Now that we know we are being conned, what can we do about it?
Let the corporate world make profits but we need to put our foot down to profiteering, crony capitalism and cornering of the nation’s resources and destruction of our environment
Protests against crony capitalism. Pic – New Frame/Getty Images
By Arvind Saxena
“Above all, don’t lie to yourself. The man who lies to himself and believes in his own lies comes to a point where he cannot recognise the truth within him, or around him, and so loses all respect for himself and for others. And having no respect for anyone he ceases to love anyone. ”
— Fyodor Dostoevsky, Russian novelist
There is nothing wrong with private enterprise and, in fact, no country can grow without participation of private players. The only thing is control over all capital and natural resources must reside with the people. How can that be done?Four things which require to be done are:
- All corporate accounting should be subjected to statutory audit by public bodies, with further unhindered oversight by representatives of the people in their Parliaments;
- Public funded corporates should not be treated as individual entities;
- Taxes have to be raised, both for individuals and for corporates – not for redistribution of wealth, but as ‘just compensation’ for all that is taken from society by the richest people; and
- No one can claim propriety over knowledge, which belongs to society. An incremental improvement cannot give the right to anyone to say he did it “all by himself”. Patents and IPR kill research and development.
On the first point, the argument is that all corporate accounts are subject to audit by reputed accounting companies. Some of the worst frauds in corporate history, however, have taken place with active connivance of the auditors. In the last twenty years alone, major frauds were detected in Enron, Halliburton, WorldCom, Merrill Lynch, Xerox, Wells Fargo, Lehman Brothers, Xerox, Merck & Co., Tyco, AIG and Barings Bank, etc. These companies were audited by well-known auditors like Price Waterhouse Cooper, Deloitte &Touche, KPMG, Ernst & Young and Arthur Andersen.
Sure, the US has its Securities and Exchange Commission (SEC), the UK its Financial Services Authority (FSE) and the Financial Reporting Council (FRC) and India its Securities and Exchange Board of India (SEBI). These bodies do exercise some oversight but are increasingly under pressure from governments committed to outdo each other on “ease of doing business” ratings, not to mention the aggressive lobbying through funding of political parties.
The second point is perhaps the bigger villain. Once the company is an individual independent entity it becomes the proverbial milch cow, to be used for easy profits without responsibility for the consequences of malfeasance. The promoters, directors and shareholders have to be fully and individually held to account for all decisions of their company. It should be enacted in law that if the company loses, the loss will be borne by the stakeholders. Promoters cannot become fat while their company starves to death.
Tax rates & income disparity
Tax rates are ostensibly kept low to promote investment and ensure greater compliance. Neither of these, in fact, happens. In the bargain the social indicators suffer and income disparity mounts. There is nothing like ‘trickle down’ of economic development in real life. Per capita GDP and similar indicators are the best tools to hide the reality of mounting inequality. Countries with the best social indicators like Denmark, France, Germany and the Nordic nations have the highest taxation rates of up 48%, while the US has net taxes of almost half of that. The poverty ratio in the US is now three times that in high tax countries and the collapse of their social security network is fairly well documented. There is far too much evidence to show that a country prospers only when the rich are made to pay progressively higher taxes.
Again, how do we explain the ever-increasing flight of capital and the growing migration of high-net-worth individuals from developing countries? India has lost the highest percentage of dollar-millionaires to migration in recent years. Nearly 23,000 dollar-millionaires have left the country since 2014, with another 5000 to 7000 more leaving each year. The stratagem is to trade with foreign-based companies through family-held shell companies and book profits in tax havens, leaving losses in the parent country. And once enough money has been siphoned out, it is time to flee. I now ask, how have low taxes helped?
Patents and IPR regimes are antithetical to laissez faire and a perfectly competitive capitalist regime. They promote monopolies and stifle creative application of knowledge. Those who can’t kill competition through monopolies do so through cronyism. In India, we have seen that all those who became spectacularly rich after 1991 did so by acquiring public assets like land, minerals, bandwidth, etc., allocated to them at ridiculously low prices. Public sector companies are sold off to the private sector ostensibly to make them profitable, ignoring the basic fact that the two sectors do their accounts in non-comparable manners. The economic path many developing countries have adopted in the last thirty to thirty-five years seems to be the handiwork of classic ‘economic hit men’.
No one in the corporate world will ever agree to these suggestions for cleaning up the morass, which will be equally and more vehemently resisted by their political front men. The elected leaders conveniently forget the interests of the masses who brought them to power and use misleading ‘buzz’ terminology to confuse the issues. While interest of the promoters, institutional investors and shareholders are pushed, no one looks after the interests of the sovereign owner of every bit of the nation’s wealth and natural resources – the common faceless constituent of ‘we the people’.
Neo-liberal policies & the socio-economic fabric of nations
Let us also look at how these neo-liberal policies have harmed the socio-economic fabric of nations. America boasted a vibrant middle class, a trade union movement that allowed a single breadwinner with limited education to own a home and a car, support a family, and send his kids to good schools. Affluence allowed for a truce between capital and labour. Declining income inequality and high tax rates for the wealthy were the cornerstone of the golden age of American capitalism. In the 1950s marginal tax rates for the wealthy were 90% and the salaries of CEOs were, on average, just 20 times that of their median salaries. Today, the pay of those at the top are more than 500 times that of their salaried staff.
As the western world lionised the individual at the expense of the community, whatever was gained in terms of mobility and personal freedom came at the expense of common purpose. In vast swathes of America, the family as an institution lost its grounding. By the 1960s, 40% of marriages were ending in divorce. Only 6% of American homes had grandparents living beneath the same roof as grandchildren; elders were abandoned to retirement homes. The cult of the individual denies the very idea of society. What every prosperous democracy deems to be fundamental rights — universal health care, equal access to quality public education, a social safety net for the weak, elderly, and infirm — came to be dismissed as socialist indulgences, which were a drain on the exchequer. The social contract between different sections of the population has been irrevocably broken.
So now that we know we are being conned, what can we do about it?
The only thing is to resist being misled. Don’t accept any promise at face value. Keep asking questions to get to the bottom of things. If the swanky malls are bereft of buyers, we must ask what their business model is. If grand projects are announced, we must follow up on how the finances are raised and spent, alongside the actual execution of the promised projects. If internet services and social media platforms provide services for free, we must ask where they are making their money from.
We must demand strict regulation and oversight, with deterrent penalties. If capital flies out, let it be so, because these people, in any case, are intent on robbing the country. Their new nationalities make no difference. With free movement of capital in a digital world, their money will come back to wherever they find stability and opportunity to make profits. Let them make profits but we need to put our foot down to profiteering, crony capitalism and cornering of the nation’s resources and destruction of our environment. Can we set our economic model right?
Howsoever powerful the rich and mighty be, ultimately it is nature which determines the course of history and “Nature abhors disequilibrium.”
Arvind Saxena is a former Chairman of the Union Public Service Commission (UPSC) in India.
* Published in print edition on 18 March 2022
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