Meaningless words

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One of the habits of spin merchants and PR teams is to come up with fine-sounding phrases which have an immediate appeal but don’t actually say very much.  This was always central to New Labour, and given his background as a lobbyist, we should not be surprised if Owen Smith follows a similar pattern.

Even so, his call for a new industrial revolution was something of a classic.  It sounds very dramatic, but what on earth does it actually mean?  The Industrial Revolution was a transition from small-scale craft production methods to large scale manufacturing; it brought about huge changes in life style and conditions.  Yet Smith’s new ‘revolution’ seems, when looked at in detail, to be about the government giving out a few subsidies to selected industries.

And that brings us to a second point - is it even within the power of politicians and governments to bring about significant change anyway?  It wasn’t governments which brought about the first industrial revolution; indeed, it wasn’t planned or co-ordinated by anyone.  Governments, unless they want to take control of the “commanding heights of the economy” as the Labour Party used to argue, can do little more than create the conditions under which others control and take advantage of events.  But the consensus position of Labour and Tory alike has been for decades that globalisation is inevitable and we have to adapt to it.  It is, of course, that very globalisation that they so love which has destroyed so much of the manufacturing industry in the UK.

Whilst I agree with Smith’s claim that previous governments (including the Blair and Brown governments of which this claim is an implicit criticism) have been too reliant on financial services and insecure, low-skilled and low-paid jobs, I’m not at all convinced that it is in the power of governments to rebalance the economy back to manufacturing.  At least, I don’t see it as being possible without the government taking a much more interventionist role in the economy than is represented by throwing a few subsidies around.  Perhaps I misjudge him; perhaps he really is planning to try and control the economy in the way the Labour Party used to believe was possible.  Or then again, perhaps it really is no more than a sound-bite after all.

It doesn't have to be this way

Tweet The decision by Starbucks to pay some Corporation Tax over the next two years highlights a feature of the tax system which is widely used but not so widely known.  For large multi-national companies, Corporation Tax is essentially a voluntary tax.  They can decide how much to pay and where.

It isn’t new.  It’s something which large oil companies in particular have long been able to do.  If you own the whole supply chain from exploration through to retail, vesting different parts of it in different companies based in different countries but within the same group allows you to set transfer prices in a way which generates the ‘profits’ in the most favourable jurisdiction. 

What Starbucks and the others have been doing is simply a variation on that.  And the main thing that they’ve done differently is to be greedy – wiser companies have taken advantage of the rule in a more moderate fashion which leaves them paying something to everyone.

The recent stories have also highlighted another factor – the use of nameplate companies.  These are companies, set up in low tax jurisdictions, which don’t do anything very much other than act as a repository for profit, and a means of avoiding tax.  Ireland has been doing a bit of that of late; setting a low rate of company taxation has encouraged companies to set up nameplate companies in Ireland.  Ireland has gained, the companies have gained – it’s just the rest of us who’ve lost.

It underlines the danger of seeing company taxation as a competitive tool, and potentially gives ammunition to those keen to avoid devolution of Corporation Tax in the UK.  A race to the bottom might generate local benefits, but those benefits are not always based on real economic activity.  A race to the bottom helps no-one in the end.

What’s noticeably absent from the Starbucks statement is any commitment to change their accounting practices in the long term.  The PR that they’re getting from this gesture is good; but there’s no sign that they are really going to change.  They also haven’t given, a far as I’m aware, any commitment that they won’t simply use the tax paid ‘voluntarily’ over the next two years to offset any taxes which might become due in future years; something which they’re perfectly entitled to do.

Since none of the companies concerned have actually done anything illegal – indeed, they are under a legal obligation to maximise shareholder value – it’s unrealistic to expect any great change in behaviour unless the legal framework in which they operate is changed.  The government is showing little sign of any willingness to tackle that issue.  Again, that’s not really surprising – looked at as purely a tax collection issue, it’s hard to see what they could do effectively.

But what if we looked at the issue more widely?  Why does the law say that companies are obliged to maximise shareholder value (within the law, naturally) regardless of the interests of other stakeholders?  Setting the interests of capital above other interests might be a reflection of where we are; but there’s nothing inevitable about that.  We can order things differently if we wish.  It’s not a proposal I’d expect from the current government – but I’m not hearing it from any of the opposition parties either.  Why are they all so wedded to the rule of capital?

Visions and diatribes

Tweet Sadly, Peter Hain's essay on the economy yesterday read more like a pro-Labour and anti-Tory diatribe than a serious contribution to discussion of the way forward for the Welsh economy.

His assertion that he is determined to progress the Cardiff-Weston barrage will only add to the concerns of those who believe that the decision has already been taken on largely political grounds, and the feasibility study looking at the environmental impact of this and other schemes is mere window-dressing.

The commitment to the South Wales LCEA is encouraging, certainly, as are the jobs being created in Chepstow and Ynys Môn.

My biggest concern with what there was of an economic vision, however, is whether government - at all levels - is really managing to struggle free from the idea that the way forward for Wales is to compete in global markets and start looking instead at a re-localisation of the economy. I detected no sign of that, just a continued concentration on large schemes and competitiveness.

The man is not for turning

Tweet I'll admit to never having been a fan of globalisation, whether economic or cultural. Reading Marcuse (One Dimensional Man) in the 1970's was a significant influence on the development of my own political philosophy, and as I recall, Sartre said something along the lines of "merely insisting on being Basque is itself a revolutionary act".

At a cultural level, Welsh nationalism is at least partly about maintaining human cultural identity and diversity, and at an economic level, it combines with environmental concerns in supporting a more localised economy. Localised is not necessarily the same thing as protectionist or isolationist, nor does it exclude the promotion of trade with developing countries in ways that assist them. But when I read that shrimps are caught off the British Isles, landed in Scotland, and then shipped to the Far East to be shelled before being shipped back to Scotland for packing – then I know that globalisation has gone too far.

That's an absurd example, obviously – although there are plenty more like it – but one of the consequences of globalisation has been the creation of long thin supply chains; and I think even supporters of globalisation ought to be more worried about that than they appear to be. The complexity built into the supply of goods and services, coupled with rigorous attempts to ensure 'just in time' delivery and reduce the amount of 'working capital' employed by businesses, makes the whole economic system extremely vulnerable to a failure at a single point.

The failure of financial markets has hinted at that; but there are a range of potential events in the real world which could be even more devastating. As a simplistic example, I'm not convinced that people really understand the potential economic impact of a major flu epidemic in the Far East, even if no-one in the UK even caught a cold.

What sparked this train of thought today was reading about David Miliband's speech in Cardiff last night, where he seems to have said that the financial turmoil won't deter Britain from continuing globalisation. I struggled to find any trace of a logical basis for that statement. It reminded me of the remark attributed to Keynes, "When the facts change, I change my opinion. What do you do, sir?".

It worries me that, in the face of a clear warning about the way in which globalisation has led to an essentially US problem being exported to the rest of the world, the response seems to be to accelerate the process of locking us into an approach which has an increasing potential for systemic failure. The facts have changed – shouldn't policy also change to reflect that?

Supercities and human needs

Tweet I don't have any issue with the idea of the towns and cities of South Wales working more closely together, as was suggested by a think tank today. Nor do I have any issue with the idea that sensible economic – and even more so, transport - planning should look at cities and their hinterland as a whole, rather than trying to focus attention on small parts of the area. But I strongly disagree with the underlying thinking behind this particular report.

They seem to be starting from a number of premises as follows:

• Globalisation is not only good, it is inevitable
• Globalisation means that cities have to compete with each other on the world stage
• Competing means that cities have to be bigger and bigger

To them, these premises are not even open to challenge. I beg to differ.

In a way, the subject is one which goes to the very heart of my own political philosophy. I believe that human institutions, towns, cities, transport, the economy – all these things and more – should be shaped and driven to meet human needs and aspirations; and on a human scale. It sometimes seems to me as though many of the cold economists are telling us that we, as humans, must adapt to fit the needs of the market – or rather, the needs of globalised big business.

Now some might argue that the two things are not that different. To meet human needs and aspirations requires jobs and resources; business creates those jobs and resources. I consider that to be over-simplistic, not least because there is nothing contained within the statement that requires globalisation.

Globalisation is the current fashionable trend; but just as generals are always said to be stuck fighting the previous war, I think that many economists and supporters of globalisation are supporting an outdated set of ideas. The future lies with re-localising production and consumption, and it will be forced upon us by rising world populations, shortage and increased cost of fuel, and climate change. Above all, the complexity which is being built into our economic systems by globalisation and long supply chains represents a major threat in itself; the globalised economy is actually becoming more vulnerable to catastrophic collapse as a result of a failure at a single point.

So, by all means let's have integrated and cohesive planning between our towns and cities rather than competition; but let's do it to shape our country to meet our needs rather than because we want to compete with Paris or London. And let's start by deciding what we want from the economy, rather than what it wants from us.

PS – I was a little taken aback by Peter Stead's quoted comment, "One is tremendously attached to the Valleys but certainly in the long term the future lies with the ports". What exactly is the fundamental difference between that and the insane suggestion just a few weeks ago that people should all move from the North of England to places like Oxford?

Swansea Hustings

Tweet I was away last week, and missed the party's hustings meeting held in Carmarthen to select our list of candidates for the European elections. So last night, it was down to Swansea to see the candidates put through their paces - and of course, to vote.

Under our rules we give no protection or preference to incumbents, who have to go through the same process as aspiring candidates. It is, however, inevitable that the experience of doing the job for a period will influence their knowledge and understanding of what is, or isn't, possible. The standard of questioning was high, with some big issues being raised. It was almost unfair to expect the candidates to respond to some of the issues in such a short time.

Most encouraging, for me, was the way in which the question of globalisation was aired by one questioner. This is one of those issues which goes to the heart of what makes Plaid different from the other parties. The others tell us that globalisation is inevitable, and we have to fall in with the trend and accept it. I've never been convinced by this. On the contrary, I think we need to be re-localising the economy, processing raw materials and using goods closer to the point of production as far as possible.

Globalisation is sold as benefiting the developing nations, but it seems to me that the only people who really benefit are the multinational companies. Replacing manufacturing jobs in Wales with sweatshops and child labour in the developing nations doesn't look to me like a particularly good deal for either side. The only aspect of globalisation which is remotely encouraging is the way in which it spurs like-minded groups across the world to come together to oppose it.