Tax reform is more urgent than you think. The implications of “The Disappearing PLC” an article in the October 2014 issue of Management Today make this clear. To say it is food for thought is to significantly understate the case.
The article highlights the fact that, since 1997, the Wall Street high, public listings have declined 50% in the USA and UK, 23% in Europe, and 5% in Asia. It goes on to say “Few observers doubt that something fundamental is afoot – and it’s structural rather than cyclical. In other words it is not a blip.” It explains this is driven by two converging forces.
The first is economic. Here the article states, “The publicly quoted company essentially looks like a creature of the 20th century. Modern business is cash generative far earlier and much less capital intensive then even half a century ago. The need to mobilise outside sources of capital is so much less.”
The second is managerial or ideological. The article cites concern about “public companies fading innovation mojo” and quotes Professor Clayton Christenson “who has the unofficial title of the world’s most influential management guru” as fretting that “companies anaemic appetite for investor capital is further evidence of this of just this, boding ill for US jobs and growth.”
Another cause of this decline that the article does not specifically identify is what can only be described as “merger mania.” With public companies like Cadbury being subsumed into organisation’s like Kraft Foods it seems inevitable that the number of listed companies must shrink. This compounds the apparent the apparent dearth of new listings that the article bemoans.
Add to this the points I make in “The Democracy Delusion” about industrial scale tax avoidance (epitomised by companies like Amazon and Starbucks making profits of billions in the UK and paying no taxes), and it becomes abundantly clear that this has massive implications for governments. How are they going to replace shrinking tax revenues? Only last week there was an item on the news about tax revenues in the UK being less than forecast!
All this makes makes tax reform more urgent than you think. It imperative that we revisit and reform our national tax systems – URGENTLY. If we don’t we will be walking blindly into socio-economic and political crisis that will by far exceed any of the major calamities of history in scale. That is why I wrote the book: to try to offer a solution that will help prevent this. Of course it does not have all the answers, but at least my suggestion that companies should not pay tax at all is a provocative starting point for a very important discussion.
The status quo is not what it was. The recent referendum in Scotland is having an ongoing ripple effect that carries the promise of inevitable change. And we need to ensure that we shape that change to safeguard a better future.
Many people are still wondering how the result turned out to be as close as it was and how a relatively small and seemingly innocuous minority reached a groundswell of over 2 million people. Yet, for once, political analysts seem united.
They all agree that the separatists were able to exploit the percolating prevalent and persistent dissatisfaction with central government and surf the wave of discontent. They call this “civic nationalism.” They see this as disillusionment with politics and politicians, resulting in people looking to regain control of their own destiny.
If, however, that is the case, the answer is certainly not to create more levels of government. Not to create more troughs for incompetent, self-satisfied and self-serving politicians to feed at.
The answer to any problem cannot be more of the same. Yet, all the solutions currently being proposed to civic nationalism revolve around a model that offers more of the same. You need to think very carefully before you allow this to happen. Einstein said, “You cannot solve a problem from the same level of consciousness that created it.” If the system is not doing what it is supposed to, then you have the wrong system. You don’t need to repair the system, you need to replace it. So let’s rethink our response to civic nationalism and focus on the causes.
While the situation seems unique to the UK, civic nationalism is a widespread problem with the causes fundamentally the same everywhere. So let’s work together to develop a new system and not be rushed into anything that will not solve anything and ultimately leave us even worse off. Let’s ensure that we enable a future that is better for all.
“Rich double their wealth in five years.” That was the front page headline in a recent Sunday Times. Now I don’t know about you, but for me that is ominous, because living standards for the rest of us are falling.
A BBC report claims that, according to the Institute of Fiscal Studies, a mid-range UK household’s income had declined by 6% in this time. So here you have clear evidence that the rich are getting richer while the rest of us are getting poorer. And, while the report suggests that this decline “was felt equally across high and low income groups,” (one has to question the dividing line between rich and high income) it adds that, over time, the affects will be felt more by the lower income groups.
The ceaseless cycle of Christmas carols has been put away for another year, only to be replaced by another seasonal cycle with no joy, little originality and only the veneer of goodwill. If the miserable weather and post-holiday blues are not enough, the newspaper headlines will certainly drown you in the dismals!
After a blissful two weeks of virtually news-free isolation, the first headline to greet me on the doorstep on return from holiday was this from The Sunday Times; “PM in new year cash giveaway: Election pledge to raise pensions until 2020: Hints at income tax cuts for all to come.” This was followed by broadcast news that shrieked the next day’s headlines; “George Osborne targets £25 billion more in spending cuts.” It appears that the 2015 election campaign is now underway! Talk about conflicting messages! If you want evidence that politicians are more concerned with re-election than anything else, you don’t have to look any further.
If you believe that our political system is failing dismally, you are not alone. Leading thinkers like Thomas L. Friedman and Michael Mandelbaum are trying to alert us to this fact. Not only that, they are also stressing the need for urgency. In their recent book, ‘That used to be us’ they state, “Our sense of urgency also derives from the fact that our political system is not properly framing, let alone addressing, our ultimate challenge.” (P10.)
Their book is focused on the US political system, but the problems it portrays, and the fact that many of us are sleepwalking through them, are not unique to the United States; they are phenomena that are endemic throughout the developed world today. Friedman and Mandelbaum bemoan the failure to reap the dividends of “winning” the cold war, the rapid decline and the threat to the country’s “exceptional nation” standing, but the issues they describe are by no means unique to that nation. Unfortunately, US dominance of the world economy compounds the problems for the rest of us, and we therefore are as dependent on their ability to address their own problems as they are.
Standards are slipping and we are blindly letting it happen. People have got used to it. And if we don’t act to change things, they will continue to fall until our whole way of life is destroyed and becomes impossible to retrieve.
At the start of their book, ‘That Used to be Us’ Thomas L Friedman and Michael Mandelbaum give a very telling comparison of the current difference between the China and the US. They cite the example of the massive, beautiful 230,000 square meter (2.5 million square feet) Tianjin Meijiang Convention and Exhibition Centre taking only 8 months to build, and compare that with the fact it took 6 months to repair the escalators at Bethesda station on the Washington Metrorail – 2 separate escalators of 21 steps each.
If that stark comparison is not damning enough the authors complain that:-
- A spokesperson for the Washington Metropolitan Transit Authority said that “the repairs were scheduled to take about six months and are on schedule. Mechanics need (my emphasis) 10-12 weeks to fix each escalator.”
- One of the explanations given for this time was that it included “modernisation” because “the escalators were old and had not been kept in a good state of good repair.”
- The most disturbing aspect was a commuter comment in a newspaper report that “my impression, standing on line there, is people have sort of gotten used to it.”
€2.1 trillion! That is the estimated amount of tax revenues lost to the shadow economy in Europe this year, according to a recent report in European CEO Magazine.  And that is just in Europe: imagine what the global figure must be! What more do you need to know to recognise that our tax systems and the way we are governed need a serious overhaul?
The “shadow economy” is, by definition, a tacit admission of the extent to which people will go to avoid paying taxes. And when it reaches such massive proportions it becomes blatantly obvious that there is something fundamentally wrong with our tax systems and clear evidence that something needs to be done about it. Particularly at a time of economic turmoil when national debts threaten the stability of the whole global economy.
And if that isn’t enough to frighten you and convince you of the need for action, factor in the “legitimate” tax avoidance that is so endemic in the world today. This, with its consequences is what I am depicting in “The Democracy Delusion.” The shadow economy is to some extent the inevitable consequence of ordinary people reacting to what they consider to unreasonable taxes and tax rates. Yet, it no more than a reflection of what is occurring legitimately in the real economy and all this is combining to put our tax systems under enormous strain.