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Sunday 13 December 2015

Oxford and Cambridge condemned over failure to improve state school access


Hard-hitting report by Social Mobility and Child Poverty Commission takes elite colleges to task.

 
Christ Church College, Oxford, is among those that offered fewer than 50% of places to pupils from state school. Photograph: Alamy


Daniel Boffey in The Guardian


The universities of Oxford and Cambridge are facing an unprecedented attack from government advisers for their failure to increase the number of state school pupils studying at Oxbridge colleges.

The elite institutions’ records will be criticised and individual colleges named and shamed in a hard-hitting annual report by the Social Mobility and Child Poverty Commission.

The failure of some major Oxbridge colleges to accept even half of their intake from state schools will be criticised in the strongest terms by the public body, the Observer has learned. The commission will say on Thursday that while attainment of top A-level grades by those from the least wealthy backgrounds is poor, with just 2.2% of the most deprived gaining good grades, these statistics offer no excuse for Oxbridge’s intake figures.




Oxbridge colleges named and shamed for failing to admit poorer students



Written by the former Labour cabinet minister Alan Milburn and former Tory cabinet minister Gillian Shephard, his deputy on the commission, the report is expected to say that:

■ Despite an increase of 6% in the proportion of state-educated pupils between 2003-04 and 2013-14, independently schooled pupils still make up around two-fifths of the intake at both Oxford and Cambridge.

■ To meet their benchmarks for disadvantaged pupils, Oxford would need to increase the percentage of state school pupils by a quarter (24%) and Cambridge by a fifth (18%).

■ Large discrepancies between Oxbridge colleges in the number of offers to made to applicants from the state sector illustrate that many should be doing much more.

■ Some colleges make less than half of their offers to state-educated pupils. The worst performers are University College (Oxford), Robinson (Cambridge), St Peter’s (Oxford), Trinity (Oxford) and Christ Church (Oxford).

■ Even the best performers in this regard still give a quarter or more of their places to the privately educated. The Observer understands that the commission will welcome Oxbridge’s increasing use of contextual measures as a means of addressing the under-representation of lower-income and state-educated students, but demand greater and better use of it.

Three years ago the appointment of the then vice-chancellor of Bedfordshire university, Professor Les Ebdon, to head the Office for Fair Access (Offa), was nearly blocked over his championing of contextual information when offering places. Michael Gove, then education secretary, reportedly lobbied at the time that Ebdon was an advocate of social engineering rather than excellence in universities.

However, the commission will dismiss those concerns. A source said it believed that “too often in the past, university applicants have missed out because of a lack of opportunity to demonstrate their potential”.

They will provide statistics to show that poor children who are high-attaining at 11 are four times less likely to go on to an elite university than their high-attaining wealthier peers.
The source added: “It is right that where a young person has attended a poor-performing secondary school, is a care leaver or comes from an area with stubbornly low higher education participation, their predicted and actual grades should be considered in that light. The commission will call for this practice to be encouraged and continued.”

While using contextual data to judge between pupils with top grades, Oxbridge colleges have resisted reducing their A-level demands, claiming that they wish to retain their reputation for excellence.

However, under a “Realising Opportunities” scheme involving 16 universities including Bristol, UCL, Exeter, Warwick and York, tutors are allowed to give offers which are two grades below course entry requirements.

The eligibility criteria include evidence that the pupil lives in a neighbourhood which has a low progression rate to higher education or an area which has a high level of financial, social or economic deprivation; comes from a home where neither parent attended university in the UK or abroad; is in receipt of or entitled to discretionary payments; is in receipt of or entitled to free school meals.

Earlier this year Offa prompted an angry reaction from some of the country’s top institutions when it called for a doubling of admissions of teenagers from poor families over the next five years. In 2011, 22,000 teenagers (20%) from the poorest fifth of school-leavers, went to university. Offa wants that to increase to 40,000.

Damien Shannon, who sued St Hugh’s College, Oxford, in 2013 when, despite winning a postgraduate place on academic merit, he was told that without £12,900 to fund living costs he would not be welcome, applauded the commission’s intentions.

The son of a single mother from a council estate in Mansfield, Nottinghamshire, Shannon said he had only applied to Oxford after a chance meeting with a professor who said he was “quite bright and should have a go”. Shannon decided to represent himself in a legal action against the college’s extremely expensive and hostile barristers on the grounds that it was discriminating against poor pupils.

Despite initially appearing to take a hard line, the college put up the white flag and settled out of court. It gave him his place and it reviewed and reformed its policies. Shannon is now a high-flying civil servant.

Shannon, who did his first degree at Salford university and the Open university, said: “I loved my time at St Hugh’s and I go back all the time now. But studying there as an undergraduate would not have occurred to me in a million years, no more than living in Buckingham Palace.”

Looking down the list of the worst-performing Oxbridge colleges, Shannon said he could also also see a trend. “The decision on admissions is made by the colleges and not the faculty for undergraduates,” he said. “I have always thought that was a mistake. I don’t know how a college can divorce an academic decision from the knowledge that a candidate who comes with resources may be more useful for the college in the future.

“I do not think it is any coincidence that the richest colleges are the ones who seem minded to accept the richest applicants.”

Shannon, 29, who now gives talks to pupils at Paddington Academy in London on attaining a place at Oxbridge, added: “Contextual data is not a new idea it has just gone out of vogue. A man called David Miliband, who went on to be foreign secretary, received a place at Oxford University on the basis of contextual data.

“If it was a good idea 30 years ago, it is a good idea today. If it was right for David Miliband, then I don’t see why it wouldn’t be right for the children from poorer backgrounds today.

Thursday 10 December 2015

Yes, the Tories are deceitful – but I take my hat off to their political sorcery

Owen Jones in The Guardian

David Cameron’s EU negotiation is a sham. He knows it, and so do the ardent Tory proponents of Brexit. The prime minister understands that a considerable source of anti-EU hostility is motivated, above all else, by opposition to immigration. And so he conducts a charade, pledging to satisfy a lust to close British borders by compelling EU migrants to work in Britain for four years before they can receive in-work benefits.

He didn’t need Sir Stephen Nickell, a senior official at the Office for Budget Responsibility, to tell MPs that the impact of such a move would be “not much”. No impartial source has offered evidence suggesting that it would work, or that the vast majority of migrants are attracted by anything other than work and a fondness for Britain. This is politics as illusion, with Cameron as chief illusionist, and the magician George Osborne completing the circus troupe.

Yes, the EU is examining a proposal for an “emergency brake” on migrants entering Britain under certain circumstances. But this is something for which Cameron reportedly has little passion, and he is redoubling his efforts to secure a four-year limit.

As one EU diplomat told the Financial Times: “The reason Cameron hasn’t gone for this must be that the problem that he has in Britain is mainly one of perception, not of real economic impact.” And that is what matters to an illusionist: how something is perceived, rather than how it actually is.

For the Tories, immigration works in their favour whatever happens – or at least until their opponents come up with a convincing message. They have set an arbitrary immigration limit that has been repeatedly – and devastatingly – missed. Its main achievement is to further undermine the public’s faith in politicians delivering what they promise. Nonetheless, if immigration remains high it means an issue on which the left is poorly trusted remains a political priority in the minds of millions. Sure, it risks boosting the currently flagging Ukip, but though Nigel Farage’s diminished purple army is an imprecise weapon it certainly inflicts significant damage on the Tories’ Labour opponents. If immigration decreases, then the Tories can claim success and warn that the opposition would reopen the gates.

Illusions are what the Tories excel at. They back Labour’s spending – down to the last penny – when in opposition, then in government claim that it was financial extravagance that plunged the country into economic chaos. The crash may have originated in Britain’s financial hub, a sector whose lavish donations keep the Conservatives financially afloat, but Cameron and Osborne skilfully transformed a crisis of the market into a crisis caused by state spending. A failing of laissez-faire economics was spun into a historic opportunity to scale back the state. Like immigration, the colossal failure to close the deficit in a single parliament – as Osborne had solemnly promised – became a success, ensuring that an issue on which Labour was poorly trusted remained salient.

An alleged scandal involving Tory private donors became an opportunity to introduce a lobbying bill that left corporate titans alone, instead focusing on NGOs that might scrutinise the Tories’ record. And so on.

This is written not as a complaint; it is partly a love letter. The Tories are very good at politics – even if it is a strategy soaked in dishonesty and deceit – and that is why they are the world’s most successful electoral force. What the Conservatives understand is that politics is as much about sentiments and emotions as anything else. Labour went into the last general election with arguably more policies than any other opposition in modern history. But there was no vision or coherent message to bring them together: a ragtag of policies thrown into the ether, as though Which? magazine had become a political party.

Voters are not political geeks, like me, but people with lives to lead – and they do not spend their time poring over the details of individual policies. The Tories offered clear, simple messages that had emotional resonance, rather than Labour’s blend of stale technocracy and political consumerism. Labour’s timid offer for the poorest (spare a moment for the £8 minimum wage) and lack of anything to say to those in the increasingly insecure middle was trumped by a comfort blanket of security and stability.

Polling shows that the gap between public perceptions and reality is very wide indeed, and in a manner that can only benefit the right. One poll found that the public believed benefits fraud was 34 times greater than was actually the case; immigration was double its real level; and teenage pregnancy was 25 times higher than official estimates. That’s not because the public has been bombarded with, say, assertions from the media and politicians that benefit fraud accounts for £24 of every £100 claimed rather than just 70p. Instead, they have been subjected to a regular diet of emotionally compelling stories: of extreme examples of benefit fraudsters with multiple children and luxurious lifestyles.

It would be easier to assail the cold, disingenuous Machiavellianism that constitutes the Tories’ political strategy. The Tories are a merry band of illusionists, excelling at distorting perceptions rather than dealing in actual realities. To believe that politics is conducted solely at the level of reason is to lose. This is what the embattled opposition to the Tories has to learn. It needs to appeal to people’s emotions, their hopes as well as their insecurities; to take crises and ably turn them to their advantage, rather than being tripped or even consumed by them; to have a coherent message that can be easily translated into a pub conversation as well as one conducted on the doorstep.

The opposition doesn’t need to copy the dishonesty and deceit of the Tories. But it does need to learn from them if Labour is to succeed again.

Tuesday 8 December 2015

The fall of Jersey: how a tax haven goes bust

Oliver Bullough in The Guardian


As you approach Jersey by air, your plane’s shadow touches cliffs rising from the English Channel, then patchwork fields with wooded dingles between them, then four‑square buildings with groomed lawns. Down below, the island is lush and verdant, set in a sparkling procession of eastward-marching waves. It looks like a bit of Devon that ran away to sea and did rather well for itself.

John Christensen grew up in one of those handsome houses, a Norman manor surrounded by fields. “It was heaven,” he said. “There were fantastic beaches, a strong sense of fun, because of the tourism industry. The Beatles played at Springfield in 1963, stuff like that. It was cool.”

Christensen, who was born in 1956, is almost exactly the same age as Jersey’s offshore finance industry. While he was playing with his brothers in the grand rooms of the family home, Jersey lawyers were spotting one of the most profitable loopholes in history.

At that time, the world severely restricted the movement of money. Politicians blamed financial speculators for the Great Depression of the 1930s, and had imposed capital controls to prevent something similar happening again. Pounds were trapped in Britain, where taxes were high. If a person died wealthy, their heirs had to give 80% of any inheritance over £1m to the government.

There was Jersey’s business opportunity: the island had no inheritance tax. If wealthy Brits invested their millions in Jersey, some now-forgotten genius realised, the UK exchequer could not touch them. The money poured in, because the schemes did not end with inheritance: almost any tax could be avoided there, if you planned it right. Where wealthy individuals started, banks soon followed, utterly transforming the island. Bankers and tax exiles moved into St Peter, the parish where Christensen grew up, driving up prices and importing the values and conversation of the City of London to this improbable place.

“Who wants to pay taxes on profits in London when you could do it in Jersey?” Christensen recalled. “It was changing enormously, particularly by the early 1970s when the really big players began to establish themselves.”

Today, the offices of those big players form a wall of glass along the seafront of Jersey’s capital, St Helier: Credit Suisse, Citi, HSBC, Société Générale, PWC. And they oversee a vast amount of money. By 2007, Jersey – home to just 100,000 people – held almost £220bn of deposits, and administered another £221bn of funds, as well as hundreds of billions in trusts. The finance sector’s profits that year were more than £1bn, unemployment was barely 1%, and gross national income per person was significantly higher than in Britain or the US.

From the waterfront, the money spreads inland. St Helier is a prosperous resort with cafes, theatres and covered markets. It is cleaner, busier, neater, brighter than almost any seaside town you will find on the British mainland. Appearances are deceptive, however. Jersey looks rich – but it is heading towards bankruptcy.

In April, officials announced that the budget would be short £125m a year by 2019. “What went wrong?” asked the Jersey Evening Post. And that was just the start of it. By June, the annual deficit – now known on the island as the “black hole” – had been revised upwards to £145m, more than £1 in every five that the government spends. “The black hole is so big,” according to Connect, a Jersey business magazine, that “filling it will take the equivalent of shutting down every school in the island, laying off every teacher, letting the parks turn into overgrown jungles and having our roads literally fall apart.”

That is quite a hole, and the question is, how can Jersey fill it? The solutions are not pretty: voluntary redundancies, compulsory redundancies, new taxes, fewer public services.

Jersey bet its future on finance, allowing its other industries to shrivel, in the belief that it could live well in perpetuity from moving other people’s money around. If that belief was false, then does its fate await another island off the coast of France – one that has also pledged its future to finance? In short, is Jersey’s worrying present Britain’s bleak future?
* * *

Jersey is 19 miles from France, 85 miles from England. It is not a country, nor is it part of another country. It is half-British, half-something-else – 45 square miles of self-governing ambiguity entirely surrounded by water. It gained this peculiar status in 1204, when King John lost the Duchy of Normandy to France. Or rather, he lost most of it. He managed to keep the duchy’s offshore possessions – Jersey, Guernsey, Alderney, Sark, Herm, plus assorted rocks, reefs and islets, collectively known as the Channel Islands.

The French took a while to accept the situation: London and Paris tussled over the islands for almost 300 years. Eventually, however, Pope Sixtus IV intervened and, in 1481, issued a papal bull of neutrality. England and France could wage war, but the Channel Islands, by religious injunction, could not. The result was that Jersey traded unimpeded with both sides, and thus its enchanted inbetween life began.

This ambiguous status – Jersey was British enough to have the pound but not British enough to pay taxes – lay at the heart of the island’s offshore industry. By the end of the 1960s, Jersey’s banks had deposits of almost £300m, 10 times the per capita ratio of the UK. In 1970 alone, deposits increased by 45%, and then kept on rising.

The gentleman farmers that ran the island had no experience running an offshore financial centre. So, in 1969, they poached an English economist named Colin Powell from the government of Northern Ireland, to help them understand what was going on. He has guided finance’s colonisation of Jersey ever since, in one role or another. (Some people call him “Jersey’s Jeeves”, which is not exactly flattering to the gentlemen farmers.)


Mount Orgueil Castle overlooking Grouville Bay in Gorey, Jersey. The island looks prosperous but is going broke. Photograph: Alamy

Powell’s approach to British taxes was curiously anarchic for a government economist, akin to the contempt of early pirate radio DJs for the overmighty BBC. “If the attractions of Jersey as a low-tax area stem from the high levels of UK taxation, the island should not be criticised for offering an escape,” Powell argued, in a study of Jersey’s economy published in 1971. In other words: if laws are dumb, there is nothing wrong with working around them.

Jersey did very well out of the strategy that Powell mapped out for it, and the 1970s continued where the 1960s left off. Many of the big North American, European and British banks opened branches in St Helier. They brought the money in and sent it out again, often on the same day. But that allowed them to, in essence, stamp “Made in Jersey” on it, rather than “Made in Britain”, which lowered the tax burden. Jersey’s officials began to describe the island as a “specialist offshoot of the City”: London without the rules, or the taxes.

Powell turned 80 this year, and his current official role is to advise Jersey’s government on “international affairs”. He is long-nosed and lean, and has a disconcertingly precise power of recall over almost any detail of his five decades on the island. He came to Jersey at a time when the British empire’s decline was almost complete. As the old colonies gained independence, Brits returned home, and there were fewer and fewer places to stash their hard-earned pounds out of the reach of Her Majesty’s tax collectors. In 1974, the UK’s top marginal rate of tax on investments income hit 98%. Faced with the prospect of keeping just tuppence of every pound in dividends they earned, rich Britons put as much into Jersey as they could.

“They know that Jersey has political stability, doesn’t have political parties. It’s not going to be faced with a sudden swing to the left, or swing to the right, or whatever direction, a change of tax arrangements. It’s also got fiscal stability,” Powell explained, during a long evening interview in his surprisingly modest office in St Helier.

Foreign businesses that registered in Jersey paid no tax at all, while the local banks, lawyers, accountants, and administrators that helped them paid 20% on their incomes – a fraction of that paid by their counterparts in the UK. The rate was low but, with this much business going on, the government’s coffers swelled. In the three decades after Powell took over, Jersey’s annual budget increased, in real terms, fivefold.

Jersey built new schools, new hospitals, new roads, a new harbour, a new marina. Unemployment was barely 2%. The government had so much money that it squirrelled away a year’s worth of expenditure just in case. And all the time, income tax was only 20p in the pound. There was no inheritance tax; no VAT; no capital gains tax; no tax on corporate profits if your business was outside Jersey. Compare that with strife-torn Britain where, until the very end of Margaret Thatcher’s time in office, the top marginal rate of income tax was 60%, and one in eight adults was out of work.

A gushing article published in 1984 by Chatham House’s World Today magazine noted that Jersey residents had almost twice as many phones per household as Brits, and more than twice as many cars. The island was a miracle of plenty, which somehow combined a comprehensive welfare state with tax rates to satisfy enthusiastic libertarians. Its reputation was of a well-regulated haven in the midst of the political turmoil then afflicting the UK, and the money kept pouring in.

By the end of the 1980s, Jersey had evolved from simply serving UK depositors keen to avoid tax. It was now happy to help anyone, from anywhere, to avoid anything. When officials in Moscow wanted to hide the Communist party’s funds in the last days of the Soviet Union, they put them in Jersey. When post-Soviet oligarchs wanted to obscure their ownership of assets, they structured them through Jersey. When South Africans wanted to avoid apartheid-related sanctions, they did so through Jersey.


By the end of the 1980s, Jersey was happy to help anyone, from anywhere, to avoid anything

Powell had so much work to do keeping track of the economy he had unleashed that, in 1987, he hired an assistant, John Christensen, the local boy from the Norman manor house. Middle-aged men from Jersey are often of a particular type. They are slim and straight-backed, tanned and neat, with an accent that is somewhere between BBC and colonial. Christensen, who is now 59, is the type’s epitome.

Christensen had volunteered for Oxfam while studying in Britain, and was never a particularly enthusiastic recruit to his native island’s new industry. He remembers complaining about how Jersey was keeping money for corrupt African officials, and being told “nobody gives a shit about Africa anyway”. Over the years, he became increasingly troubled by the amount of dirty money coming in, and the fact no one on the island appeared to care.

For Christensen, the final indignity came in 1993 when a foreign exchange trader defrauded investors (mostly Americans) out of $26m via a Jersey subsidiary – a scam that local authorities refused to investigate for years.

When the scandal attracted the attention of a reporter from the Wall Street Journal a few years later, there was little doubt about the identity of Jersey’s “senior civil servant” who said, of his colleagues: “They are totally out of their depth”. It was effectively Christensen’s resignation letter. He felt that the island was helping foreign villains hide stolen wealth, and wanted no part of it. Besides, the business seemed to be doing as much harm as good to Jersey itself.

“Price inflation had made house prices and labour market costs so high that virtually no other industry apart from finance – international finance – could survive,” Christensen explained. “The housing market was at London levels, no locals could afford to buy, unless they were employed either in the public sector or the finance sector.”

Jersey had not heard the last of him, however. Now there may be times when Powell wishes he had never hired Christensen at all.
* * *

In 1998, the day after quitting his job, John Christensen quit Jersey too, taking with him a decade’s worth of pent-up frustration and a whole lot of insider knowledge. He resolved to reveal what he knew about how offshore finance really works, which has made him an irritant to Jersey’s authorities and a hero to its critics: the closest thing the island has to a Trotsky.

Perhaps his most notable comrade in this struggle is the accountant and Quaker Richard Murphy, whom he met by chance in 2002. “Richard and John have done magical things, absolute miracles,” said Pat Lucas, a teacher on Jersey and another veteran campaigner against the offshore industry. “They have changed the whole narrative.”

Christensen and Murphy were among the founders of the Tax Justice Network(TJN), which investigates the offshore industry, and publishes a Financial Secrecy Index, to assess how tax havens attract illicit cash.

The biennial index, launched in 2009, has consistently ranked Jersey in or close to the top 10 jurisdictions facilitating “illicit financial flows and capital flight” – ahead of the British Virgin Islands, Panama and Gibraltar. Newspapers from around the world picked up on the studies, and highlighted Jersey’s role in sucking wealth out of the countries that need it most.

Every new version of the index was a grenade of bad publicity lobbed at Jersey, increasingly damaging to the island’s reputation. Jersey Finance, the government-funded body for promoting the island’s financial industry, dismissed the 2013 index as “contrived propaganda”, but officials struggled to gain much of a hearing, something many of them appear to find extremely frustrating.


John Christensen, director of the Tax Justice Network and the closest thing Jersey has to a Trotsky. Photograph: Martin Godwin for the Guardian

Christensen and Murphy are not solely responsible for Jersey’s troubles but sometimes, when talking to officials, you could be forgiven for thinking they were. (At one point during my interview with the former treasury and resources minister Philip Ozouf, he appeared temporarily to forget he was talking to me. “What’s wrong about that, Mr Murphy? That’s good stuff,” he said, as if fantasising about taking on the turbulent accountant.)

As for Christensen, it is an article of faith on Jersey that he only criticises the island because, in 1998, he did not get a promotion. (“It’s baggage, yeah,” said John Harris, of the Jersey Financial Services Commission, the island’s regulator. “He has baggage, serious baggage.”) This is something Christensen denies, though he is not the kind of man to get into a slanging match.

Murphy, on the other hand, is combative – he advised Jeremy Corbyn during his leadership campaign for the Labour party – and has no such reservations. “They have for 10 years refused to accept that, fundamentally, their business model is, to use a technical term, fucked,” he told me.

If Christensen, Murphy and their gang had been Jersey’s only opponents, the island’s feelings would be hurt, but it would otherwise probably remain unharmed. In Brussels, however, the island has enemies with more powerful weapons than bad publicity. Officials in European countries were furious about Jersey helping their citizens avoid taxes. In 1997, they began to take action.

In a new code of conduct, the EU insisted that all members (as well as those jurisdictions that wanted equal access to its market, such as Jersey) tax local and non-local companies the same. The rules were not to be imposed for another decade, but it was immediately clear that they threatened to destroy Jersey’s business model, which was reliant on giving foreign companies tax advantages denied to locals.

Technically, officials had a choice: they could either raise taxes for foreigners, or cut them for locals, providing everyone ended up being treated the same way. In reality, however, Jersey had no choice at all – not if it wanted to keep its finance industry. Dozens of other small jurisdictions had followed its lead into financial services and, if it raised taxes for everyone to 20%, all the lucrative trade would evaporate from its computer screens, only to condense in places with lower levies: the Isle of Man, Dublin, Singapore or Hong Kong.

So, in 2008, it abolished taxes for all companies except financial firms (which pay 10%) and utilities (which were left with the 20% rate). The two main tax bands gave the policy its name: Zero-10. And thus, the black hole opened. Between 2009 and 2010, tax receipts from companies fell by almost two-thirds: from £218m to £83m.

As public awareness of the black hole has grown, so has criticism of the government. “This was, once upon time, an inclusive island where we all felt as one, whether you were a politician or a road sweeper or a nurse, whoever. We all shared in the prosperity,” said Nick Corbel, head of Jersey’s branch of Unite, when we met in May. “As a Jerseyman, as someone who was born on the island, and I can trace my heritage back, I love this island, love its people, I love how we used to do things here. But it’s depressing, personally depressing, seeing where this island’s heading, the total lack of compassion and understanding from our leaders There is nothing there at all, they’re absolutely cold.”

Ozouf, the architect of Zero-10, lost his ministerial position after last autumn’s elections, and now works as a sort of roving ambassador. It was in that capacity that we met in Jersey’s Westminster office in September. He is passionate, fluent, charming and prone to speaking in extremely long sentences, without taking a breath. He immediately launched a long denial of the existence of a black hole at all.

“Let’s be clear about what a black hole is. A black hole is an amount of money, which needs to be found in order for the government to put in place its plan to make substantial investments in education and healthcare and improve our society.”

There is something in what he says – nearly half of the deficit is indeed caused by extra spending on healthcare and education – but that is not really the point. The criticism stems from how the government has tried to fill the black hole that it opened. In 2008, it introduced a sales tax, which now adds 5% to the price of almost everything. That has not raised enough money, so now it is looking at other charges: including for medical services, sewage disposal, and more. It is looking to cut benefits for pensioners, single parents and young people, and to lay off public sector workers.

Officials argue that there is significant room for cuts, and perhaps there is. In Jersey, the average state employee earns £900 a week, almost twice the equivalent salary in the UK. However you look at it, though, ordinary people, through higher prices and pay freezes, job losses and benefit cuts, are plugging a hole left by a massive corporate tax break. By 2012, the sales tax was raising more revenue than the tax on companies.

But Ozouf continues to insist that Jersey had no choice. He needed to cut taxes to keep finance on the island, not least because there are no other industries left to plug the gap.
* * *

There is a claim often made in Jersey that the local economy is a stool with three legs: finance, tourism and agriculture. Before finance, tourism was the sturdiest of the three and the basis of the island’s prosperity. Jersey’s message to postwar British holidaymakers was simple but effective: we’re like France, but without the French people. In 1979, almost 1.5 million people came to Jersey on holiday, the place where you could speak English and eat chips. In 2014, there were just 338,000. The Jersey tourism industry has, essentially, collapsed.

The number of beds in the island’s hotels has almost halved since the late 1990s, and many of the businesses that are left look tired. One hotel on the waterfront in St Helier advertises Fawlty Towers-themed dining nights. It looks out onto a salt-water pool that fills up at high tide, so swimmers do not have to walk out across the beach for a dip. There is a market for that, obviously, but it is not a growing one.

Ted Vibert, 77, ran Jersey’s tourism promotion campaign in the early 1960s, and despairs of what has happened to the island. When we spoke this summer, he had just been to Cyprus for a week at a beachfront hotel, where he could eat and drink as much as he liked, for £400 all in. Low-cost airlines, improved communications, and easier travel have all made foreign holidays cheaper, and Jersey has not tried to compete. Vibert blames finance. It pushed up prices, attracted the best talent, and drew the government’s attention away from tourism. Who needs the hassle of serving tea to middle-aged Brits when you already have more cash than you know what to do with?

Before tourism, the third leg of the stool – agriculture – did most work supporting the island. Jersey is sunny and fertile. Its high-quality woollen goods gave a name – “jersey” – to any kind of long-sleeved top. Jersey cattle, with their deliciously rich milk, and Jersey royal potatoes are famous well beyond the island.

But when I walked for six hours across the island in September, from the airport eastwards, then up to the north coast, I saw just one dairy herd – a clump of honey-gold cows blinking stupidly over a gate – and not much sign of anything but fallow fields, waiting for the potatoes to be planted again in spring. In the 1980s, Jersey glittered with greenhouses growing tomatoes, broccoli, cauliflowers and flowers for the UK market. It does not any more.

“It’s been a gradual decline from the 1970s, when finance took off,” said Graham Le Lay, president of the Jersey Farmers’ Union. “Generally the island is much more prosperous because of it. It’s just unfortunate that it’s been the farmers who’ve been the meat in the sandwich.”

Jersey in the late 1950s, when the island’s offshore finance industry opened for business. Photograph: Popperfoto/Getty Images

Jersey’s financial sector is now seven times larger than the agricultural and hospitality sectors put together. Since the 1970s, the island’s economy has lost two legs, and now Jersey is worryingly dependent on that last leg staying strong.

Jersey has no thinktanks or pollsters. The only daily newspaper, the Jersey Evening Post, was until recently owned by the chief minister, and even now tends to follow the government’s line. As a result, it is extremely hard to get a sense of what ordinary Jerseymen and women think about the transformation of their home from a bucket-and-spade tourist resort to the frontline of financialisation.

It was while looking for pointers that I came across Marigold Dark, a racy dystopian thriller about an alcoholic Jersey private eye confronted with corrupt coppers, amoral financiers and a wealthy foreign oligarch keen to buy up the island. The fictional locals in the book, which was published in March, are resigned to their fate. “We all know that foreign money has the run of this place,” one says. “But it’s quite another thing altogether to openly replace the Jersey flag with a set of splayed arse cheeks and a dollar sign.”

The author, Paul Bisson, is an English teacher in St Helier. The book, he told me, is a satire, but it reflects a genuine unease about what has happened to the island. “The finance industry has been good to Jersey in the years gone by. But what irks me is the fact we seem to have put too many eggs in one basket, it’s almost like we’ve surrendered part of our soul to finance,” he said, over tea in a cafe in the middle of St Helier. He did not really know if other people shared his concerns. Most people don’t much like to talk about it, he told me.

Most people prefer not to get engaged in politics at all. The States Assembly influences every aspect of life on Jersey, and crafts the regulations for the island’s financial sector, but it does so with almost no popular involvement. Turnout in St Helier was less than 30% in last year’s general election.

The speaker of the assembly – the bailiff, who is also the chief judge – is unelected, while its members are chosen from a talent pool slightly smaller than that of Crawley borough council. That’s a worrying prospect for anyone keen on rigorous oversight, and it has translated into important aspects of financial regulation going through on the nod.

It is hardly surprising that Jersey’s politicians should want to protect its finance sector, however, even at the cost of the rest of the economy disappearing. The miracle of offshore has conjured wealth for everyone lucky enough to live on Jersey. In betting terms, Jersey picked the fastest and strongest horse in the field, and staked its future on it. Then the horse had a heart attack.
* * *

It is only when the tide goes out, Warren Buffett has said of financial skulduggery, that you discover who has been swimming naked. When the credit crunch sucked the liquidity out of the world’s markets, Jersey was revealed to be not so much skinny-dipping, as dumping toxic waste on the beach.

The first inklings of Jersey’s role in the greatest financial crisis in history came in August 2007, when HBOS – the bank created out of Halifax and the Bank of Scotland – announced it was going to loan money to a Jersey-registered debt vehicle named Grampian Funding, which had assets of £18bn.

“News that Grampian existed, never mind that it was the largest banking conduit in Europe and now needed financial assistance from its parent, came as a total shock, akin to discovering a face you thought you were familiar with had suddenly grown an enormous protrusion,” the Scotsman wrote at the time.

And, as grim news followed grim news that autumn, bank after bank – among them, most dramatically, Northern Rock – admitted that they too had their own Jersey-based shadow operations funding the mortgages that eventually blew up the British financial system.

The problems of the struggling banks mostly came down to the same thing: they borrowed money, processed it and lent it out via a giant financial sausage machine. That was not a problem as long as there was money available. As soon as the credit supply stopped, however, there was no meat to go in the sausages, and the whole machine seized up. So how come no one noticed what the banks were up to? They put the sausage machines in Jersey, in something called charitable trusts. When you create a trust, you no longer own your assets, so you do not have to declare ownership, but the trustee carries out the instructions you issued when you did own them. There is no public register of trusts.


The Esplanade in St Helier, Jersey, home to many of the island’s offshore banking offices. Photograph: Alamy

Jersey’s trust law allowed banks to obscure the vast number of mortgages they were issuing, making it look like HBOS was safe from the US housing crash when actually it had $30bn invested in American mortgages. This enthusiastic lending stripped banks of the cushions of cash they normally keep to protect them if their loans go bad. When the market collapsed, the banks were unprotected. They had been so greedy for business, they had undermined their own future.

Such misuse of trusts was not new. The US energy giant Enron had used Jersey to hide the extent of its debts prior to its collapse in 2001. What was new in the credit crunch was quite how much this chicanery ended up costing the British taxpayer.

On 17 February 2008, Britain said it would nationalise Northern Rock (which had its own Jersey trust named Granite), the first in a series of banks brought into public ownership. The final cost of picking up the pieces of these exploded banks was in the hundreds of billions of pounds. Jersey did not contribute a penny to cleaning up the mess it had made.

The US, Britain and the EU have since obliged Jersey to exchange information on any citizens using the island’s banks, some of which now refuse to serve UK-resident clients.

This has all put Jersey officials on the defensive, and they have hired academics to combat their troublingly persistent critics. One report examined the impact of Jersey on the UK, and argued that it supported 180,000 British jobs. Another report last year suggested that Jersey could be central to attracting investment into Africa. A third report defended offshore finance, and dismissed the Tax Justice Network’s calculation that tax havens hide up to $32tn from proper scrutiny.

“Their argument [that of the TJN] is largely based on the fact that it [offshore finance] is illegitimate and not transparent and I think that’s just, like, so 10 years ago. These guys need to get up to speed,” said John Harris, director general of the Jersey Financial Services Commission. “The requirements we put through are as strict as anywhere in the world, and a damn sight better than mainland economies.”

Chief Minister of Jersey Ian Gorst and other officials insist that the island is now more transparent than many onshore jurisdictions. (In 2015, the island fell to 16th on the TJN’s financial secrecy index, behind Germany, the US, Japan and the UK.) Gorst and his allies say that Jersey’s new approach is shown in the case of General Sani Abacha, the brutal 1990s military ruler of Nigeria. Yes, Jersey looked after his money in the bad old days but, in 2014, Jersey returned £315m to the Nigerian authorities. It no longer wants that kind of client.

They insist that this is a reformed Jersey, running neighbourly policies with the rest of the world, filling a niche for a well-regulated offshore jurisdiction. But does that niche exist? If Jersey cannot act like a tax haven, what exactly is the point of it? That, anyway, is what the world’s banks appear to have concluded.

The number of banks licensed on Jersey fell from 73 at the turn of the millennium to 33 last year. Bank deposits peaked in 2007 and by 2014 had fallen by almost 40% to £136.6 billion. The island’s financial industry contracted by a third over the same period, and the number of its clients fell by a sixth in 2014 alone.

Meanwhile, the rest of Jersey’s economy is worryingly hollow. One in 10 of its jobs are now based on zero hours contracts, compared to one in 40 in the UK.


One in 10 of Jersey's jobs are now based on zero hours contracts, compared to one in 40 in the UK

All of this makes it look less and less likely that Jersey will be able to raise the taxes it needs to fill its black hole, which means that there is a lesson here for Britain. With high property prices, a brain drain into financial services, successive governments favouring banking over other industries, and a revolving door between finance and public administration, the parallels between Jersey and its larger island neighbour are too obvious to ignore. In fact, the Tax Justice Network has a name for the phenomenon: “the finance curse”.

“For two decades, I’ve heard Jersey politicians promising to diversify the island’s economy, but the island is now more dependent on offshore finance than it was 20 years ago,” Christensen said. “If George Osborne is serious about wanting to build a northern powerhouse, he should read up on the finance curse and take appropriate measures to tackle the dominance of the City of London.”
* * *

Jersey, however, appears as determined as ever to ignore Christensen’s warnings. The government has been touring the world in search of new business, in south-east Asia, the Middle East, in Russia and in Africa. “[The world] changed very dramatically during the financial crisis,” Chief Minister Gorst told the assembly in June. “We are in a fight. We are in a fight for our survival. We are in a fight for jobs and the prosperity of our children.”

His government is building new offices, to house the people who will move the money around, when it arrives. Key to this strategy is the Jersey International Finance Centre, a vast new project that will add half a million square feet of floorspace to the office buildings along St Helier’s esplanade. The architect’s plans for the first block show a glass and steel box, with a woman in high-heeled sandals striding briskly past, files under her arm. The sun is shining, the pavement is free of litter.

It looks lovely, but locals are not convinced, not least because there are as yet almost no companies to go into these offices. In June, some 3,000 protesters formed a human chain around the site and waved signs asking “What part of NO don’t you understand?”

In October, a committee from the States Assembly said the project was not commercially viable, posed a considerable risk to the public purse, and would cost more money than it would earn. Only one tenant has signed up to lease premises in the new development, which looks extraordinarily speculative for a government already facing a cash crunch. Construction has begun anyway.

Perhaps Jersey has bet so much on finance that it can no longer afford to stop increasing its stake. It will have to keep doubling its bet until the money runs out. If it cannot live forever from finance, it looks like it is going to die in the attempt.

Opec bid to kill off US shale sends oil price down to 2009 low

Larry Elliott in The Guardian

Oil falls by $2 a barrel with energy shares as Opec refusal to stop flooding the market with cheap oil and likely US rate hike sends Brent crude tumbling


 
Oil rigs in western North Dakota, US. Opec plans not to cut output aims to kill off the threat from US shale oil by making it deeply unprofitable. Photograph: Matthew Brown/AP


Oil prices have slumped by 5% after the latest attempt by Saudi Arabia to kill off the threat from the US shale industry sent crude to its lowest level since the depths of the global recession almost seven years ago.

Signs of disarray in the Opec oil cartel prompted fears of a global glut of oil, wiping $2 off the price of a barrel of crude on Monday and leading to speculation that energy costs could continue tumbling over the coming weeks.

Shares in energy companies lost ground as the impact of the drop in oil prices rippled through European stock markets. Prices of other commodities also weakened following disappointment among traders that Opec had decided late last week to keep flooding the global market with cheap oil.

Iron ore continued its steady fall and finished the latest session at $38.90 per tonne, squeezing profit margins to the bone at even large producers such as Rio Tinto and BHP Billiton, whose shares fell sharply on the Australian stock market on Tuesday.

The consultancy Capital Economics tweeted: “#Oil sell-off after #OPEC makes even ECB look good. Better to have announced something, even if less than hoped for, than nothing at all...”

A barrel of benchmark Brent crude was changing hands for less than $41 a barrel in New York on Monday night after Opec – heavily influenced by Saudi Arabia – did nothing about a market already seen as saturated.

US light crude, which tends to trade at slightly lower levels than Brent, recorded similar falls, dropping from just over $40 a barrel to less than $38 a barrel.

Both Brent and US light crude were at levels not seen since early 2009, when the collapse of US investment bank Lehman Brothers triggered the most severe recession since the 1930s.

As recently as August 2014, Brent stood at $115 a barrel, but in 16 months its price has been more than halved in response to a slowdown in China and other emerging market economies, and the end of oil sanctions against Iran.

Global supply of oil is currently thought to be up to 2m barrels per day higher than demand, with traders fearing that Opec’s refusal to cut production despite the financial pain it is causing its members’ economies will lead to a still greater glut of crude. Venezuela, in particular, is thought to be suffering badly as a result of the drop in oil 
prices.


  Brent crude, from 2005-2015. Photograph: Thomson Reuters

The fall, if sustained, will lead to lower inflation in oil-consuming nations through the knock-on effects on petrol, diesel, domestic energy prices and the cost of running businesses.

Lower crude prices may also delay or limit increases in interest rates. The Bank of England has already accepted that inflation – which stands at -0.1% – has stayed lower for longer this year than it anticipated.


Analysts believe the slide in oil prices has come too late to persuade the US Federal Reserve, America’s central bank, to delay an increase in the cost of borrowing later this month, adding that the prospect of the first tightening of policy from the Fed since 2006 was an added factor in crude’s decline.

The prospect of higher US interest rates has led to the value of the US dollar rising on foreign exchanges; since oil is priced in dollars that has led to a fall in the cost of crude.

Markets had been expecting Opec to announce a new ceiling on production after last Friday’s meeting, but analysts at Barclays said the lack of any curbs in its announcement was a sign of discord.

“Past communiques have at least included statements to adhere, strictly adhere, or maintain output in line with the production target. This one glaringly did not,” they said.

Saudi Arabia needs oil prices of $100 a barrel to balance its budget, but as the world’s biggest exporter of crude it is gambling that the low price will knock out the threat posed by so-called unconventional supplies, such as shale.

The chief executive of Saudi Aramco, Amin Nasser, said at a conference in Doha on Monday that he hoped to see oil prices adjust at the beginning of next year as unconventional oil supplies start to decline.

In a sign that US production could dip, Baker Hughes’ November data showed US rig count numbers down month-by-month by 31 to 760 rigs.

The fall in oil prices helped wipe almost 1% off share prices in New York. Wall Street’s Dow Jones industrial average was down more than 160 points in early trading, with Chevron and Exxon both losing around 3% of their value.

In London, Shell’s share price was down 4.5% while BP lost 3.4% of its value as early gains in the FTSE 100 were wiped out. The Index closed 15 points lower at 6223.

Sunday 6 December 2015

The India that says no

Tunku Varadarajan in the Indian Express

 PM Narendra Modi, Modi in Paris, world climate conference, Indian cricket, Virat Kohli, India-Sout Africa, indian cricket team, indian politics, indian cricket, express opinion, indian express Prime Minister Narendra Modi addressing during the International Solar Alliance in Paris on Monday. (PTI Photo)

These last days have seen a fascinating demonstration of righteous assertiveness by Indians. In Paris, Narendra Modi was at the world climate conference defending India’s right to burn coal, it being the cheapest and most profuse of the country’s present sources of energy, entirely mined at home (unlike oil, imported from the world’s volatile hell-holes, and over whose price India has little positive control).

Back in smoggy India, another leader, India’s Test cricket captain Virat Kohli, was defending the country’s repeated resort to slow, turning pitches in the series against South Africa, this type of pitch being the most reliable source of victory at home for the spin-focused Indian cricket team.

In both cases, what we were seeing was a species of indignant, nationalist pushback against standards set by the West, and Western expectations of “fair play” that work to India’s apparent disadvantage.

Modi was blunt and eloquent. Having “powered their way to prosperity on fossil fuel when humanity was unaware of its impact”, he wrote in an op-ed in the Financial Times, it was “morally wrong” of the industrialised West to deny India the right to use the same sources of energy today to pull its people out of poverty. “Justice demands that, with what little carbon we can still safely burn, developing countries are allowed to grow.”

The message embedded here was that the West is guilty of double-standards in seeking to deny India access to the very fuels that had served the occident so well for centuries — and for doing so just as India is primed for a Great Leap Forward.  In response to his assertion of India’s transitional developmental rights, Modi earned patronising lectures from the usual suspects, including the tirelessly sanctimonious The New York Times.

Double-standards were also the theme of the Indian cricket complaint. Responding to the barrage of English and Australian criticisms of the Nagpur pitch — where South Africa were spin-dried in just three days — the captain, manager and players of the Indian team took a leaf out of Modi’s book. Why are your standards the norm, they said to Western critics, and our standards — Indian standards — the aberration?

At issue is the belief, rife in English and Australian cricket circles, that green pitches that seam and bounce are fair and manly, the proper surfaces on which to play a game of cricket. These are the pitches one encounters in England and Australia because they are the natural products of local conditions. They also suit the style of play of teams from these countries, while cramping the style of visiting Indian players.

In contrast, Indian pitches are bereft of grass and turn early in a Test match. They are described by foreign cricket writers — often the loudest promoters of the too-much-spin-is-immoral school of thought — as Dust Bowls, conjuring images of famine, and of hardscrabble conditions unsuited to civilised cricket.

As foreign pundits took aim at India, the director of the Indian cricket team was quick to shoot back. “Which rule tells me the ball can’t turn on Day One?” said a mouthy Ravi Shastri. “Where does it tell me in the rulebook it can only swing and seam?” India has to sink or swim when playing abroad, so touring teams should expect no different in India.
As with cricket, so with carbon. “The lifestyles of a few must not crowd out the opportunities for many,” said Modi in Paris. Hands off our coal. And hands off our pitches. This is the India that can say No. 

If half of Britain are ‘terrorist sympathisers’ for opposing air strikes, then Isis will win the next election

Mark Steel in The Independent

Everyone agrees the debate on whether to bomb showed our democracy at its finest. To start with, David Cameron called on all his command of history, Etonian diplomacy and wit to call his opponents “terrorist sympathisers”. Then, if anyone objected, he replied: “Look, we must move on.” This is debating at the highest level, and it would be marvellous to see Cameron try this method in pubs on the council estates of Peckham.

Opinion polls suggest that half of the population opposes the bombing, so the situation is worse than we thought, with around 30 million terrorist sympathisers – which is quite a worry as it means that Isis could win a general election, as long as its leader didn’t spoil his chances by saying something daft in the TV debates.

Then there were the Labour MPs supporting the bombing, who all assured us: “I have given this matter a great deal of thought and not taken this decision lightly.” This was highly considerate of them. Not one of them said: “I’ve given this no thought as I couldn’t give a monkey’s wank. So I made my decision by putting two slugs on a beermat and the one on the left reached the end first, so I’m with Corbyn.”

Then came the speech by Hilary Benn, which was so powerful that it persuaded MPs such as Stella Creasy to vote with Cameron. She said afterwards: “Benn persuaded me fascism should be defeated.”
Presumably then, until his speech, she thought fascism was worth a try. When she makes a full statement, it will say: “I always thought I might try fascism as a hobby when I retire, but Hilary explained the negative aspects very well so, on balance, I decided it’s best to defeat it.”

Benn has been praised for being “impassioned”. That was certainly true of the longest part of his speech, which went something like: “These people hate us. They hate our values, they hate our democracy, they hate our way of life. They hate our food, they hate our pets, they hate our weather, they have utter contempt for our garden centres, they despise Adele’s new album, they hate Cornwall, they hate Football Focus – and hated it even when it was presented by Des Lynam – and they can’t stand our flora and fauna, including our bluebells.”

Dozens of MPs were keen to remind us how much Isis hates us, which would be a reasonable point, if people opposed to bombing were saying: “Oh, I don’t think they mind us all that much. We’ve just got off on the wrong foot. Maybe if we invite them to a barbecue we’ll find out we’ve got more in common that we realise.”

It’s a shame that Benn didn’t have longer to speak, as he could have been impassioned about one more aspect of the rise of Isis, which is that most people agree this was caused – at least in part – by the disastrous invasion of Iraq, which Hilary Benn also voted for. You would think that might crop up, but instead we should just accept that the obvious solution to any disaster is to get the people who caused it to put it right by doing exactly what caused it in the first place. That’s why, if an electrician sets your house on fire, you insist on getting the same one to repair it, and on no account take any notice of the idiot who kept shouting: “Don’t do that, you’ll set the house on fire.” 

Some Labour MPs have assured us that the debate was different from the one before the invasion of Iraq because this time Cameron’s assessment and intelligence was “convincing”. But at the time Tony Blair was trying to convince people, and he sounded convincing as well. He didn’t turn up to the Iraq debate wearing a chicken costume, then swallow a balloon full of helium before screaming “Saddam can attack us in 45 minutes” in a squeaky voice and blowing bubbles at John Prescott.

Blair told us, with a solemn gaze, that to take no action in Iraq would be lethal, that we couldn’t stand aside, that there was a plan for what to do after the invasion, and he knew for a fact there were weapons of mass destruction. Now we are told that to take no action in Syria would be lethal, there is a plan for what to do after air strikes, we can’t stand aside and Cameron knows for a fact there are 70,000 moderates waiting for us to help out.


Few military experts believe this; Max Hastings says it is “bonkers”. But most MPs would believe Cameron if he said: “I have also been informed that there is a moderate, giant, two-headed bulldog, allied neither to Daesh nor to Assad, who will chew Isis to death once our brave pilots have bombed the region.”

Similarly, they believe the Defence Secretary Philip Hammond’s claim that there is a plan to introduce “free and fair elections” in Syria within 18 months, and this plan is “backed by Saudi Arabia”. That makes sense: if Saudi Arabia is known for one thing, it’s putting on elections. It’s just elections, elections, elections in Saudi. It’s a wonder they get anything else done.

We will all get excited over the next few days, when we see blurred film of something going up in smoke in a desert, and we are told this is a precision bomb blowing up an Isis factory where they manufacture evil.

The only other development we can so easily predict is that, in 10 years’ time, lots of politicians will say: “Of course, in retrospect, it’s easy to see that the bombing of Syria was a catastrophe.
But this is different, so it’s essential we bomb Finland. They hate us.”

The art of profitable giving - PhilanthroCapitalism

G Sampath in The Hindu




Not too long ago, public opinion was against philanthropy. A new book explains how attitudes have changed, and why we must scrutinise them.




Once upon a time there was charity. The haves gave some to the have-nots, and that was that. Sometimes the giving impulse was religious, sometimes guilt-induced. But charity was more about the soul of the giver than the welfare or rights or dignity of the receiver. This is why there can be no charity between equals. Or between friends. For all these reasons, charity had for long remained an activity rooted in the personal-private, quasi-religious sphere.

Then came philanthropy. Jeremy Beer, in his The Philanthropic Revolution: An Alternative History of American Charity, argues that the displacement of charity by philanthropy was “the result of a reconceptualisation of voluntary giving as primarily a tool for social change.” It also marks, according to Beer, a shift from a theological to a secular framework for giving, bringing with it all the baggage that secularisation entails – blind faith in the technological mastery of the social world, centralisation, and the bureaucratization of personal relations.”

And today we have ‘philanthrocapitalism’. The term gained currency after The Economist carried a report in 2006 on ‘The birth of philanthrocapitalism’. Noting that “the need for philanthropy to become more like the for-profit capital markets is a common theme among the new philanthropists,” the article explains why philanthropists “need to behave more like investors.”

Two years later came the book that today’s biggest philanthropists swear by: Philanthrocapitalism: How the Rich can Save the World by Matthew Bishop (a senior business editor from The Economist) and Michael Green. The title is not intended to be ironic. It is an earnest argument: in a world of rich men and poor states, who better to save the poor than the rich themselves?

The advent of philanthrocapitalism may have finally brought to the fore what is tacitly understood but rarely made explicit -- the symbiotic relationship between capitalist excess and philanthropic redress.



When philanthropy was shunned




It is no accident that the first great philanthropists were also the greatest capitalists of their age. Nor is it a coincidence that many of these men, remembered today by their philanthropic legacies – John D Rockefeller, Andrew Carnegie, Andrew Mellon, Leland Stanford, James Buchanan Duke – also figure in Wikipedia’s list of “businessmen who were labelled robber barons”.

If one is to make sense of the recent surge in the quantum of philanthropic funds sloshing around looking for worthy causes – the Bain & Co. Indian Philanthropy Report 2015 notes that foreign philanthropic funding in India more than doubled from 2004 to 2009, jumping from $0.8 billion in FY‘04 to $1.9 billion in FY’09 – then one needs to go beyond the numbers and look at the economic underpinnings of corporate philanthropic initiatives. This is precisely what sociologist Linsey McGoey sets out to do in No Such Thing as a Free Gift: The Gates Foundation and the Price of Philanthropy, which released last month.

No Such Thing… kicks off with a quick reminder of the shady origins of philanthropy. How many of us know, for instance, that not too long ago public opinion (and government opinion) was against philanthropy in general, and corporate philanthropy in particular?

In the early 20th century, philanthropic foundations were “viewed as mere outposts of profit-seeking empires, only cosmetically different from the corporations that had spawned them, a convenient way for business magnates to extend their reach over domestic and foreign populaces.” McGoey quotes US Attorney General George Wickersham, who had observed that they were “a scheme for perpetuating vast wealth” and “entirely inconsistent with the public interest.”

Yet what was common sense in 1910 would sound blasphemous in 2015. While no self-respecting economist today can deny the obscene economic inequality that characterises our age, not many would willingly acknowledge the connection between concentration of wealth and philanthropy. That is to say, an equitable society would suffer neither a club of the super-rich that seeks self-expression through philanthropy, nor a class of the super-poor that is dependant on philanthropic charity for survival. McGoey makes this point simply with a quote from the economic historian RH Tawney: “What thoughtful rich people call the problem of poverty, thoughtful poor people call with equal justice the problem of riches.”

If philanthropy is thriving in this age of extreme inequality, it is because it serves a dual purpose: one, to make inequality more acceptable ideologically and morally; and two, to define poverty as a problem of scarcity rather than of inequality. Hence the ultimate argument in favour of philanthropy, deployed when all else fails, is the one based on scarcity: ‘something (from a foundation) is better than nothing (from the government)’.

Philanthropy is the palliative that makes the pain of capitalism bearable for those fated to endure it. Philanthrocapitalism, on the other hand, is about transcending this palliative function to represent capitalism itself as a philanthropic enterprise.

In Bishop and Green’s formulation, such a philanthropic capitalism – also known as ‘venture philanthropy’, ‘social entrepreneurship’, ‘impact investing’ – would drive innovation in a way that “tends to benefit everyone, sooner or later, through new products, higher quality and lower prices.”

As McGoey reveals in her book (and Bishop and Green attest in theirs), no one does philanthrocapitalism better, or bigger, than Bill Gates, who helms the world’s largest philanthropic foundation, the Bill and Melinda Gates Foundation (henceforth Gates Foundation), with an endowment of $42.3 billion. For this very reason, the Gates Foundation is an ideal case study for understanding the social impact of philanthropic foundations.



Problems with philanthrocapitalism



McGoey enumerates three obvious problems with philanthrocapitalism, illustrating each with reference to the Gates Foundation.

First is the lack of accountability and transparency. McGoey points out that the Gates Foundation is the single largest donor to the World Health Organisation (WHO), donating more than even the US government. While the WHO is accountable to the member governments, the Gates Foundation is accountable only to its three trustees – Bill, Melinda, and Warren Buffet. It is not unreasonable to wonder if the WHO’s independence would not be compromised when 10% of its funding comes from a single private entity “with the power to stipulate exactly where and how the UN institution spends its money.”

Secondly, “philanthropy, by channelling private funds towards public services, erodes support for governmental spending on health and education.” With governments everywhere slashing their budgets for public goods such as education and healthcare, the resultant funding gap is sought to be filled by philanthropic money channelled through NGOs. But with one crucial difference: while the citizen has a rights-based claim on government-funded social security, she can do nothing if a philanthropic donor decides to stop funding a given welfare project – as has happened time and again in many parts of the world.

At the same time, even as it facilitates government withdrawal from provision of social goods, philanthropy paves the way for entry of private players into the same space. McGoey details how the Gates Foundation orchestrated this brilliantly in the American education sector, where it helped create a whole new market for private investment: secondary and primary schools run on a for-profit basis.

Third, the same businessmen who made their money through unhealthy practices that worsened economic inequalities are now, in their philanthropic avatar, purporting to remedy the very inequalities they helped create. In the case of the Gates Foundation, Microsoft’s illegal business practices are well documented in the US Department of Justice anti-trust case against the company. As McGoey puts it, the fortune now being administered through the Gates Foundation “was accumulated in some measure through ill-gotten means.”

Of course, none of this should detract from the undeniably good work that philanthropic bodies have done. The Gates Foundation has saved countless lives, especially in Africa, through its funding of immunisation programmes and outreach projects. Its several achievements, therefore, have been deservedly celebrated. Nonetheless, critical scrutiny lags far behind the lavish accolades.

Even the three issues discussed above barely scratch the surface. McGoey goes on to raise several more.

She asks, for instance, asks how the Gates Foundation’s interventions in global health tally with Bill Gates’ violent opposition to any dilution of the patent regime. The Gates Foundation was the largest private donor to the Global Fund to Fight AIDS, Tuberculosis and Malaria. At the same time, it “has continually lobbied against price reductions of HIV drugs and other medicines”, infuriating activists who “want a more equitable global patent regime” and “do not want charity handouts.”

She examines the Gates Foundation’s partnerships with Coca-Cola, not exactly popular among those who value public health. In the context of the Foundation’s work to help combat global hunger, she reveals how its financial ties with Monsanto and investments in Goldman Sachs “may be compounding food insecurity rather than mitigating it”.

She interrogates its skewed research portfolio. Of the 659 grants made by the Gates Foundation in the field of global health, 560 went to organisations in high-income countries, even though the problems being targeted were in low-income countries. How does excluding local scientists and programme managers who are best placed to understand the problems help the cause, asks McGoey.

While it is generally taken for granted that a philanthropic foundation would make grants only to non-profits, McGoey draws attention to the Gates Foundation’s non-repayable grant of $4.8 million to Vodacom, a subsidiary of Vodafone. In 2014, the Gates Foundation also announced a grant of $11 million to Mastercard for a “financial inclusion” project in Nairobi. Interesting how philanthropy has evolved to such an extent that in a world wracked by hunger, disease, war, and malnutrition, two entities found to be most in need include a multinational credit card network and a multinational mobile service provider.
Finally, not to be forgotten are the tax breaks that philanthropic foundations enjoy. Critics have pointed out that nearly half of the billions of dollars in funds that philanthropic foundations hold actually belong to the public, as it is money foregone by the state through tax exemptions. History has shown that progressive taxation is the most efficacious route to redistribution. But a strong case for philanthropy is another way of making a strong case for lower taxation of the rich – after all, it’ll leave them with more money to spend on uplifting the poor. Small wonder then that philanthropy’s biggest enthusiasts are political conservatives.

The Economist report on philanthrocapitalism cited above also quotes a young Indian philanthropist, Uday Khemka, who predicts that “philanthropy will increasingly come to resemble the capitalist economy.” That was in 2006. Nine years later, the publication of McGoey’s No Such Thing As a Free Gift marks the first systematic attempt to document this phenomenon.







sampath.g@thehindu.co.in