here we provide the first evidence that oxytocin may have a similar role for humans."

In the study his team administered oxytocin or a placebo via a nasal spray to fifty-seven healthy and heterosexual men, about half of whom were in monogamous relationships.

Forty-five minutes later the participants were introduced to a female experimenter they later described as "attractive".

As the woman moved towards or away from the volunteers the men were asked to indicate when she was at an "ideal distance" as well as when she moved to a place that felt "slightly uncomfortable."

Dr Hurlemann said: "Because oxytocin is known to increase trust in people we expected men under the influence of the hormone to allow the female experimenter to come even closer - but the direct opposite happened."

The effect of oxytocin on the monogamous men was the same regardless of whether the beauty maintained eye contact or averted her gaze - or if the men were the ones approaching or withdrawing from her.

Oxytocin also had no effect on the men's attitude towards the woman - both those who received the hormone and the placebo rated her as being equally attractive.

In a separate experiment the researchers found oxytocin had no effect on the distance men kept between themselves and a male experimenter.

They said future studies are needed to determine exactly how oxytocin might act on the brain to affect behaviour.

Psychiatrist Professor Larry Young, of Emory University in Atlanta who was not involved in the study, said the hormone could be nature's way of encouraging fathers not to stray.

He said: "In monogamous prairie voles we know oxytocin plays an important role in the formation of the pair bond.

"This study suggests the general role of oxytocin in promoting monogamous behaviour is conserved from rodents to man."

Brics miracle over as world faces decade-long slump

US Conference Board fears Brics miracle over as world faces decade-long slump

The catch-up boom in China, India, Brazil is largely over and will be followed by a drastic slowdown over the next decade, according to a grim report by America’s top forecasting body.

Image 1 of 3

China’s double-digit expansion rates will soon face, fallng to 3.7pc from 2019-2025 as the aging crisis hits. 

By Ambrose Evans-Pritchard

7:37PM GMT 13 Nov 2012

377 Comments

Europe's prognosis is even worse, with France trapped in depression with near zero growth as far as 2025 and Britain struggling to raise its speed limit to 1pc over the next three Parliaments.

The US Conference Board’s global economic outlook calls into question the "BRICs" miracle (Brazil, Russia, India, China), arguing that the low-hanging fruit from cheap labour and imported technology has already been picked.

China’s double-digit expansion rates will soon be a romantic memory. Growth will fall to 6.9pc next year, then to 5.5pc from 2014-2018, and 3.7pc from 2019-2025 as the aging crisis hits and investment returns go into "rapid decline".

Growth in India - where the reform agenda has been "largely derailed" - will fall to 4.7pc to 2018, and then to 3.9pc. Brazil will slip to 3pc and then 2.7pc. Such growth rates will leave these countries stuck in the "middle income trap", dashing hopes for a quick jump into the affluent league.

"As China, India, Brazil, and others mature from rapid, investment-intensive ‘catch-up’ growth, the structural ‘speed limits’ of their economies are likely to decline," said the Board. 

The fizzling emerging market story is a key reason why the West has relapsed this year. The world is now facing a synchronized downturn all fronts, with little scope for fiscal and monetary stimulus.

^{France slumps to bottom of the class, with Britain close behind}

"Mature economies are still healing the scars of the 2008-2009 crisis. But unlike in 2010 and 2011, emerging markets did not pick up the slack in 2012, and won’t do so in 2013," it said.

The Conference Board says Europe’s demographic crunch and poor productivity has reduced trend growth to near 1pc, though it could be worse if the region makes a hash of monetary policy and follows Japan into a "structural deflation trap". Large numbers of people may be shut out of the jobs market forever.

Germany will outperform Italy and France massively over the next five years, implying a bitter conflict within EMU over control of the policy levers. While the report does not analyze debt-dynamics, it is hard to see how the Club Med bloc could keep its head above water in such a grim scenario or stop political revolt coming to the boil.

Bert Colijn, the Board’s Europe economist, said France’s woes stem from low investment, as well as delayed austerity and reform. The reckoning will now come.

He thinks Spain will fare better since it has already taken its bitter medicine. It is expected to grow at 1.8pc for the next decade as "Schumpeterian" creative destruction clears away dead wood and unleashes fresh energy - a contentious point since labour economists argue that unemployment of 25.6pc is doing permanent damage to parts of the workforce, and therefore to economic potential.

America has a younger age profile and should eke out 2.5pc to 3pc growth until 2018, and 2pc thereafter. It has a big "output gap" of 6pc of GDP to close before it hits any speed limit, so part of this is just the effect of elastic snapping back.

^{Emerging markets deflate}

The Board said lack of demand lies behind the current global malaise, but the fading technology cycle may prove a greater threat over the long-term.

The thesis is based on work by professor Robert Gordon from Northwestern University, who argues that the great innovation burst of the last 250 years is a "unique episode in human history" and may be fading. His claims challenge the work of Nobel laureate Robert Solow - orthodoxy since the 1950s - that economic growth is a perpetual process once the right legal and market framework is in place.

The Conference Board’s forecast is starkly at odds with a report by the OECD last week predicting that China would keep growing at 6.6pc until 2030, and India at 6.7pc -- propelling the two rising powers to global dominance.

Apostles of the BRICS revolution are certain to dispute the claims. Yet there could be no clearer sign that the emerging market euphoria of the last decade has fully deflated.

Energy pricing: the market is manipulation

As an oil industry whistleblower, I know the energy sector is even more flawed than this week's exposé of gas prices reveals

• Chris Cook
• The Guardian, Tuesday 13 November 2012 20.40 GMT

'The real problem lies not with gas, but crude oil – which is suffering perhaps the greatest market manipulation the world has seen.' Photograph: Getty Images

The Guardian's investigation into the alleged "Libor-like" fixing of UK gas prices was doubly ironic for me. The first irony is that, as director of compliance and market supervision of the International Petroleum Exchange (now ICE Futures Europe) in the 1990s, I was heavily involved in the development and legal architecture of the gas-market contract that has now allegedly been manipulated.

The second painful irony is that in 2000 the Guardian published detailed allegations made by me on very similar micro-manipulation of the International Petroleum Exchange's Brent futures contract-settlement prices. This systemic manipulation was so pervasive that traders referred to the on-exchange profits they made at the expense of the manipulators – who profited "off-exchange" – as "grab a grand".

Unfortunately, I described the manipulation as "systematic" – taken to mean that some of the players were routinely manipulating the price most of the time – rather than "systemic", where most of the players manipulate the market some of the time. On this basis the commissioner appointed to investigate my allegations rejected them, and in finest whistleblower tradition my reputation was destroyed: I lost my livelihood, home and marriage. Had the crude oil market been properly investigated at that time, subsequent oil market history would probably have been very different.

One thing I have come to realise since my failed attempt at whistleblowing is that the short-term trading exposed this week is only part of the problem. The malaise runs much deeper. If you want to find out who really has an interest in rigging the market, ask who benefits from medium- and long-term high commodity prices: it's the producers, stupid. From De Beers' diamond hoarding to coffee-grower cartels, if the history of commodity markets tells us anything it's that if producers can find leverage to support commodity prices, they will.

The real problem in the energy market lies not with gas, but crude oil – which is suffering perhaps the greatest market manipulation the world has seen. This is due to financialisation of markets which began in crude oil about 12 years ago, but only became significant from around 2005 onwards. From the mid-90s, a new type of investor entered the markets as investment banks created new vehicles – index funds, exchange traded funds and so on – which enabled investors to invest directly in equities, precious metals; commodities generally and above all, in energy, with a view to "hedging inflation". Rather than speculatively taking a risk in search of a profit, they sought only the return of their capital, and the preservation of the value of their investment relative to dollars, sterling and so on.

To understand what happened to oil, we just need to look at the Enron scandal. The fundamental scam perpetrated here was based on an ancient financing method known as "prepay". Quite simply, this occurs when producers sell their product at a discount for cash now, with delivery later. So via intermediary banks such as JP Morgan and Citigroup, Enron were able to opaquely obtain "off-balance sheet" financing disguised as commodity trades of which Enron's investors and creditors were blithely unaware.Essentially, Enron was borrowing dollars and lending commodities.

A similarly opaque prepay technique has been responsible since 2005 for the inflation of two oil market bubbles. The first – a private sector bubble – culminated in July 2008 in a spike to $147 a barrel, and then a collapse to $35, causing great pain to producers used to high prices. At this point key producers – facilitated by friendly investment banks – resorted to prepay to finance themselves, and a public sector bubble was rapidly inflated during 2009.

In my analysis, the US and Saudis then hit upon a strategy that loosely "pegged" the oil price against the dollar within an agreed trading range, keeping prices relatively stable. But this trick only worked until early 2011, after which Fukushima and supply shocks in Libya and Iran have caused more turmoil.

I believe that there is now virtually nothing holding the oil market up, and that when (not if) Iran reaches an accommodation with the US on terms similar to those spurned by Dick Cheney in 2003, we will see the oil market price fall, possibly dramatically.

I have been warning for some time that risk-averse investors – whose very presence in the market causes the inflation they wish to avoid – are taking a much higher level of market risk than they appreciate. If I am correct, this will – sooner rather than later – give rise to the next Great Regulatory Disaster.

Perhaps worse than this, and particularly relevant to my work on financial market resilience, there is a significant risk of the sort of discontinuity in market price that took place in the tin market in 1985 when the market price collapsed overnight, from the price level supported by producer cartel stockpiling of $8,000 a tonne to the much lower price of $4000 a tonne, which reflected the influx of new low-cost tin supply.

The presence in the market of middlemen who have an interest in volatility and opacity means that we have now reached a stage where market manipulation is no longer an aberration: the market is the manipulation.

So what can be done? In the long term, crude oil prices can only go up, and many would argue that for the sake of the environment it is essential that carbon fuel prices are set at levels at which demand is low. The problem then is how best to distribute interationally and domestically the surplus value thereby created, in particular in investment in renewable energy, and above all in the cheapest energy of all – energy savings.

This will require a new (in fact very old) – and non-toxic – type of market architecture, and the good news is that this are already emerging as the current market paradigm approaches its end.

India on stage and in-yer-face

Yasmin Alibhai Brown in The Independent

In 2007, I went to the Royal Court to see Free Outgoing, a play by Anupama Chandrasekhar, from Chennai. It was directed by the then rising star, Indhu Rubasingham, who has recently replaced Nicolas Kent as artistic director of London's Tricycle theatre.

The central role of a distraught mother was played flawlessly by Lolita Chakrabarti, whose own first play, Red Velvet, is getting rave reviews at the Tricycle. Chandrasekhar sparkled in the constellation of Royal Court emerging playwrights and hers was the first contemporary Indian drama to be staged at a non-fringe venue in Britain. Five years earlier, she had been on the Court's International Residency programme and there she learnt to hone her work, raise her game. And how.

The play's subject was taboo – sex between unmarried, Indian teenagers and the revenge of society, its hypocrisies and repressive customs that push against modernity even in hubs of new technology. Deepa, a "good" girl and bright pupil, has sex with a schoolboy. He records the juicy moments on his mobile and the clips circulate. She, her widowed mum and brother are horribly ostracised. The audience, mostly white that day, seemed discombobulated, I thought. A comprehensive school teacher asked me if the sex was "realistic or believable". She sounded almost as disapproving as the cruel keepers of virtue on stage and miffed that India was not conserving its old self for the Occident to romanticise and to vacation in. In contrast, I and my Asian friends felt the opposite: Indian drama was finally getting away from Bollywood clichés and religious masques, speaking truths, repudiating conformity. Chandrasekhar's works are not generally staged in India, though some do sneak into small, rebellious venues. Other young talent is similarly thwarted by censoriousness, the lack of resources and spaces for inventive and daring work.

This week at the Royal Court five more such writers will have their plays performed as rehearsed readings. I saw them all as full productions in Mumbai in January at the Writers' Bloc Festival of new writing from all over the country. Some were edgy and tragic, others sharp and funny, all profoundly affecting. 

Artistically brilliant, urgent, energetic, authentic and eloquent, they touched nerves in the body of their nation, made it twitch. They were among the most powerful examples of modern theatre I have ever seen.

The Royal Court collaborated with Rage, a Mumbai theatre company, to create this festival. Rage was set up in 1993, by Shernaz Patel, Rajit Kapur who are both esteemed actors, and writer Rahul da Cunha. The multitalented ensemble commissions, directs, produces and constantly stretches the parameters of the possible.

Da Cunha explained why and how it all started. Being in Mumbai, a city that "progresses and regresses at the same time" and in a nation "going forwards and backwards and still holding together and to its democracy" is what kicked the Rage trio into action:

"We were driven, restless, felt it was time for modern India to find its voice, its own stories and put them on stage. We didn't have our own English-language theatre except, of course, for Shakespeare, Pinter, Osborne and so on. We started Indianizing the great Western plays, but what we really wanted, and young urban audiences were hungry for, were Indian dramas in English. In a crazy, haphazard way we thought, we knew, the time had come for that to happen. Some people thought drama in English would be elitist. We didn't – what we wrote and directed would have to be in the English Indians actually speak, their intonation, expressions and articulations."

Just as their ideas were shaping up, the Royal Court's artistic director Dominic Cooke and associate director Elyse Dodgson, turned up in Mumbai for a night after conducting a workshop in Bangalore. Call it karma. Da Cuhna, grabbed them, introduced himself and Rage and using his immense persuasive powers got them to promise workshops in Mumbai. They did, and a partnership was forged, with valued help from the British Council. Dodgson, other Royal court nurturers and Phyllida Lloyd went over and released more pent-up creativity than they could ever have imagined. The incipient dramatists were given tools, taught essential skills. At the first Writers' Bloc festival in 2004, in Da Cunha's view, "The level was pretty stunning. Young people saw the results and were totally engaged." Chandrasekhar's disturbing festival play about an Indian talk-show hostess who has acid thrown at her proved that she was both brave and singularly gifted.

Rage's founders carried on making their own remarkable work too. One gripping play I saw in 2010 was Pune Highway, written by Da Cunha and with Kapur in the lead. It was a pacy buddy thriller exposing India's furious and thoughtless globalisation and its ethically vacant middle class, again cutting edge and unsettling for Indians who prefer PR or patriotic art.

India's theatre tradition began in classical times when religious stories were enacted in Sanskrit or as mimes in villages and communities. Gods, improbable heroes and myths were loved by high and low and kept them god-fearing. They are still performed during festivals and at auspicious times. A parallel tradition was drama in local and regional Indian languages. The works, whether classic, extraordinary, worthy or barren, were and still are loved by millions. Parsi theatre was another popular strand. Parsis are descended from original Zoroastrians who fled Persia when Muslims took over that land. They settled in India and under the Raj, this small, urban and successful community became famous for its well-produced and popular comedies and farces in Gujarati.

From the 19th century onwards, playwrights wrote questioning and more complex works – the greatest of them Bengal's polymath Rabindranath Tagore, the first non-European to win the Nobel Prize for literature in 1913. By that time, Shakespeare and other European masters were being read and performed by Westernised urban Indians. After independence, those cultural bonds remained intact. Felicity Kendal's family were nomadic players who took the Bard to rural areas; the Sixties film Shakespeare Wallah told the story.

Since then prestigious drama and music schools have been established and become centres of excellence. I have seen some of their fine productions too, though these seemed to me to keep assiduously within the boundaries of "acceptable" art – unlike the breakout works produced at the Writers' Bloc festival.

In the week I spent at the festival, I saw how Dodgson and her team and the transformative Rage company interacted with writers and directors, never letting standards slip, never slipping into patronising allowances. Their intensity, honesty and sense of purpose stimulated astonishing creative heat and resolve in the artistes and writers. Dodgson is a force of nature and was described to me as the "godmother" of the creative cohort. One of the youthful actors said to be it was "like being in the fastest car, feeling the breeze and excitement, but never losing control because you are trying to reach somewhere where nobody has gone before. It's about control and real freedom, giving expression to things kept locked up. Escape from the usual. You don't know how the young of India need that."

The five readings selected for London include Mahua by Akash Mohimen, which was originally written in Hindi and has been translated. Incredibly young and gifted, he chose as his theme extreme rural poverty and addiction to hooch. It made audiences weep silently. Ok Tata Bye Bye by Purva Naresh, also a translation from Hindi, is about feisty, smart sex workers selling their bodies to truck drivers. The other three deal with property developers and broken communities, the conflict in Kashmir and ruthless modernisation. None of these plays is maudlin or sanctimonious. They are real and engaging, reveal aspects of a country still barely known by Brits. And best of all, not one of them features a noisy wedding or call-centre story.

Texas secession petition reaches 25,000 signatures.

 Even Obama doesn't warrant this conservative pessimism

By Tim Stanley US politics Last updated: November 13th, 2012

68 Comments Comment on this article

Texans have provided enough signatures to demand an official White House response

If at first you don’t succeed … secede! That seems to be the attitude of the folks in 20 states who have reacted to the re-election of Barack Obama by petitioning for independence from the United States. Anyone over thirteen can sign up on the White House website and it requires only a first name and last initial to do so. The petitioners in Texas have reached the threshold of 25,000 signatures necessary to trigger an official response from the administration. The answer will doubtless be a big fat "no" – and Governor Rick Perry has affirmed that Texas should stay in the Union. But it’s interesting to note just how many in the Lone Star state would rather go it alone than suffer "four more years".

The mood on much of the Right is pure Götterdämmerung – as if America had just elected Lenin himself. [Mark Steyn: “Americans as a whole have joined the rest of the Western world in voting themselves a lifestyle they are not willing to earn.” Charles Cooke: “If we are to lose America as it has been, could we not ask that it be lost to something better than this?”] A common theme is that the only way a candidate as radical as Barack Obama could have won is because the tipping point has been reached and America has tipped beyond redemption. The old values of self-reliance and moral liberty are out; the welfare state and youthful permissiveness are in. Given such fatalism, who can blame the conservatives of Texas for wanting to break away and start all over again? Who hasn’t felt the desire to secede from everybody else – to ride off in to the sunset with nothing but a gun for company? Ah, to live in a righteous republic of one…

Some of those signing the petition will be libertarians, others will be Confederate chauvinists. But I also detect the lingering influence of Calvinist pessimism. When John Winthrop told the Puritans of the 17th century that they had come to the New World to build a city upon a hill, he warned that it was possible that they would fail. It didn’t take long for the Puritans to decide that they had. Two generations later and they were writing Jeremiads complaining that the spirit of the early colony was lost; church attendance was declining, the children were rebelling and society was just hurtling towards destruction. The American experiment was over barely before it had begun.

So was born a common theme in American history: the declension from an honourable beginning to a dishonourable end. In the 1790s, partisan politics threatened to splinter the republic. In the early 19th century, industry destroyed the agrarian ideal. Catholic immigration undermined the Protestant hegemony. Alcohol promised apocalypse. Cults rose and fell that pledged to hold back the tide of progress and maybe even reverse it a little. Such was the static purity of the Shaker church that they eschewed breeding altogether and took children only through adoption. It was not a smart way to do business; today there are only three Shakers left.

The sheer number of Jeremiads testifies to the number of times that America has been predicted to die … and hasn’t. The Jeremiad is actually best understood as a challenge rather than a prediction of doom, but it is invariably defied by history. Of course, there is a temptation to add, “Until now.” After all, a country with so burdensome a debt and as large a government is more destined to fail than the patchwork of farms that made up the old colony (and to bring the rest of the world down with it).

But the reality is that 2012 is not the end of America. Obama's Hispanics will not always vote Democrat (the idea that they will borders on racist), gay people will form their own little nuclear units and become dully conservative, the young will mature into frugal taxpayers, and Texas will not secede. It's far more likely that liberalism shall dig its own grave. Recall that in 1964, the liberal pundits declared the death of conservatism because Goldwater lost the election so decisively. Four years later, and riots and war – fuelled by the over-extension of the welfare/warfare state – caused the election of Richard Nixon and the birth of the Silent Majority. Obamanomics will go the same way. It’s only a matter of time before the Silent Majority has cause to be heard again.

What conservatives must do in the meanwhile is convert their Calvinist pessimism into evangelical optimism. Ronald Reagan loved to quote John Winthrop and his idea that America could be a city upon a hill. But he put a Gipper spin on it: it was a shining city upon a hill that had both a figurative and a literal meaning: “a tall proud city built on rocks stronger than oceans, wind-swept, God-blessed, and teeming with people of all kinds living in harmony and peace, a city with free ports that hummed with commerce and creativity, and if there had to be city walls, the walls had doors and the doors were open to anyone with the will and the heart to get here.” There’s a reason why Reagan won the presidency by two landslides. People vote for hymns of hope, not Jeremiads.

As for the conservatives of Texas, they should stop all this foolishness about quitting the Union. Don't secede, guys. Get even.

Management theory was hijacked in the 80s. We're still suffering the fallout.

Good governance went out of the window when the Chicago school's reductive view of human nature took hold

• 
• • Simon Caulkin
  • guardian.co.uk, Monday 12 November 2012 08.30 GMT

'Managers abandoned their previous policy of retaining and reinvesting profits in favour of large dividend and share buyback payouts to shareholders.' Photograph: David Karp/AP

This week the City has been congratulating itself on 20 years of UK corporate governance codes. Since the original Cadbury document in 1992, the UK has basked in its role as governance leader, with 70 other countries having followed its example and adopted similar guidelines.

There's just one problem: is it the right kind of governance? The day the FT carried the story, Incomes Data Services reported that FTSE 100 boardroom pay went up by a median 10% last year, a soaraway trend that the best code in the world has complacently overseen. Nor could it prevent the RBS meltdown, Libor or PPI mis-selling to the tune of £12bn, the biggest rip-off in financial history. It didn't stop phone-hacking or BP taking short cuts. It has sanctioned wholesale offloading of risk, whether individual (pensions, careers) or collective (global and financial warming) on to society, while rejecting any responsibility of its own except to shareholders.

So jerry-built is the corporate economy erected on the scaffolding of the City codes that it can no longer deliver even the material progress by which it justifies its privileges: even with a return to growth, living standards for lower and middle earners may be no higher in 2020 than in 2000, according to the Resolution Foundation. The truth is that UK corporate governance has neither headed off major scandal nor nurtured effective long-term management. In fact the opposite is true.

The irony is that we know what makes companies prosper in the long term. They manage themselves as whole systems, look after their people, use targets and incentives with extreme caution, keep pay differentials narrow (we really are in this together) and treat profits as the score rather than the game. And it's a given that in the long term companies can't thrive unless they have society's interests at heart along with their own.

So why do so many boards and managers, supported by politicians, systematically do the opposite – run companies as top-down dictatorships, pursue growth by merger, destroy teamwork with runaway incentives, attack employment rights and conditions, outsource customer service, treat their stakeholders as resources to be exploited, and refuse wider responsibilities to society?

The answer is that management in the 1980s was subject to an ideological hijack by Chicago economics that put at the heart of governance a reductive "economic man" view of human nature needing to be bribed or whipped to do their exclusive job of maximising shareholder returns. Embedded in the codes, these assumptions now have the status of unchallenged truths.

The consequences of the hijack have been momentous. The first was to align managers' interests not with their own organisations but with financial outsiders – shareholders. That triggered a senior management pay explosion that continues to this day. The second was that managers abandoned their previous policy of retaining and reinvesting profits in favour of large dividend and share buyback payouts to shareholders.

Ironically, the effect of this stealth revolution was to undercut the foundations of the very shareholder value under whose flag the activists had ridden into battle. Along with corporate welfare and customer service, among the functions squeezed in the shareholder bonanza was research and development. Innovation has stalled since the 1980s, prompting some economists to query whether the era of growth itself is over.

But it's not economics, it's management, stupid. Unsurprisingly, downtrodden and outsourced workers, mis-sold-to customers, exploited suppliers and underpowered innovation cancelled out any gains from ever more ingenious financial engineering – leaving shareholders less well off in the shareholder-value-era since 1980 than in previous decades. The great crash of 2008 stripped away any remaining doubt: the economic progress of the last 30 years was a mirage. As Nassim Nicholas Taleb put it in The Black Swan, the profits were illusory, "simply borrowed against destiny with some random payment time."

Over the last decades, misconceived ideologically based governance has recreated management as a new imperium in which shareholders and managers rule and the real world dances to finance's tune. A worthier anniversary to celebrate is the death seven years ago this month, on 11 November, of Peter Drucker, one of the architects of pre-code management, which he insisted was a "liberal art". Austrian by birth, Drucker was a cultured humanist one of whose distinctions was having his books burned by the Nazis. In The Practice of Management in 1954 he wrote: "Free enterprise cannot be justified as being good for business. It can be justified only as being good for society".