Oligarchy

COP OUT

At the UN Climate Change Conference’s Conference of the Parties in 2009 (that was COP15, the disappointing one in Copenhagen; as opposed to COP26, which is the disappointing one we’ve just had in Glasgow), rich “Annex 1” countries made an unambiguous commitment to provide $100 billion in climate funding to poor “non-Annex 1” countries to reduce emissions and to help them mitigate the impact of climate change. They repeated the promise in 2010 (COP16) and in 2015 (COP21, the one in Paris that Donald Trump got in such a tizzy about), and yet here we are, another COP is over, and they still haven’t got there.

This is despite the fact that $100 billion isn’t what it used to be: a centi-billion these days is worth just $77.5 billion in 2009 money. When you look at the details of what counts as “climate finance”, the picture gets even worse.

Among other low lights, Japan counted a loan to Bangladesh to build a coal-fired power station as climate finance, even though it was a loan, so it will have to be paid back; and it was to build a coal-fired power station, which is the worst form of power generation for carbon dioxide emissions; and it was in Bangladesh, one of the most vulnerable countries to sea level rise on earth.

• “For more than 10 years, (high-income countries) have been promising this climate funding would be provided, and every year they delay and drag their feet,” said Mohamed Adow, director at the Kenya-based think tank Power Shift Africa. “It’s utterly shameful, and the deal announced today is still short despite the U.K. government trying to spin it as ‘mission accomplished’.”

Annex 1 countries have not explained exactly why they haven’t provided the money, but I think we can guess: they can’t afford it; fiscal circumstances; other countries aren’t pulling their weight; it’s France’s fault; we’ll get there in two years’ time; climate change is a Chinese hoax, blah blah blah. The decision by the U.K., which was chairing the COP and thus supposedly using its convening power to twist arms, to cut its annual aid budget by $800 million rather than to increase it in line with its commitments, didn’t exactly set a helpful tone.

• “President Biden believes this is not a challenge for future generations, but one all countries must confront today – with urgent, bold, and direct action,” it says here.

In reality, the US is slightly less than a fifth of the way towards meeting its share of the $100 billion commitment, it says here.

• “Let us not submit to the vile doctrine of the nineteenth century that every enterprise must justify itself in pounds, shillings and pence of cash income,” said the legendary economist John Maynard Keynes in 1942, at the height of a previous crisis. “Anything we can actually do, we can afford.”

I’ve mentioned this quote before in a newsletter, so my apologies if you’re bored of it, but I think it cuts through the noise better than anything. If we don’t do something, that’s as much a choice as if we do. If we prioritize letting billionaires today increase their wealth to barely believable levels over reducing emissions, that’s as much a choice as helping Bangladesh build a power station that will directly contribute to much of the country being drowned.

On the subject of billionaires, for the first time, there are now three men worth more than $200 billion – Elon Musk, Bill Gates, and Bernard Arnault. Funnily enough, if we add their wealth together, it comes to almost exactly twice the annual economic output of Bangladesh, which is home to 164 million people.

NORDSTREAM 2

Speaking from Bangladesh, Saleemul Huq, director of the International Centre for Climate Change and Development in Dhaka, makes an important point, in that Nature article I linked to above. “Every dollar spent is climate money spent,” he said. “You either spend it wisely or you spend it unwisely”.

On that note, few dollars have been so unwisely spent as the $10 billion that built the Nordstream 2 pipeline along the floor of the Baltic Sea from Russia to Germany, a project that achieves the rare quadruple whammy of being bad for efforts to protect the marine environment, to fight climate change, to tackle kleptocracy and to preserve geopolitical stability, all at the same time. $10 billion would, by my back-of-an-envelope calculation, buy around 800 of the very-largest wind turbines, which would generate power that doesn’t enrich Vladimir Putin, or pollute the atmosphere.

Anyway, it’s never too late to do the right thing, so it’s extremely heartening to see that Germany has delayed approving the pipeline. As the Israeli politician Abba Eban (and not, apparently, Winston Churchill) said: “men and nations do behave wisely once they have exhausted all other alternatives”.

Recent history tends to tell us that Germany will eventually put the interests of its exporters ahead of everything, so maybe the pipeline will be approved anyway. But hope dies last, and there are many legal hurdles to jump over still, so let’s see.

TAX JUSTICE

What about the argument that rich countries can’t afford to give $100 billion to help poorer countries tackle climate change? We have just had the Tax Justice Network’s annual report on how much tax is missed each year, thanks to money being routed via tax havens. If we collected just a half of it, it would cover the climate change bill, and then some.

• “Multinational corporations are shifting US$1.19 trillion worth of profit into tax havens a year, causing governments around the world to lose US$312 billion a year in direct tax revenue.”

That sounds like a lot of money. Is it?

• “Even at the unfair prevailing prices of vaccines, the tax lost in a single year to cross-border tax abuse would have covered the cost of fully vaccinating the world’s entire population more than three times over. Every single second, the wealthiest strip countries of enough tax to fully vaccinate 1000 people.”

There is, however, debate about whether that is truly how much tax is being dodged. Dan Neidle, a London-based tax lawyer who almost invariably disputes TJN’s conclusions on Twitter, has published a lengthy thread in which he challenges almost every assumption that underpins that headline number.

• “Unfortunately the whole area is so politicised that it’s hard to distinguish work that is trying to find the answer, from work that is trying to prove a particular political position is correct,” Neidle tweeted.

If you’re interested in doing the calculations for yourselves, here is one of the reports on which a report used in the report is based. Take a read.

• “In the Value-Added Table F1 (used in this paper), $100 in profit is assigned to Germany and $0 profit is assigned to Bermuda. Indeed, to the extent that it has no other activity than to act as a paper intermediary between the US and Germany, the Bermuda affiliate has zero economic value added: for this affiliate, wL = 0, (1 − p) · rK = 0, Y = 0,” is a fairly typical paragraph though, so Good Luck With That.

From my perspective, however, that paragraph is indicative of the problem. If our global tax system is so complicated that it can only be understood by people with advanced qualifications in statistical analysis, then there is a problem of democratic legitimacy. How can any ordinary citizen understand what is going on?

One other point that I hope we can all agree on is that – however much money is being lost – the majority of tax dodging is facilitated by wealthy countries. The same countries that are refusing to keep their promises to help poor countries fight the climate change that they caused, are also undermining those same countries’ tax bases.

• “The UK and its dependent territories (the “UK spider’s web”) are responsible for a third of the corporate tax losses. The “axis of tax avoidance” (UK spider’s web, Netherlands, Luxembourg and Switzerland) are together responsible for half. In total, OECD member countries and their dependencies account for seven of every ten dollars lost,” the TJN report said.

(The term “spider’s web” is how TJN refers to the UK’s offshore archipelago. It was, as far as I know, originally coined by Nick Shaxson in his excellent book Treasure Islands. If you haven’t read it, you should.)

WE CAN’T AFFORD THAT

On the subject of things we could afford if we wanted to, but like to pretend that we can’t, I am delighted someone has written this piece about how spectacularly the Serious Fraud Office, the UK’s primary body investigating complex financial crime, is outgunned by its opponents, even though it’s a tough read.

• “The Bureau of Investigative Journalism can reveal that some companies under investigation have spent up to 10 times more than the Serious Fraud Office (SFO) on legal and investigation fees,” the investigation concludes. “A chronic lack of funding, an exodus of senior officials joining law firms representing the very companies the SFO is investigating, and a perceived hesitation in prosecuting companies and business executives all undermine the fight against economic crime.”

Of course, this is not exclusively a U.K. problem. We have seen failure to properly tackle financial crime blamed on a lack of resources all across the EU (including at Danske Bank), and in the U.S. as well.

• “FinCEN is the Treasury Department’s agency at the tip of the US spear in fighting money laundering and financial crime,” says this report, from March. “Insufficient funding is one of FinCEN’s key challenges. Since 2015, despite a consistently growing workload its budget rose just three percent (in inflation adjusted dollars) by 2020.”

You can normally tell what people take seriously by whether they’re prepared to spend money on it or not. I might tell you I am determined to dress smartly, but – well – one look at me would tell you that I’m not. An organization might tell you it’s super-keen on gender equality but, chances are, if you analyze how much it pays its male and female staff, you’ll see that it’s lying.

The same goes with governments. If they cared as much about tackling climate change and kleptocracy as they say they do, they’d put the money up. But they don’t, so they don’t.

WHAT I’M READING

I’m sure many of you have read Anne Applebaum’s autocracy trilogy – Gulag, Iron Curtain and Red Famine – and know her as one of the most interesting thinkers out there on what’s happening to democracy. I really enjoyed her piece in The Atlantic about why, in the words of the headline: “The Bad Guys Are Winning”.

There’s always been a tension in capitalist democracies between the relative influence of money and people. For a while in the twentieth century, people had the upper hand but – of late, perhaps thanks to Thomas Piketty’s famous equation that r > g – wealth seems to be on top. I kept thinking, as I read Applebaum’s article, how the heroes who stand up to what she calls “Autocracy Inc” on behalf of democracy are always people like Svitlana Tsikhanouskaya (or her husband Siarhei), or Srdja Popovic, or others who are motivated by something other than the economic self-interest that supposedly motivates all of us.

When people write in to tell me that I shouldn’t support higher taxes for the mega-rich, because that would dissuade wealth creation, I sometimes struggle to articulate why it is that I don’t mind. And I think the answer is this: democracy isn’t just about wealth creation, it is about maintaining a sense of community, and that costs money. Taxes are how we pay for that.

If we want to stop the bad guys from winning, then we need to stop thinking like them, and instead think like democrats.