The Corruption of Capitalism

Neo-liberal thinkers used to deride the State enterprise. They claimed a Government could conjure up a sand-shortage in desert. Maybe. Nowadays we have a weight of evidence to testify to what happens when you take such platitudes too much to heart and for too long. A vast experiment has been underway. It has waxed and waned over the centuries with its latest incarnation arising over forty years ago. The concept is always the same: how do we justify the indefensible injustice of an unfairly unequal society? The 1% relabelled themselves as “wealth-creators” and voila! Greed was good. Some even believed that it would overcome corruption. Since corruption could only happen within the State apparatus then, logically, if the State was shrunk there would be less corruption. However, corruption, like the poor… has proven to be always with us.

Corruption under the neoliberal regime has taken a new path. It has, essentially, become privatised. Before a “bent copper” was a policeman who took bribes. Hence you could bribe your local bobby to walk down your street more often to put off the burglars. Under neoliberalism this is now turned on its head. Paying that copper to patrol your road is now legal. Not only legal – it is encouraged as “entrepreneurship”. The politicians would argue that it would bring in extra cash to pay for more policemen and women. In reality it just means that the “commons” – our shared public services – become skewed towards those who have money. The extra cash is used to fund only essential services for those who can afford them anyway. Anyone who cannot afford them must do without – even if they rightly paid for them out of their taxes.

Thus it is that the transformation of the last forty years just moved the corruption onto the official books and white-washed it. Like a game of wacka-mole you could hit the corruption on the head in one sphere of public life for it only to appear somewhere else you weren’t looking…. and now we REALLY weren’t looking. Human Beings have a tendency to use power to their own advantage. That is natural. The art of Statehood is to minimise the resulting injustice arising from the abuse of unfair advantage. This is where neoliberalism simply shrugs its shoulders. “Unfair”? No such thing any more.

In “How Corrupt is Britain” [ISBN 978 0 7453 3530 8 Pluto Press 2015] David Whyte collects a series of essays on the topic. These emerged from a conference of the same title at the University of Liverpool in 2013 (the essays already look quite dated four years later). The central thrust of the message delivered here is that:

“…corruption is not merely a flaw of the political and economic systems that we live in, but it is actually a routine practice that is used for maintaining and extending the power of corporations, governments and public institutions.”

In essence; it is not just that corruption has continued as usual, it IS Business as Usual. Yet Britain is unwilling to concede it even has a corruption problem. For the reason why we have to look at our legacy of Empire and its attitudes to corruption as a symbol of “backwardness”. Traditionally it was the corruption of others that justified the civilising project of Empire. Foreigners could not be relied upon to play by our rules. Thus colonial domination was a virtue. Our perception of what constitutes “corruption” cannot be liberated from this enduring prejudice. Like over-population it is always a problem for others. As for a fish that has no concept of water: we swim through it but do not comprehend it. Modern neo-liberalism is much like the empires of old. The World Bank has a definition for corruption: “the abuse of public office for private gain“. Whyte seeks to redefine corruption in the modern western State as “the distortion and subversion of the public realm in the service of private interests.” This includes (but is not limited to):

  • the capture of State functions by corporations
  • the revolving door between Government and business
  • preferential access to state officials by the wealthy
  • corporate funding of political parties in return for favours
  • tax havens
  • cover-ups of wrong-doing by State officials
  • police collusion in illegal enforcement practices

“Crucial to this conception is the idea of a public realm which is more than simply the sum of public offices and their occupants. It includes the idea that the activities of government should serve a general or public interest rather than a set of private ones, and that there should be a transparent public debate to determine where the general interest lies. Such a debate is short-circuited by many of the practices outlined above, which systematically favour a limited set of special interests at the expense of more general ones.”

Whyte contends (in the context of several scenarios spelt out in Naomi Klein’s “The Shock Doctrine“) that neoliberal protagonists rail against “corruption” yet seek to replace such “inefficient” systems with a model of “market democracy” that “ultimately transfers power from the populace to elites“. He goes on to suggest that such replacement systems “generally bear little resemblance to either democracy of a ‘free’ market system“. Neo-liberalism is using corruption “as a means to maintain the strategically dominant position of particular elite groups“.

Although we have sympathy for this line of reasoning it is problematic. The ‘elite’ is always the ‘other’. It is never ‘us’. What a shock to us it was when the Brexit vote was framed as a victory for the ‘common man’ over educated, metropolitan, liberal “elites”. Moi? Power and money can create an elite simply because that is the centre of economic gravity. The problem comes when the elite status becomes unassailable and self-perpetuating long after it becomes undeserved. The educated classes may well be some kind of elite but it doesn’t make them wrong. Thus Whyte is proposing we move the goalposts and (to confuse the analogy further) to redraw the bulls-eye in the area with the most hits to reclassify “corruption”. What we expected to follow was a hard hitting and detailed analysis of corruption leading to inefficiencies in the British economy and injustice in out Statecraft. Such works exist as we have seen with George Monbiot’s “Captive State” and James Meek’s “Private Island“. Do these essays work to justify the thesis Whyte seeks to establish?

Corruption has always been part of the British state, whether it be court-centric or parliament-centred, it was always a tool for “a crucial form of ruling class power-mongering” and was “instrumental in maintaining coalitions of interest [..] into a single oligarchy“. Its persistence in this form should be of no surprise. However the vast thrust of the book is focused upon the social injustice arising from policing. “the vast policing resources we have in Britain are not mobilised to deal with elite corruption but to control groups that fall much lower down the social hierarchy“. This is glaringly obvious yet a powerful point. Take tax evasion as an example. The Tax Authorities largely ignore the crimes of corporations and wealthy individuals. Instead we are told to look away and focus on those who cheat on benefits. This is incredibly economically inefficient as the loss to the benefits budget is dwarfed by the loss to the Treasury of tax evasion. £1.2billion was lost to benefit fraud in 2012/13 yet tax evasion cost 100 times as much in that period.

This “looking away” happens because we are culturally programmed to ignore the misdemeanours of our “betters”. There is simply too much ingrained deference in our media debate. The crimes are normalised:

“There is now a long list of verbs regularly used in both media news and public debates that point to an element of deliberate dishonesty in business dealings: mis-selling, misleading, sharp, shady, dubious and predatory practice; unscrupulous and irresponsible practice; malpractice, and so on.”

It seems we have (like the Eskimos and their many words for “snow”) created an entire vocabulary around corruption yet never dare speak its true name.  “Corruption” remains the preserve of foreigners, never us. “Corruption” creates failure yet our doctrines do not “fail” in any fashion we care to describe:

“Often neoliberal reforms do not result in the claimed cuts to public spending or improvements in the ‘efficiency’ of public services. The gap between the claims of the doctrine and the results is perhaps produced in part because mistakes were made or the theory was inadequate, but most importantly it is because the doctrine is a means of pursuing – we might say masking – certain interests. It is, in other words, ideological.”

Neoliberal reform transferred common wealth from public asset to private purse AND it also passed on the decision making processes too. Governance is now a matter for private business at the expense of democratically-established, public sector, decision making. Thus the lobbyists, think tanks and the consultants are now in charge, yet nobody elected them. Democracy is gutted to serve the market in a reversal of our expectations. In David Miller’s essay “Neoliberalism, Politics and Institutional Corruption: Against the ‘Institutional Malaise’ Hypothesis” Miller argues that the United Kingdom is institutionally corrupt. Government processes were reformed by opening them up to the “market” so that public officials could be controlled by monetary incentives. The problem is right there. Miller goes on to write that “the United Kingdom stands in need of a very far-reaching democratic revolution“.

Fast forward now through the book to Michael Mair and Paul Jones’ essay “Politics, Government and Corruption: The Case of the Private Finance Initiative“. PFI’s have always been a target rich environment for anyone looking for proof of the failure of neoliberalism in modern statecraft.

“PFI looks like a bad deal no matter what angle we come at it from. PFI projects would not be commercially viable without a substantial commitments of resources on the part of the state, and PFI is therefore best seen as a ‘political, not a market, construct’. As private debt is more expensive than public debt, the private sector companies have little incentive to become involved in infrastructure projects unless the terms are loaded in their favour…”

Hence the Government guarantees the profitability of the PFI to the private sector through an array of “sweeteners”. More than that the bidding process for some of the projects was exposed as being rigged. In 2009 the OFT brought cases against of 100 companies found to be colluding in the bidding process. Hence an already needlessly expensive system (to provide essential public infrastructure) became more expensive again in the service of corrupt private interests.

Moving on to the regulatory sector and we find that the UK Financial Services Agency (FSA) “conflated public interest with the interests of the financial sector“. The FSA was captured by the financial services sector it was meant to be policing. Indeed it was funded by the sector itself and 26 of the 36 people who served on the FSA board ALSO had senior board-level connections with the banking and finance industries. The game-keepers were mostly poachers. It would never work and the 2008 global financial meltdown was the consequence. Yet still, not a single FSA board member went to jail. We dare not call it corruption. It is just the way things are in British society.

The growth of the British Financial sector and its tax havens are a text-book example of a system designed to maintain an oligarchy yet one that undermines the very real-world economy that it pretends to service. We are, in fact, all a bit poorer. Finance is a curse. It over-values the exchange rate at the expense of the real economy. Finance thus crowds-out other industrial sectors and leads to dangerous booms and busts. The net effect is “lower rates of long term economic growth, high levels of inequality, widespread cronyism and rampant corruption“. The link between such a “victimless-crimes” mentality and Brexit is clear: the financial services industry is so divorced from real wealth creation that they can literally win a bet on crashing the real economy. The moral peril of such insanity is obvious.

Tax havens within the British Commonwealth dominions were tolerated at the end of the British Empire simply because that acted like gambling enterprises in North American Indian Reservations: they became the “economic activity” of last resort. The Government could no longer support these dependencies so they set them up as tax havens to get them off the books….. and all the World’s money followed. Yet another example of self-defeating and short-termist policy. That money may now cut the foreign aid budget but at the expense of the entire rest of the economy. When neo-liberalism brought in the idea that tax is “bad” then all else followed. Tax evasion became State-sanctioned and only the “little people” paid tax. Yet corruption is now reframed as something else and tax evasion the tip of the iceberg.

Remember the fiddling of the LIBOR? Personal Pension fraud? Sub-prime mortgage fraud? Endowment mortgage fraud? Payment Protection Insurance mis-selling? Money laundering..? The list goes on and on. And it isn’t just some minor players. The list usually includes household names such as the Co-op Bank, The Royal Bank of Scotland, Capital One, Tesco, Barclays, HSBC, Allied Dunbar, Abbey Life, GAN, Legal & General, Norwich Union, Lloyds/TSB Group, Bradford and Bingley, CGU, Nationwide, Friends Provident, Scottish Amicable and many, many others. Most of these companies proved remarkably uncooperative when their criminals misdeeds were investigated – this in stark contrast to their public image. Financial institutions exist in a culture of impunity. They expect to get away with it.

Writes essayist John Christensen “the United Kingdom has been kidding itself that it can survive its offshore-based strategy” because there is nobody left to tax. The economy has been hollowed out of its ‘base-load’ wealth generators. This comment can be applied to the wholesale financialisation of the British economy too. It is bloated by greed and bonuses that incentivise practices that come at great cost to the wider economy. These markets have descended from service providers to the real economy into becoming useless wealth extractors. The markets and media take their lead from the top of British Government. Former Prime Minister David Cameron is part of an “offshore dynasty”. His father co-founded an “investment company” in Panama whilst chairing another one in Jersey. Many others in the current Conservative government (including current Prime Minister Theresa May) are likewise implicated.

Central to the neo-liberal project have been the Big Four accounting & audit firms. Essayist Prem Sikka goes as far as calling them “antisocial”. The firms have engineered tax evasion schemes with casual disinterest in the wider social & economic consequences. Time after time the courts have declared the tax evasion schemes engineered by the Big Four to be unlawful. Yet no partner in these firms has ever gone to jail. More than that, none have even been chastised by any UK professional accounting body. Astonishing. The firms are deeply sleazy hence it is of no surprise to find their consultants working in the heart of government engineering the neoliberal project.

As with the cases of mass financial fraud and mis-selling (essayist Steve Tombs writes):

“In each case, we see in the background government policy creating an opportunity structure for crime and harm. Products are sold in a deregulated market to further boost super-profits despite the products being unsuitable for the customers to whom they are sold.”

It is an important point: the State creates markets. Hence the State is always culpable in the creation of a market space into which corruption and social harm occurs. A “market” is not some perfect-being conjured out of thin air for the betterment of society. It is engineered by the State. If the State ignores its responsibilities towards society (when blinded by the “greed is good” philosophy) then it assumes any old market will serve the needs of society. Such a State doctrine foresees only good things and underestimates the power of individuals within a “market” to engineer bad outcomes for wider society. The State pretends that private companies will follow the law hence no enforcement is necessary.  In one survey of pension companies it was found that only 9% had complied with legal requirements when advising on pension transfers. Think about that. If only 9% of us decided to obey the law the other 91% would be in prison.

The collection of essays rounds off with one of its weakest examples of “corruption”: executive high pay. The essayist Luke Hildyard tries gamely to redefine this as corruption and succeeds only on the basis of the “poacher-turned-gamekeeper” argument concerning how executive pay is set. Hildyard explicitly states that he cannot find examples of “bribery, coercion, nepotism or theft of company or state revenues” because

“..inadequately regulated economic achieves precisely the same aims”

Those “aims” appearing to be personal and private gain at the expense of the ‘social fabric’ [our term]. Hildyard’s conclusion is a little circular and self-serving. He see no corruption simply because everything is corrupt? This returns to our point about the fish with no concept of water. However it is a poor argument. If everyone is playing by the rules surely it is the Rule Book that is at fault. How do we measure that? It all comes down to our definition of what is “fair” and just:

“Political and economic inequality results in abuse of power and responsibility, by the powerful and to the detriment of the powerless.”

The neoliberal project dispenses with the need for (what we have termed here as) any “social fabric”. Concern for the long term sustainability of our society is dismissed as sentimentality – just some nuisance sand-in-the-gears of a system in which only elites are the winners. It is a dog-eat-dog mentality of social Darwinism – this idea that the rich must get richer at the expense of the poor.

But is this corruption? Everything this book details is a social “bad” yet some of it is deeply cultural and seems unlikely to be a consequence of modern neo-liberalism. Trying to frame a diverse grouping of social ills together under the banner of “corruption” was always going to be a difficult task. Britain is undoubtedly corrupt yet it is so in a manner in which it has always been corrupt. “Corruption”, as David Whyte contends, must be a new sphere of economic activity that commenced with the rise of neo-liberal ideology. This book proves only that these “market fundamentalist” ideologies have created new “markets” for corruption. This is happening because fundamentalists cannot see market failure. They cannot see it simply because it serves the needs of an elite. That elite has been around for as long as there have been rulers and peasants. There is nothing new about their class.

Therefore, we conclude that neo-liberalism is simply the latest in a long line of excuses for elite self-interest. This one is no different from those in the past. This incarnation sees an economic justification behind the greedy acquisition of wealth at the expense of society. Indeed we could define a “market” as precisely that: the accumulation of wealth at the expense of society. It is meant to be a trade: wealth should be accumulated in a fair exchange for goods and services. The modern neo-liberal invention has created a whole new way of extracting rent from the economy without the precursor need to generate goods or services. Wealth can simply be extracted through a position of unfair advantage. Neo-liberalism has made it “alright” for the State to be complicit in generating the conditions under-which such unfair advantage can be engineered. It has airbrushed away the criminality and made it all “normal”. Now the State sees nothing wrong with such advantage. Morality itself has been re-engineered. The State no longer cares for what is “fair” – only for what is expedient for a minority who control their ideology.

Even if we dispense with the need for “fairness” there is still an over-arching need for States to, at least, be seen to dispense justice. More than that it must regulate in order to cut back on the source of economic inefficiency. To do that it has to agree that markets can produce bad outcomes. The victory of the neo-liberals is to write that outcome out of the economic text books. “Markets” have been redefined as a “perfection” that no State can improve upon. Like Winston Smith becoming to believe that 2 + 2 = 5 in the service of Big Brother (George Orwells’ “Nineteen-eighty-four“) this market ideology ignores the obvious fact that no market can exist without State infrastructure and law.

Corruption is an inevitable outcome of all human economic interaction. We are seeing nothing new. Only the philosophy used to justify it has changed..

About post-carbon-man

A passionate advocate of a peaceful transition to a sustainable political-economy, Mark hails from a working class farming background. Today he is a Company Director and Chairman of the Low Carbon Chilterns Co-operative. Whilst at University (Engineering Masters) he was active in Conservative Student politics but has had no affiliation since. He has travelled widely on business covering the USA, Europe, Middle East and Central Asian Republics. In 2007 Mark founded Post-Carbon-Living and a year later co-founded Transition Town High Wycombe. He lives with is wife & daughter in a home they retrofitted to be carbon-neutral. Today he blogs about surviving politics on a shrinking planet and is passionate in his rejection of Nationalism.

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