Opinion | From the New Deal to the raw deal
Capitalism, tamed by the New Deal for nearly five decades after the Great Depression, has gone back to its robber-baron ways in the last three decades, with the collusion, aid and capture of political parties on the economic left and right
According to a report in the Financial Times, published about two-and-a-half weeks ago, Nirmal Mulye, the chief executive officer (CEO) of Missouri, US-based Nostrum Laboratories, defended the increase in the price of a bottle of Nitrofurantoin from $474.75 to $2,392. This drug treats bladder infections. It is listed as an essential medicine by the World Health Organization. He said that it was his “moral requirement” to sell the product at the highest price and that shareholders had to be rewarded. At the minimum, his comments were politically incorrect and, at worst, they were morally wrong.
Scandinavian countries pride themselves on their governance and ethical standards. Therefore, it must have come as a shock to many that Danske Bank had confessed to massive money-laundering through one of its branches in Estonia. The amount involved was a cool $233 billion. The whistle-blower’s name has been revealed accidentally and he is seeking protection now. The bank had received the first whistle-blower report in 2013.
A few days before Mulye asserted his moral requirement to raise prices by 400%, The Times newspaper of London reported that Her Majesty’s Revenue & Customs (HMRC) authorities had admitted that they accommodated celebrities’ concerns for reputation and settled their tax dues privately without bringing them to trial, unlike what they do for ordinary taxpayers.
In what must go down as one of the most comic assertions ever made anywhere by public authorities, HMRC refuted the allegation that it had refused to assist a French investigation into Lycamobile on charges of money-laundering and tax fraud because it was a big corporate donor to the Conservative Party. HMRC said, “This is the United Kingdom for God’s sake, not some Third World banana republic where the organs of state are in hock to some sort of kleptocracy.” According to The Times, it later conceded that the story was accurate. (“We allow the rich to escape charges, admits taxman, The Sunday Times, 9 September).
Around the same time, Gabriel Zucman of the University of Berkeley published a paper (“The Exorbitant Tax Privilege”, National Bureau of Economic Research, September 2018) on the tax privileges of American corporations on their foreign-earned profits. The share of profits shifted to tax havens has increased substantially and, according to him, that explains a significant portion of the return differential between American investments overseas and foreign investments in America. The share of top five havens in the foreign direct investment income of the US in the period between 2014 and 2016 is nearly 50%. It is the highest among the 12 countries for which he has presented the data. The top five havens are Ireland, Switzerland, Singapore, Luxembourg and the Netherlands.
In an interview to the ‘ProMarket’ blog of the University of Chicago, Zucman had said, “if globalization meant ever-lower taxes for the rich and for multinational companies and ever-higher taxes for those who presently don’t benefit from globalization—for retirees, for small businesses”, then it was not sustainable. Quite.
Staying with Europe, we notice that the European Commission has launched an enquiry into the cartel-like behaviour of three major German auto firms—BMW, Daimler and Volkswagen—in delaying the rollout of clean emissions technology.
In India, according to a report in Business Standard, “in the last three years, CEOs’ combined compensation has expanded at a compound annual growth rate (CAGR) of 18.3%, against 13.3% growth in corporate earnings, 4.8% CAGR in net sales and 10.1% annual rise in the total salary and wages bill.” (It’s great time to be a CEO! Compensation outpaces profits, total wage bill, 14 September). In some companies, the CEO compensation to median worker ratio exceeds 1,000 times. In an extreme case, it is more than 25,000 times.
So, the evidence is in. Soulless capitalism has gone global. Capitalism, tamed by the New Deal for nearly five decades after the Great Depression, has gone back to its robber-baron ways in the last three decades, with the collusion, aid and capture of political parties on the economic left and right. It may be futile to expect governments to rein in the increasing monopolistic tendencies, market concentration, surplus profits and downright cheating of big money because political parties of all stripes are in the hock.
That is what a recent paper by Thomas Piketty established. Examining voting patterns in three countries – US, UK and France—he found that voting patterns have clearly shifted in the last three decades. Educated (and high income elites) vote Left and conservative wealth votes Right. In the end, it is about elites vs. non-elites or globalists vs. nativists as he put it. Non-elites (the working class) have no one to represent them politically. So they turn, with hope, to populists.
Deterrence through punishment worked in Hong Kong in the 1960s. But, the US did not punish wrongdoers for the financial crisis for fear of endangering financial stability and the UK taxman has confessed, as we saw earlier.
In any case, deterrence effects are fleeting. Hong Kong is not the same. Morality and fair play are the bedrock of capitalism. Without them, it is Kleptocratic Darwinism. As Walter Scheidel wrote in his book, The Great Leveler, the world awaits or needs a violent levelling.
V. Anantha Nageswaran is an independent consultant based in Singapore. He blogs regularly at Thegoldstandardsite.wordpress.com. Read Anantha’s Mint columns at www.livemint.com/baretalk.
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