Na Zapad vs. Drang Nach Osten*

(*To the West (Rus) vs. Urge to the East (Ger))

There has been much wringing of hands on both sides of the Ukraine war over the matter of the West supplying modern battle tanks to Ukraine. These are to offset the thousands of Soviet-era models that might be deployed en masse in a Russian Spring offensive. This all centres around the Leopard 2 tank. It is built by the Germans and supplied to many NATO members but with restrictions on its deployment.

Quite apart from any German reluctance to appear belligerent, there is an historic moral dimension, highlighted in the recent marking of Holocaust Memorial Day and the Nazi rule that led to it, which began exactly 90 years ago (January 30th 19330.

The Russians are understandably sensitive about this part of their history. The largest, and most horrific part of the global World War Two to which it led, was the invasion of the Soviet Union, in which some 23 million of its citizens died before the Wehrmacht was driven out. However, little mention is made these days of the brutality of Stalin’s regime that achieved victory in what Russians call “The Great Patriotic War”, nor as a result, the repression of half of Europe behind the Iron Curtain for the next 45 years.

Indeed, taking the longer view of the behaviour of these two great European nations, it is hard to see the Germans as the more belligerent. Early prototypes of the two powers can be discerned in their 8th century incarnations of Holy Roman Empire and Kievan Rus. Despite strenuous efforts by Teutonic Knights in what is now the Baltic States, it was Russia that first grew into a unified power in the late Middle Ages, particularly under Peter the Great, while what is now Germany remained a patchwork of principalities.

At this stage in history, it was not the fragmented Germans who threatened Russia’s emergence as a European power. It was the Swedes (whom they defeated at Poltava in 1709) the French (whom they defeated in their disastrous 1812 invasion) and the Ottomans, whose hold on the Black Sea coast denied Russia a warm water port and led to the Crimean War to halt “Russian aggression”. While the French may have briefly held Moscow, it was a Russian army that occupied Paris upon the fall of Napoleon.

Up to this point, the plains of Saxony and Pomerania had often echoed to the tramp of Russian army boots down the ages. So, when Bismarck glued a German Empire around a Prussian core in the 1860s, some paranoia on its eastern borders seems understandable.

When, at the outbreak of WW1, the Russians invaded East Prussia, their defeat and subsequent occupation of much of Western Russia upon the collapse of the Tsarist regime could be seen as a defensive move, allowing the transfer of troops to fight the Western Allies’ growing strength after the USA entered the war.

The subsequent humiliation of a defeated Germany goes a long way to explain the rise of the Nazis and all the evil they fomented, even if it does not excuse any of their heinous deeds. Given the shoddy, bully-boy behaviour of Russia since the millennium, the idea that a model member of the global community for three-quarters of a century like Germany should take any moral lectures from a serial aggressor with hands as blood-stained as Putin’s would be laughable, were the situation not so serious.

#1057—574 words

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House of Cads

So far this year in the US Congress, Democrats are generally staying out of the way and letting Speaker Kevin McCarthy and his House Republicans edge closer to making fools of themselves. In order to garner enough votes to become speaker after an unprecedented fourteen attempts, McCarthy had to bargain power away to a group of fewer than 20 right-wing extremist colleagues. Prominent among them was the newly elected (and controversial) Marjorie Taylor Greene. Despite her Georgia district benefitting economically from a solar power plant, she has vehemently opposed it. “Green” may be her name, but not her attitude. McCarthy has openly brought her on board as his close advisor, making the extremists the face of the new MAGA (Make America Great Again) Republican Party. This was originally Trump’s campaign slogan, but the two camps do not currently see eye-to-eye (see below). If McCarthy appears to have abandoned principle for power by catering to the far right, Representative George Santos hasn’t helped: stories of his lies have mounted.

Financial filings suggest quite serious financial improprieties. Santos’ campaign committee is facing new questions from federal regulators after submitting paperwork listing a new treasurer who says he never took the job.

The Federal Election Commission has asked the Devolder Santos for Congress campaign about the switch, saying “It may have failed to include the true, correct, or complete treasurer information”. It’s the latest scrutiny for the New York congressman who has been caught fabricating many elements of his life story.

As a result of all this, Senate Republicans are keeping their collective heads down while the House Republicans perform for their base. True to their right-wing principles, they are demanding big cuts in spending before they agree to raise the debt ceiling, which puts those same House Republicans in a difficult spot. They have been clear that they intend to slash Social Security and Medicare, only to have Trump, who was the one who originally insisted on using the debt ceiling to get concessions out of Democrats, recognise that such cuts are enormously unpopular and say they should not touch Medicare and Social Security. Senate Republicans have said they will stay out of debt ceiling negotiations until the House Republicans come up with a viable plan.

Meanwhile, quietly ignoring this self-destructive vaudeville act, Biden and his Democrats have quietly gone about the business of governing, creating more jobs than in any similar period in US history and replacing all jobs lost under Covid. On this side of the pond, in his recently announced strategy for UK economic recovery, Jeremy Hunt would have been better advised, had he fleshed out aspirations with some concrete measures to achieve them, such as Biden has already implemented.

#1056—454 words

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It’s the Ergonomy, Stupid!

Part II—The Remedies?

While “Ergonomics’” is the science of making the work environment safe and efficient, “Social Ergonomics” is a new term, coined to describe efficiency derived from the mental attitude of workers toward a common work ethic.

Part I was a critique of where Britain is going wrong after a 12-year-failure to achieve economic growth and prosperity for its citizens. Now the OECD forecasts a UK recession lasting into 2025. The purpose of this part is to posit remedies to better achieve that than defensive policies outlined in the Autumn Statement of November 17th.

The problem is that effective remedies are radical and involve ditching present presumptions about what the UK is and can be. Bitter pills must be swallowed. The Shibboleth that must fall for antidotes to take effect are:

  • Britain can no longer claim to be a global, nuclear power; it can’t afford either
  • Britain is now so weak it needs membership of a large trading bloc to prosper
  • It can afford a full social programme only through suitably high NI/tax contributions 
  • UK as a common culture has gone, now replaced by an English Empire, writ small
  • Stop making grubby money as refuge for oligarchs/non-doms and acting as the legalising mothership for offshore money laundering
  • Accept adoption of an new industrial base, requiring global leaders in key areas

Britain needs something visionary and radical to achieve growth and prosperity. Suggested remedies and components to address each of these cases are: 

Shibboleth 1—Global Nuclear Power

UK forces are a shadow of when the “Big Three” met at Yalta in 1944. Yet they remain structured for a global power. This makes them ineffectual in dealing with even small conflicts without help. Radical reorganisation is required:

  1. Scrap the nuclear deterrent UK can’t afford; it is unusable anyway
  2. Scrap/sell both aircraft carriers; redeploy F-35s
  3. Strengthen infantry, amphib and special forces capability
  4. Go through MoD procurement like a dose of salts; most need to be fired

Shibboleth 2 Brexit. 

The thin majority in the 2016 vote has long been overtaken by events, dear boy. The current weak economy is appreciably weaker than it would have been without Brexit. Ignore the Little-Englanders, munch humble pie and get back into the biggest, closest and most compatible trading bloc we could find, but:

  1. This time, join the EU wholeheartedly and not be seen as a constant gripe.
  2. Form a pro-active partnership with EU “Northerners” (Scandinavia; Holland; Germany; Baltics) against economic waywardness of the PIGS (Portugal, Italy, Greece, Spain) and bureaucratic bloat of Brussels/Strasbourg
  3. Get creative on immigration, luring professionals globally and training the less skilled—especially immigrants filling gaps in the work force to handle more than manual/unskilled jobs
  4. Together with Ireland, spearhead these islands as the investment foothold in the EU

Shibboleth 3—NHS and Social Services Are Fit for Purpose. 

To fit in with “Northerners”, a radical revision is essential. A full integration of health with social care, involving overhaul of inept NHS administration, integration with private health care, all to minimise the extra central funding needed. This should include:

  1. Democratisation of health into local government
  2. Introduction of nominal charges—for prescriptions; no-shows; foreigners
  3. Proper integration of GPs & surgeries into the health system
  4. Integrated health and social care homes in rural areas
  5. Scheme for rewarding GPs for the number of healthy patients on their books
  6. Encouragement/incentives NOT to see doctors like mechanics who fix cars

Shibboleth 4— The Union 

The Conservative and Unionist party added the latter part in reference to Ireland and see how well that went. They haven’t learned and are irritating Scots and remaining Irish alike with their post-imperial attitudes. Ardent unionists may refuse to see writing on the wall, but all four nations are drifting apart.

  1. Give the Scots as many referenda as they want; Quebec is still Canadian
  2. If Scotland votes to leave, let it; amicable divorce beats married acrimony
  3. Accept the way things are going, ditch the DUP and let Ireland unite
  4. This would solve the thorny,  intractable NI protocol issue at a stroke
  5. It would also clear the air in relations with the EU, paving the way to re-join

Shibboleth 5—UK Fiscal Probity Is Intact

London has long been a financial centre for international finance, insurance, etc. it has stayed relevant by means of the “Big Bang” in 1988. The resulting openness, plus UK tolerance of tax havens in Jersey, Cayman Islands, etc. can hide questionable money. The Panama Papers blew the lid off such practices. (see “Desert Island Dosh”). This sullies Britain’s reputation for probity, so:

  1. Demand thousands of non-doms pay tax. (this would net ~ £3 bn in tax)
  2. Demand clear ownership of properties/businesses = no offshore companies
  3. Start normal taxation in British Crown dependencies and offshore territories

Shibboleth 6—UK Social Ergonomucs Are Healthy

The term may be new, but its concept is key to Britain’s future. UK productivity has stagnated for a decade. Social ergonomics optimises mental attitude among workers.  Japanese companies have long promoted a corporate culture of personal motivation to do the job well. It can be found in many smaller enterprises in Britain, but also in larger corporations in Germany, Japan and USA (especially in high-tech). But in Britain a legacy of adversarial “big boss vs shop floor” prevails. The root of this is societal. If tackled, those benefitting from social ergonomics bring engagement and productivity. This creates enterprise growth and therefore economic growth. To secure this, we should consider:

  1. Rewarding initiative and engagement above rote and exam marks at school
  2. Accept not all kids can do all things and re-introduce streaming in schools
  3. Remove private school exemptions, but adopt their techniques and standards
  4. Stop regarding vocational or creative careers as inferior to doctors/lawyers
  5. Establish three new “flagship” global industrial leaders (c.f. Rolls Royce), such as tidal power; industrial-scale electricity storage; biotech. But do NOT give this task to chocolate teapot money sinks like Scottish Enterprise, who richly deserve to get their collective jotters.
  6. Introduce performance-related pay to the public sector, perhaps by expanding the system of setting targets once used by the Civil Service
  7. Remove automatic pay rises with length of service in the public sector
  8. Adopt the idea of abolishing executive suites, canteens, parking spaces.
  9. Levy punitive tax on excessive executive pay/bonus—except stock options

Is the chance of all of the above being implemented fantasy? Yes. Are some of the items by themselves fantasy? Also, yes. But if someone had, in the early days of Georgian Britain, forecast that we would lead the world into the industrial age with dominant technology, one fifth of mankind under its control, giving unheard-of affluence to every class, they would have been laughed out of court.

What is on offer from the government is defensive; it seeks—at best—to pretend we’re still a global power. At worst, it is a shoddy attempt to cling to power. As a medium power that is part of Europe, Britain could have a great future. But not the way we’re currently headed.

“The future isn’t what it used to be”

—Institute of Fiscal Studies

#1055—1,194 words.

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It’s the Ergonomy[1], Stupid!

Part I—The Problem

“We are facing the worst few years in our financial history.” 

—Paul Johnson, IFS Director

Now we know the low-tax mantra preached by Truss & Kwartang has been thrown on the bonfire of vanities and Chancellor Hunt has pulled on a fiscal hair shirt of which Gordon Brown might have been proud. Few people have pointed out that both Hunt and Sunak have been long-time members of the Cabinet and so share more blame than most for getting Britain into this mess in the first place.

But where exactly is this place Britain is now supposed to be in?

Listen to any of the last four Chancellors—or even Rachel Reeves—and you will hear the same shibboleth of “growth” cited. After two decades of easy growth under both Tories and Labour, the fat years came to an end in the financial crash of 2008. Since then, UK GDP growth of 2% average has lagged behind all other G7 countries. That was before Covid. When Covid hit, UK went deeper into recession and is emerging more slowly than the rest. The UK is the only G7 country whose GDP is forecast to shrink next year.

An IFS forecast of a 7% decline in UK real wages—worse than anything since WW2—is causing real worry. Government blames Covid, the Ukraine war and soaring gas prices for inflation over 11%. What they do not mention is a 15% fall in trade, or the 3% hit to GDP that the IFS assigns to Brexit, a wilfully forgotten factor. They are also quiet on the wizard trade deals Brexit was to enable—perhaps because none have materialised. Denial is never a good look when worn with a hair shirt.

Whether this is deckchairs on the Titanic or putting out fires with gasoline, this bickering in Westminster is not getting near the answer because they have yet to formulate the right question.

Britain suffers from believing a 19th century country can prosper in a 21st century world. Its global profile has shrunk to a medium financial centre, plus antique nostalgia. This not to ignore global leaders like Rolls Royce or London’s fintech. While smaller countries can prosper on a couple of winners: Denmark from Lego and wind turbines; Netherlands from bulbs and ocean towing, Britain can’t. Our 67 million spendthrift consumers who now Import most of what they used to make/grow can’t live this high on the hog on nostalgia.

The problem is that Britain (and particularly its Conservative government) still believe Britain is a big cheese in the world, who can “punch above our weight”. Reality is the UK us schizophrenic; it consists of a dynamic country centred on London, driven by fintech and tourism where 20 million live prosperously, and the remaining post-industrial shadowlands where the other 47 million live resentfully. The contrast compares with Lombardia vs the Mezzogiorno. The idea of some chummy “levelling up” of the two while such a cultural schism exists is delusional.

That we built an empire together, saw off the Kaiser and the Nazis is history of which all can be proud. But it IS history, and has been since Suez, after which our sense of cultural unity and patriotism has been eroding. Over the same time, many neighbours—Swedes; Dutch; Germans; Irish—have all developed a modern common purpose, a sense of where they are going together. 

As an example, after centuries of fragmentation, a German fetich for order and discipline has found positive outlet in engineering and efficient systems. Their transport systems are fast and efficient because bottlenecks like buying and checking tickets are eliminated. Everyone believes the system benefits them, so they comply in the common interest.

Britain’s schizophrenia is neither fish nor fowl. The dynamic Southeast wants rollicking meritocracy, combining American freedoms with modernised robber-baronry. But the provinces look with envy to Scandinavian social programmes. What started as war between classes continues as a war between social geographies. Problems affecting one or the other are seen as “theirs”, not “ours”. Such antagonism fragments further to smaller levels: Unions and government blame each other; parents and teachers blame each other.

In their attempt to stay in power, Conservatives have muddied political waters by stealing Labour’s clothes—embracing the welfare state; increasing minimum wage; pushing equality rights. But this means social programmes are under-funded via an American-style low-tax mantra. That circle does not square. The result is unprecedented borrowing, leading to a national debt over £2 trillion, which now costs over £100 billion to service annually. No wonder the £UK is has slid below $1.20.

It was Maggie who started the rot. Gifted a North Sea oil bonanza, instead of banking it like the Norwegians, she used the profits to offset taxes. Then Major followed with the fire sale of national assets from British Rail to National Power, water companies, Royal Mail, prisons, etc. All of it went on paying for a welfare state and global ambitions that taxes did not cover. Eventually, the cupboard was bare. Brexit, Covid and Putin did not create Britain’s predicament. They simply blew away the government obfuscating smokescreen. November 17th’s Autumn Statement sounded radical, but it was really a box of Elastoplasts applied to a brain hemorrhage. Part II suggests some serious operational remedies.

“We’ll be spending more on debt interest than on any individual public service,..we’re discovering rather painfully that borrowing isn’t a free lunch… so I’d be surprised if the tax burden gets back down to the pre-Covid the next several decades”

—Paul Johnson, IFS Director

#1054—958 words

[1] Ergonomics: “The science of workplace, tools, and equipment designed to reduce worker discomfort, strain, and fatigue and to prevent work-related injuries.” The use of “Ergonomy” in the title should become clearer in Part II.

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Economic with the Actuarité  

“It’s our old friend being economical with the actualité.”

—former Minister Alan Clark to the Matrix Churchill trial, October 1992

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               Those in charge seem to have become similarly flexible when taking care of Joe Public’s financial futire. On November 9th, Michelle Thomson MSP hosted a reception at the Scottish Parliament to launch a report from the David Hume Institute partnered with the Institute and Faculty of Actuaries (IFoA), titled The Great Risk Transfer: have we got the balance right? Its purpose was to discover how much people in Scotland understood key risks affecting their long-term financial health. A précis of the report is available here

With the dictionary definition of an actuary being “a person who compiles and analyses statistics and uses them to calculate insurance risks and premiums,” this would seem a dry and unpopular topic.  However, Michelle Thomson may be the most business-savvy member the SNP has in the parliament and knows a financial issue when she sees one. As a result, over 60 people, not all of whom were actuaries, filled a large committee room.

The IFoA had been exploring the ongoing trend of transferring risks from institutions—such as employers, the state, and financial services providers – to individuals. They describe their results as the ‘Great Risk Transfer’ because it poses significant, social, financial, and political challenges that are, as yet, little understood. The report asserts:

Far greater responsibility is being placed on individuals for managing their lifelong financial wellbeing than has been the case for most people living in Scotland since the establishment of the modern welfare state.”

The research shows causes of this trend to be complex, including increasing life expectancy, technological advances, changes in financial regulation and political choices. Four important areas of risk transfer were identified: Pensions; Work; Health; Insurance. The financial risks of needing to fund their own social care were a recurrent worry. As the report itself puts it:

“After the Second World War, there was a realisation that we were all in this together and there was an absolute need to make sure that everybody was provided with the minimum […] the [idea] the state provides support for all of us together
in all kinds of ways has been steadily eroded. Year by year, decade by decade. […] the 80s was the storm, whereby the state was withdrawing from all kinds of things in the aim of reducing state expenditure.”

This erosion of reliance on the state was supposed to be compensated for by the rise in private pensions, encouraged by schemes such as ISAs. Faith in this did not survive the raids made on private pension schemes by the likes of Philip Green and Robert Maxwell, to the point that the government was forced to introduce the “triple-lock” on state pensions. Though their value had been eroded, this did allow more stable retirement planning for the decade when inflation was trivial. That is now history.

Exploring people’s awareness of current trends and their personal ability to manage and respond to financial risks revealed two interlinked themes which policymakers need to consider.

  • Cultural – what people know, how they feel and what they do to manage risk
  • Structural – the wider social and economic system

Inflation recently grew to levels not seen since the early 1980s, with rapidly-increasing fuel, energy and food prices dominating. At a time when wages and social security payments have not kept pace a significant rise in the cost of living has been inevitable.

This result is not just an inability to plan financial futures, but ignorance of the tools by which they might do so. They focus instead on immediate financial challenges that recently intensified: heightened housing costs; insecure tenancies; insecure jobs, stagnating incomes; growing debt; living on a fixed income. The report tries to illustrate several relevant factors:

  • Knowledge and awareness of risks to financial wellbeing
  • Trust in information providers
  • Stress, fear, stigma and embarrassment
  • Inability to access and understand guidance and information

As all of the above demonstrate, the reliance any individual places on the state, employer or anyone else knot personally known to them renders financial planning and the risks involved unavailable to many.

So, while the state can be said to be “economic with the actuarité”, these difficulties are compounded by the absence of education in the tools people require to take up the slack. While mathematics and computer science may provide a grounding, aspects of commercial life must be picked up “on the job”. This may work for those going into Fintec, it leaves the bulk of people—from farmer to plumber— exposed to the Great Risk Transfer.

The full report may be found here.

#1053—751 words

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Light of the Charge Brigade

COP27 launched today in an atmosphere of bleak resignation that 1.5 degree warming is a myth and the current 2,8 esyimate will drown thousands and displace millions. Now that Sunak is attending, his government’s claim to still be going green seems more plausible. But a ban on onshore wind and the issue of drilling licences sits badly with that.

More comfort comes from the Scottish Government, which remains resolutely against fracking and open to all manner of renewables. They also make great play of being ahead in providing infrastructure to make electric vehicles (EVs) both viable and economic. Scotland is certainly leading the way in the UK. But with fossil fuel engines to be phased out in less than a decade, is it enough?

By the end of this decade, Scotland is expected have a million EV cars on the road. To support these, we will have to work 10 times faster to achieve the necessary infrastructure in 8 years. Scotland currently offers 2,300 charging points for 50,000 EVs currently on its roads—just 2% of all cars. As more people buy EVs, competition for use of those points rises, especially by people in flats and without private drives where private points can be installed. Modern EVs can go 250 miles but the bulk of older models have less range. 

The issue is not purely one of numbers. Over 2/3rds of all charge points are slower “trickle” chargers, designed for overnight charging. This is not suitable for EVs passing through, such as tourists.  The fast ones take only 45 minutes for a full charge. But they are few and far between on tourist routes, such as the North 500. 

A recent documentary (Disclosure: Electric Cars on BBC1 at 8pm on Wednesday, November 2nd tested that route: there were two at Ullapool; fifty miles on, one of two at Gairloch was working; another fifty miles to the two at Loch Carron.

 ChargePlace Scotland, funded by the Scottish Government (but a subsidiary of the private company Swarco eVolt since 2020) set up to develop and administer the network:

The charge points on the CPS network are owned by over 400 different charge point hosts (also known as ‘owners’.) across 2,388 individual charge points. The owners are local authorities, other public bodies, charities and businesses who have received grant funding from the Scottish Government to procure and install EV charge points for public use. It is the owner who decides what type of charge point to procure and where they wish to install it. In addition to this, the charge point owners are responsible for ongoing maintenance and the tariff rate applied to the charge point.

—ChargePlace Scotland website

ChargePlace Scotland claim the uptime for the network overall was 96.8%. This is what is shown on their website for every council area. Indeed, this week’s list showed only 13 points unavailable, meaning a 99.5% performance. 

However, the Disclosure programme disputes this rosy picture, finding none of the five found not working on the North 500 was listed as faulty that week. By checking all points via the app, they found 100% of Scottish Borders and 95% of Highland points had been faulty that month and some 500 (i.e. 25% of the network) were unavailable. They reckoned almost half of all points deserve anything close to a 100% record. When interviewed about this, Scotlamd’s  Transport Minister said:

“In the round, we run a relatively reliable service”

—Jenny Gilruth.

Since 2013, the Scottish Government has invested over £45m in the development and expansion of the ChargePlace Scotland Network, delivering over 1,800 public charge points. Scottish Ministers have also funded the ChargePlace Scotland back office.

—Scottish Government website

The government has taken a self-congratulartory report Report on Public Electric Vehicle (EV) infrastructure in Scotland. But we’ve been at this for nine years, we should be halfway there to our 2030 goal. But even if we are leading the UK, how successful has the network been in persuading Scots to switch to eVs?  According to ChargePlace Scotland’s own statistics, only the four main cities, N&S Lanarkshire, Highland and Dumfries & Galloway average more than 100 charges in a month.

Comparison within the UK may show us in a good light but not if we compare with our neighbour. Norway is a world leader in EVs.  It has a fast network of over 3,000 rapid chargers (roughly 10 times Scotland’s) out of 17,000 altogether. Today, 78% of all new cars are EV, encouraged by network accessability—otherwise people get frustrated. They have other incentives,  including cut-price parking, ferry discounts and exemptions. Norwegians have a conscience; they feel their habds black from the oil that make them rich, so deek obliged to lead the way on EVs. Even their ferries are electric (Fergusson’s take note!).

By comparison, Scotland has a long way to go, being toughly where Norway was 12 years ago. It needs to change its approach if it is to catch up. Norway used private capital for non-government investment, a move Scotland is still just contemplating. Its green approach of low tariffs or even free charging won’t pay for the network or its maintenance. A private company Fastnet wants to install superfast points, but to charge more for speedier service at better points. 

But their problem is many councils provide the charge free, giving away £2.8m in the last year. This distorts the market and causes and drives overused if free ones, blocking others who would rather wait than pay.

So it seems past time for Scotland to feel good about its progress on EVs by comparing to laggardly England. We must realise we are 12 years behind, with only eight years to go. The answer is to invole the private investment ready to engage to create a superfast net and suspend the low tariffs that are precenting that.

#1052—956 words

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Make America Greet Again

Because of a summer of political discord across the UK, our media has paid its usual scant attention to the imminent Mid-Term elections in the US. Id, as seems likely, the Republicans re-take control in the House. Not only will Biden’s enlightened program be hamstrung, but success of  the Make American Great Again (MAGA) extremists will be an open invitation for the return of Trump in 2024. For those interested in haw the Land of the Free has come to this sorry pass, we suggest the attached blog by Heather Cox Richardson is as compact a backstory as you could find and follows verbatim. Those interested in tracking US affairs can do no better than to subscribe to her daily offering at: Letters from an American.

This week, news broke that as a guest on the right-wing Real America’s Voice media network in 2020, Republican candidate for Michigan governor Tudor Dixon said that the Democrats have planned for decades to topple the United States because they have not gotten over losing the Civil War. According to Dixon, Democrats don’t want anyone to know that white Republicans freed the slaves, and are deliberately strangling “true history.” 

Dixon’s was a pure white power rant, but she was amplifying a theme we hear a lot these days: that Democrats were the party of enslavement, Republicans pushed emancipation, and thus the whole idea that Republican policies today are bad for Black Americans is disinformation. 

In reality, the parties have switched sides since the 1850s. The shift happened in the 1960s, and it happened over the issue of race. Rather than focusing on party names, it makes more sense to follow two opposed strands of thought, equality and hierarchy, as the constants.

By the 1850s it was indeed primarily Democrats who backed slavery. Elite southern enslavers gradually took over first the Democratic Party, then the southern states, and finally the U.S. government. When it looked in 1854 as if they would take over the entire nation by spreading slavery to the West—thus overwhelming the free states with new slave states—northerners organized to stand against what they called the “Slave Power.”

In the mid-1850s, northerners gradually came together as a new political party. They called themselves “Republicans,” in part to recall Jefferson’s political party, which was also called the Republican party, even though Jefferson by then was claimed by the Democrats. 

The meaning of political names changes.

The new Republican Party first stood only for opposing the Slave Power, but by 1859, Lincoln had given it a new ideology: it would stand behind ordinary Americans, rather than the wealthy enslavers, using the government to provide access to resources, rather than simply protecting the wealthy. And that would mean keeping slavery limited to the American South. 

Prevented from imposing their will on the U.S. majority, southern Democrats split from their northern Democratic compatriots and tried to start a new nation based on racial slavery. They launched the Civil War.

At first, most Republicans didn’t care much about enslaved Americans, but by 1863 the war had made them come around to the idea that the freedom of Black Americans was crucial to the success of the United States. At Gettysburg in 1863, Lincoln reinforced the principles of the Declaration of Independence and dedicated the nation to a “new birth of freedom.” In 1865 the Republican Congress passed and sent off to the states for ratification the Thirteenth Amendment to the Constitution, ending enslavement except as punishment for crime (we really need to fix that, by the way). 

After the war, as southern Democrats organized to reinstate white supremacy in their states, Republicans in 1868 added the Fourteenth Amendment, giving the federal government power to guarantee that states could not deny equal rights to American citizens, and then in 1870 the Fifteenth Amendment, guaranteeing Black men the right to vote. They also established the Department of Justice to defend those rights. But by 1871, white Republicans were backing away from federal protection of Black Americans.

Democrats continued to push white supremacy until 1879, when former Confederates took over Congress and threatened to destroy the government unless the federal government got out of southern affairs altogether (it’s a myth that the army left the South in 1877). Voters turned so vehemently against the former Confederates trying to impose their will on the nation’s majority that national Democrats began to shift away from their southern base, which dominated the southern states. In 1884 they ran New Yorker Grover Cleveland for office and won. 

For the next fifty years, both national parties would waffle on race, trying mostly to ignore it. 

But World War II changed the equation. 

Democrat Franklin Delano Roosevelt had begun to offer some economic protections to Black Americans with the 1930s New Deal, but Black soldiers coming home from the war demanded true equality. The blinding of Black veteran Isaac Woodard in 1946 by South Carolina law enforcement officers woke Democratic president Harry S. Truman up to the need for equal protection of the laws. 

Unable to get civil rights laws through Congress, Truman worked to desegregate federal contracting and military installations. Immediately, racist southern Democrats, led by South Carolina senator Strom Thurmond, broke away from their own president to form their own short-lived “Dixiecrat” party backing racial segregation. 

Then, in 1954, Republican Dwight Eisenhower put Earl Warren, the former Republican governor of California, at the head of the Supreme Court. It promptly used the Fourteenth Amendment to declare the segregation of public schools unconstitutional in the Brown v. Board of Education decision. It seemed both parties had come around to supporting racial equality.

But white supremacists in the South responded to desegregation by attacking their Black neighbors. So in 1957, with a bipartisan vote, Congress passed a civil rights act to protect Black voting. Thurmond launched the longest filibuster in U.S. history to try to stop it.

Republicans who hated the government’s postwar regulation of business saw an opening to get the Dixiecrat contingent on their side. In 1960, The Conscience of a Conservative, published under the name of Arizona senator Barry Goldwater, called for getting rid of the business regulation and social safety laws passed since 1933, and claimed that the Supreme Court’s protection of civil rights was unconstitutional. 

When Democrat John F. Kennedy took office in 1961, he gave a rousing inaugural address promising to bring freedom to the world but, afraid of alienating southern Democrats, didn’t mention race at home. World War II veteran James Meredith promptly decided to test just how committed to human rights Kennedy actually was. Meredith sued for admission to the University of Mississippi, and when the courts ruled the state had to admit him in 1962, Kennedy had to choose between the northern wing of his party that supported civil rights, and the southern racists. Pushed by his brother and attorney general Robert, Kennedy backed Meredith’s registration with federal troops. 

Republicans already mad at business regulation now worked to pick up the white supremacists who had backed the Dixiecrats and who, by 1964, were attacking Black Americans and their white allies as they tried to enroll Black voters. In 1964, Republicans ran Goldwater for president on a platform calling for slashing federal power and empowering the states to run their affairs as they wished. Goldwater lost the election, but Strom Thurmond publicly switched parties, and Republicans picked up the five states of the Deep South (as well as Arizona) for the first time since Reconstruction.

Democrats, meanwhile, went all in on racial equality. Kennedy had come around to calling for civil rights legislation, and after his assassination, his successor, Lyndon Baines Johnson, pushed hard first for the Civil Rights Act of 1964—which Congress passed while FBI agents were searching for three murdered civil rights workers in Mississippi—and then, after law enforcement officers in Selma, Alabama, attacked voting rights advocates as they crossed a bridge named for a grand dragon of the Ku Klux Klan, the Voting Rights Act of 1965. 

The Democrats had become the party of equality. But the votes for the civil rights laws had been bipartisan, and it was not at all clear that the Republicans wouldn’t also back civil rights. After all, Goldwater had gotten shellacked when he made common cause with white supremacists. 

But in 1968, Republican presidential candidate Richard Nixon knew he had a hard fight ahead of him. He figured he needed to pick up the old Dixiecrats, who were now politically homeless. He went to Thurmond with a quiet promise not to use the federal government to protect Black rights in the South in exchange for his support. This “Southern strategy” worked. Thurmond publicly backed Nixon.

From then on, white supremacists made up a key part of the Republicans’ base, and the party increasingly pushed on old racial themes—Ronald Reagan’s welfare queen, for example, or George H.W. Bush’s “Willie Horton” ad, or the trope of “makers” and “takers”—to keep them on board. 

The parties had switched positions over equality and hierarchy. Since 1964, Republicans have always won the majority of the nation’s white vote, while Democrats rely on Black voters, especially Black women. 

And that is the actual true history of how it happened that a Republican candidate for office, representing a party that once defended civil rights, made white power rants on public media.

#1051—1,434 words

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Desert Island Dosh

Offshore is not only a place, an idea, a weapon of the finance industry it is also a process, a race to the bottom to where the rules laws and outward signs of democracy are worn away.”.

—Nicholas Shackson

This is a most unusual year; a new king and a coronation, but not of the same person. On Monday, October 24th, the Conservatives chose their fifth leader in 12 years with commendable speed. But there has been little media coverage of the poisoned chalice from which Rishi Sunak must now sup to avoid a Conservative car crash in the looming 2024 election. Jeremy Hunt has steadied an alternate fiscal ship after the Trussonomics Titanic hit the market iceberg and foundered with all hands. Hunt’s reeling back Kwarteng’s £45 billion unsupported tax giveaway helped, but jumpy Gilt markets still piled rising interest rates onto Treasury and mortgage payers alike, and so widened the fiscal hole Hunt needs to fill back to £30 – £40 billion.

How to fill it? All debate so far has been among rising taxes, cuts in public spending and more borrowing if neither suffice. But little is ever made of the tax evasion, in which UK is a world leader. This is not only because Britain invented the tax haven but also because an establishment still makes considerable use of them.

Tax in Exile

Tax havens are referred to as “Offshore Financial Centres (OFC), defined as “a country or jurisdiction that provides financial services to non-residents on a scale that is incommensurate with the size and the financing of its domestic economy”. While there are many would=be OFCs, Britain cornered the market early on.

Britain controls the Crown Dependencies of Jersey, Guernsey and the Isle of Man, plus the Overseas Territories of Anguilla, Bermuda, British Virgin Islands, Cayman Islands, Gibraltar, Turks and Caicos Islands. All have fingers in the tax haven pie, some deeper than others.

Many large corporations—especially US ones—engage in tax avoidance. US States, such as Delaware and Nevada specialise in such moves. Recent EU moves against global conglomerates highlighted Amazon, Starbucks and others shifting all their profits to lower tax countries. Britain already plays this game too. But where it has yet to capitalise is on the scale of tax evasion (not avoidance) by rich individuals. Despite being the leader in OFCs, the recent largely ineffectual clamp-down on Russian oligarchs showed just how beyond the UK’s control OFC’s have become.

So what are we talking about here? The Cayman Islands are the poster boy for IFOs. According to the Financial Stability Forum–International Monetary Fund, the barely 71,000 inhabitants cause tax losses of over £35 billion to the rest of the world. Half a million per capita—that’s some GDP from coconuts and palm oil. Others are well up the running: British Virgin Islands at E4 billion; Jersey at £2.5 billion. Let’s be clear: not all of this is tax lost to HMRC. But in the case of the last two, most of it is.

A Shell as Shield

So why does HMRC not send in the Marines and claim what is theirs? As you might guess, it’s not that simple. On first appearance, all of what goes on in OFCs—certainly in British ones—is legal and above board, at least technically. But OECD research showed OFCs harboured 8–10% of global wealth in tax-tax-neutral structures What are these structures? Welcome to the wonderland of shell companies.

Shell companies have no employees and are not publicly traded, and they don’t deliver any goods or services to earn revenue. They exist solely to hold and move assets on behalf of individuals. Although they exist in normal tax environments, such as the UK, IFCs generally don’t have the same ownership transparency requirements of the UK. Not needing to reveal who owns the company’s assets is of great use to both those seeking simply to avoid tax to those wishing to salt away illicit gains. Even in those OFCs requiring a named owner, provision of a different name can often be arranged.

As the name suggests, shell companies are hollow, usually existing only on paper and registered in an OFC. The British Virgin Islands have over 10,000 companies registered in the same two-storey building. Things get complicated when shel companies own other shell companies and “shadow” owners conceal true owners.

The Shelist of Then All

This all requires some deft understanding of accounting, local and international law. There are a number of firms specialising in such services. But the daddy of them all is Moosach-Fonseca (a.k.a. “MosFon), based in Panama Vity, but with subsidiaries in many key countries.

MosFon takes care to present itself as a reputable law firm which performs due diligence with all its client and complies with all laws wherever it dos business. However, a spectacular leak from its internal databases in 2017 and published as “The Panama Papers”  threw interesting spotlights onto its dealings, its many clients and the “services” it provides. For example:

  • Sergei Raldugun, a well known Russian cellist, claimed not to be rich or a businessman, nor to know any VIPs when he set up several shell companies via MosFon. The accounts now contain over a hundred billion dollars and it turns out he is an old friend of Vladimir Putin from the 1970s and has long been godfather to Putin’s elder daughter.
  • German law is very clear that all company ownership must be transparent and public. But that law applies only inside Germany. Their second–largest bank Commerzbank helped clients evade taxes. A Luxemburg subsidiary established shell companies in Panama via MosFon to evade EU taxes.
  • Iceland’s PM Sigmunder Gulafson failed to declare holdings in his offshore Wintris shell company in BVI. He used it to privatised the country and manipulate share prices of his holdings. He was caught out by the 2008 collapse and UK saves were burned when the IceSave subsidiary of Landisbanki went under.

MosFon asserts it never works with end clients, only with brokers and banks. But several trails led from the Panama HQ to a Geneva subsidiary to a Swiss law firm in Zurich and on to a number of clients. This is pure deception.

Shell companies are to a wide range of wily criminals what getaway vehicles are to bank robbers; they allow criminals to escape”.

— Former US Tax Investigator Keith Praeger

The Rich Country Club

The 37 nations of the OECD spent much of the last decade attempting to get agreement on rules that prevent tax avoidance by wealthy individuals and major corporations. But OECD countries are responsible for 39% of the world’s corporate tax abuse, of which the UK’s “independent” territories were responsible for a whopping 29%, or three-quarters

Countries graded by the OECD as “not harmful” are responsible for 98% of the world’s corporate tax abuses.

 “Tax havens are thriving and efforts to tackle the problem co-ordinated by the Paris-based club of rich nations, the OECD, have failed.”

—Tax Justice Network, quoted in The Guardian March 18th 2021

A Remedy for Rishi

It is estimated that between £100 and £150 billion in tax revenues around the world are lost through OFCs, with around £65 billion die to British dependencies alone. Clearly not all of that could be recouped for HM Treasury. But currently even sanctioned Russian oligarchs are laughing all the way to their tax-free bank.

There is already £3.5 billion lost through allowing non-dom residents to live tax free—as Rishi Sunak’s wife did before the fact became public. Rich UK individuals have more than £854 billion stashed in (mostly British) offshore accounts. That in itself means0.92 per cent lost from GDP

There are surely billions that could be smoked out of the fiscal veils of secrecy MosFon and its ilk throw around stashes hidden in dependencies under British control by the likes of Bashir Assad or Sepp Blatter. If Rishi wants to pay the nurses and be the low-tax prophet he once claims, without selling the silverware, offshore would be a good place to start.

“Within the financial sector, it would have been impossible to have had the financial crash without shell companies.”

–House of Commons Finance Committee

#1050—1,359 words

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In Truss We God—3

Not Just Straws—Whole Haystacks in the Wind

If Ms Truss believes what she has set out in three short weeks to be her doctrinal destiny, she should consider how deep the swamp of unpopularity is to which it leads:  While most people like the energy support scheme, the reversal of 1.25% rise in NI and 1% reduction in the basic rate:

  • only 12%. of voters support raising the cap on banker bonuses
  • only 11% of voters consider deleting the 45% tax band a good idea
  • only 20% of voters want the corporate tax rat reduced to 19%
  • only 12% think spend on public services will be affordable
  • only 15% think the measures will grow the economy
  • only 9% think that they will be better-off
  • only 12% of new/Red Wall Tory voters think that they will be better-off
  • only 6% support her policies if they lead to lower taxed but worse public services

(poll statistics from Prof. Matt Goddard, Univ. of Kent)

Given this level unpopularity, continuing with those policies laid out in the mini-budget—even with the 45% tax band retained—points to political, as well as financial, suicide for both Truss and Kwarteng and a 1997-scae drubbing of the Tory party in general,.

The Art of Knowing How to Stop Digging

I’d rather light a candle than curse your darkness.”

—Coen Brothers’ Raising Arizona

It may be hubris to think someone with teeth as gritted as Liz Truss might be guided by someone dedicated to dissolving the Union she loves. But in or out, Scotland will gain no benefit from England becoming the fiscal basket case it’s likely to be on her present course. Though they may appear radical, they are no more damaging than the grossly innumerate policies she is already driving toward a brick wall. What about

  1. Shelving “Global Britain” in military terms. This involves selling the aircraft carriers and scrapping Trident without replacement. Likely saving: ~ £10 bn a year, plus >£50bn in Trident replacement
  2. While we’re on things military, go through the MoD like a dose of salts because its inept procurement has wasted billions (Nimrod replacement; Warrior replacement; etc.)
  3. Fire Dido (Calamity Jane) Harding from Public Health England. Herr £40bn Test-and-Trace botch was bd enough. Instead, streamline its administrative “jobsworths” who let front-line staff down with meaningless KPIs, poor paperwork and software not fit for purpose.
  4. While we’re on health, integrate Care into a democratically accountable NHS that shares facilities in rural areas.
  5. Re-nationalise the railways and water companies. Both drain public money into dividends and bloated salaries and give real market privatisation a bad name
  6. Switzerland and Singapore may live well from Financial Services, but Sunderland never will. To stop London being the only rich region, you need to create world-class products. Rolls Royce is almost the only such example. We should be to tidal generation what Denmark is to wind, or Netherlands is to flowers and ocean towing if 67 million people are to live fro  it.
  7. Stop giving aid to the Indias of this world, who then use their own money to build nukes and space shots and cozy up to despots like Putin.
  8. Use the Alliance Party to introduce a plebiscite in Northern Ireland before the NI Protocol blows up in your face and we’re back to the Troubles. Under UK care, NI has gone from the richest to the poorest part of the island. It’s time we asked then if they want that decline to continue.

#1049—571 words

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In Truss We God—2

No’ Sae Green As We’re Cabbage-Lookin’

I have never seen the shine come off a new government as quickly as it has here.”

—Channel 4 Political Editor at the Tory Conference, Oct. 3rd 2022

As a measure of the fiscal nous of the new government, it could hardly have been more damning. The knock-on effect of the rise in interest rates was uproar in the mortgage market, where hundreds of those on offer were withdrawn to be re-introduced with a general doubling of rates. With 2 million fixed-price mortgages due for maturity in the next 15 months, refinancing will mean mortgage payments generally doubling. The effect of this on a booming housing market—let aloe government (un)popularity is yet to be seen.

Media and opposition attention seems fixed on the U-turn over dropping the highest tax band. But this is trivial in the scheme of things; government now intends £43, instead of £45 billion in tax cuts. There will be no word how this is to be financed before a statement due on November 23rd. The fact that the watchdog Office of Budget Responsibility had been prevented from commenting on all this has only added to the unease.

Despite the minor U-turn, Truss and Kwarteng remain adamant that the Covid pandemic and Ukraine war mean everyone is in the same boat of higher interest and higher inflation, so drastic remedies are required.

But examination of other G7 countries—who are indeed suffering—shows this to be simplistic, if not facile. USA, Germany, France, etc. do indeed have higher fuel costs, inflation and interest rates than normal, But:

  • USA is self-sufficient in oil & gas, so avoids soaring inflationary energy costs
  • German interest rates are still at 2%, whereas Britain’s bod yields are no greater than fiscal lame ducks like the PIGS (Portugal/Italy/Greece./Spain)
  • France has indirectly tapped supplier windfall profits as it owns EDF
  • Norway, which didn’t sell off its North Sea bonanza as Britain did is making out like a bandit
  • Britain is the only G7 country pretending it is a global power, other than the USA. Yet its GDP is only a ninth their size ($2.3 vs $21.7 trillion), with a seventeenth of their defence budget ($46 vs $801 billion)

Other than inflation caused by Covid recovery, energy costs and wage demands, a number of negative factors seem to have been overlooked in the Truss/Kwarteng calculations, such as:

  • The Brexit effect: because of new hurdles between UK and EU, some 15% of exports to our main trading partner have been lost; the 19% of civil servants shed after 2010 have almost all been re-hired to deal with the paperwork.
  • While exports have fallen, imports have increased. Including services, monthly , imports of £68 billion exceeded £61 billion in exports by 12%.
  • £2 bn in arms for Ukraine—laudable, but hardly sustainable.

#1048—452 words

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