The Big Shortfall

Simon Jenkins writes:

What’s wrong with big business all of a sudden?

The latest revelations of malpractice at Tesco, Sports Direct and Volkswagen are now capped by Google’s grand larceny of British taxpayers.

There is of course “no wrongdoing”, that motto of modern business.

But Google executives are behaving like medieval penitents, wandering Europe’s confessionals to buy remission of fiscal sins for as little as they can get away with. 

The idea that the internet would herald a new, clean-limbed, egalitarian corporatism is dead. 

Some sacred compact between capitalism’s producers, consumers, shareholders and regulators appears to have snapped.

If it’s legal, goes the cry, then it must be moral. If it’s greed, it’s good. Only fools get caught and, if caught, they just apologise and go on as before.

There is no policeman, no court. It is not just multinationals.

The once noble sports of football, athletics and tennis are now mired in corruption allegations. Privatisation has brought the incentives, and the ethics, of big business to public service. 

The NHS is a cooperative of purchaser/provider rackets. Electricity prices are revealed each month as a conspiracy against the poor. The Hinkley Point nuclear power deal is close to meltdown. 

Common themes run through these scandals. 

One is the huge sums available to their participants, an incentive to misdemeanour. A sign of guilt is the speed with which press disclosure leads to remorse, as at Volkswagen and Tesco.

Another is the vulnerability of state regulators and ministers to pressure. Political lobbying in Britain has blossomed under David Cameron, for the simple reason that it works. 

Cameron once promised to curb it, but it proved its worth by lobbying for its own survival and winning. The industry now raises an annual £2bn in fees. 

Tesco could persecute its suppliers with impunity because it was powerful, a bully and unregulated. Agency staff could be underpaid by Sports Direct, keeping one step ahead of its unions and the law.

Volkswagen appeared to have no clue that its bureaucracy contained nerds out to cheat pollution inspectors. As for Britain’s tax authorities, they could win a role in the Keystone Cops. 

The American management guru Peter Drucker used to present the modern firm as an ethical construct, bringing the community goods and services in return for taxed profits. 

What was good for General Motors was good for America. That held for half a century. 

But even Drucker warned against untrammelled monopoly and the “economic rent” it offered those who could manipulate it. 

What Drucker failed to take on board was the message of his fellow American, the philosopher Reinhold Niebuhr. 

He was fascinated by the contrast he saw between interwar Germans’ behaviour as decent individuals and their appalling behaviour as a group. 

It was the difference between “moral man and immoral society”. 

I assume the directors of Tesco and Volkswagen were shocked to discover what was being done in their name. I am sure the tech giants of Silicon Valley tell their children they should always pay their taxes.

Yet when they enter their offices, they take on the immorality of the herd. They are ethically neutered – as depicted in the current film The Big Short. 

When communism collapsed across Europe and Asia it did not, of course, collapse. It never existed. It operated as a covert barter economy run by a network of local mafias. 

Collapse legitimised these mafias but did not police them. They became thieves. The robber barons of 19th-century America became the oligarchs of today’s Russia. 

We thought contact with western capitalism would make honest businessmen of Russian oligarchs. The reverse appears to be the case. Contact with oligarchs has turned western capitalists into dodgy businessmen. 

Big corporations have developed morally impermeable skins. They outsource their dirty work to subcontractors, consultants and lobbyists. 

The most sinister aspect of the scandals has been the ease with which government is wound round the little fingers of these corporations. 

Since 2009 the big banks have hurled lobbyists at the Treasury to ward off any retribution (or even inquiry) after the banking collapse, and to maintain their freedom to do the same again. They still pay out billions for mis-sold insurance. 

Tesco had been bullying farmers for years. On energy prices, hardly a month passes without the regulator, Ofgem, slamming firms for overcharging, while the companies laugh all the way to the bank. 

When, as with the benighted Financial Conduct Authority, a regulator tries to say boo to the City goose, the chancellor obediently sacks its chairman. 

Britain now parades the world with a Treasury, a tax authority and a chancellor who can describe as a “major success” just £130m in back taxes paid by Google on an estimated UK turnover of £6bn. 

It has to be one of the biggest sweetheart deals of all time. 

At present the only real expression of public outrage is through the unsteady columns of the press. 

Governments, parliaments, regulators and ombudsmen occasionally wail and gnash their teeth.

But in the cases cited it was often media investigation, aided by whistleblowers, that brought malpractice to light and forced government action.

Throughout its history, capitalism has stumbled through regulatory evolution.

Limited liability, bankruptcy and competition law have had to be constantly updated. So have protocols on governance, pricing, pay and the handling of customers and suppliers. 

The discipline of the market is never enough.

Britain’s Treasury should have no interest in appeasing international corporations for the sake of a few thousand jobs in the City. It should be collecting taxes. 

The irony of the Google deal is that, in most respects, London is already a tax haven, a refuge for the world’s money-laundering, tax-evading classes. 

It is also responsible for the most ludicrous offshore havens, such as Bermuda, the Caymans and the Virgin Islands. It is their accomplice in stripping the treasuries of the world of trillions of dollars a year.

The best argument for Britain staying in the EU is to help formulate some supranational authority to police global capitalism and tax its profits.

The trouble is that Britain, in this respect, is one of the worst offenders.