Oligarchy

Hello, and welcome to Oligarchy. We are tracking how Covid-19 and the world’s response to it is affecting the super-rich — and what that means for power and politics.

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GREAT BRITISH CORRUPTION

Every week my wife, who’s a doctor, reads the British Medical Journal, the magazine of the UK doctors’ train union and an influential medical publication. She occasionally tries to interest me in some of the articles, but rarely has much success, so she was quite surprised this week that I’d already read the main editorial, before she got round to opening the envelope.

• “Science is being suppressed for political and financial gain. Covid-19 has unleashed state corruption on a grand scale, and it is harmful to public health,” said the editorial, which was written by the journal’s executive editor and which made quite a stir on my WhatsApp. “Politicization of science was enthusiastically deployed by some of history’s worst autocrats and dictators, and it is now regrettably commonplace in democracies.”

The editorial is a powerful read, made even more compelling by the fact it’s written in the dry tones of academic literature, rather than sensationalist tabloidese. What is most remarkable is how it exposes the insidious and hidden way that corruption works in a developed country like the UK, which has lessons for the United States, the countries of the EU, and elsewhere.

This year has been marred by corruption crises all over the world related to governments’ response to the Covid-19 pandemic. Mostly, however, these scandals have been of a familiar type  — bribes being paid, journalists being jailed, governments over-paying for crucial goods. This is awful, but it is what corruption looked like last year too, and the year before. The only difference in 2020 is that money has been stolen from a Covid-19 budget rather than somewhere else. In Britain, however, where stronger institutions normally keep such crude corruption to a minimum, corrupt players have had to become more imaginative.

In suppressing information about the advice it’s received, in preventing independent scientific voices from being heard, and by keeping contracts within a closely-related circle of friendly businessmen, the British government has succeeded in keeping the full details of its response to Covid-19 from being known to the public. 

It is easy to see why Britain is doing this. It has one of the worst Covid death rates in Europe and, by keeping the full information about its bungled response to the virus from the public, the government hopes to avoid an explosion of public anger. This is clearly an example of politicians misusing publicly-entrusted powers for private gain. However, the mechanisms being used are so subtle that British journalists are struggling to find accessible ways of explaining quite how pernicious this extremely complex situation is.

• “There’s often a perception in Britain that corruption is something that happens in other countries. In Britain the rulers are ‘good chaps’ who might bend the rules but not so far that they break,” said journalist Peter Geoghegan, whose work in OpenDemocracy and the London Review of Books informed the British Medical Journal editorial. “So it’s a real challenge showing that these traditional-sounding British politicians are actually behaving in a manner more akin to a developing world kleptocrat than a decent old boy.” 

His task got a little easier this week thanks to Sophie E. Hill, a PhD candidate at Harvard who collated the various news stories of scandals into a single data chart, which she nicknamed My Little Crony, and which shows the connections between ruling party politicians and companies that received government contracts. 

“Cronyism is essentially a social phenomenon, in which trusted friends and associates benefit from their closeness to each other,” Hill wrote. ”My hope is that tools like mine can help citizens to make sense of complex and fast-unfolding stories and – above all – that greater transparency will fuel action, not apathy.”

Corruption is a social phenomenon and is thus different in every society. One thing we do know, however, is that – although the actions of one corrupt individual may be relatively insignificant when taken in isolation – corruption corrodes the fabric of society, when taken as a whole. And there are worrying signs that the corrosion of governance that the UK has seen this year with its response to the Covid-19 pandemic is having long-term effects on the country’s stability and integrity.

• “While still high, the quality of the UK’s legislative and executive institutions has diminished in recent years. Policymaking, particularly with respect to fiscal policy, has become less predictable and effective,” noted Moody’s Investor Services, in downgrading its rating on British sovereign debt earlier this year.

Corruption doesn’t just kill, it costs money. 

TALKING TURKEY

I was perhaps over-cynical about Cyprus’ promise to cancel its golden passport scheme. The pledge followed the remarkable series of revelations from Al-Jazeera’s journalists, who filmed Cypriot politicians and lawyers boasting that they could dodge their own rules, and happily give applicants new identities. I doubted these politicians would be able to resist the lure of free money but, so far, the Mediterranean island does appear to have stopped new applications. 

So, what’s a rich boy to do if he wants a passport now Cyprus has closed its doors? There’s always Malta of course, which appears to have shrugged off suggestions it too might close its program. Malta has raised the price, however (a passport will now cost you more than €1 million), and if you can’t afford that, why not look to Turkey?

Ankara passed a law allowing it to sell passports three years ago, but only appears to have found its market this year. In June, the interior ministry announced its total sales had hit 9,011 main applicants (each one can bring a non-specified number of dependents, so the total number of passports sold will be far higher), which is an increase of 4,000 in just three months. In total, the scheme had brought more than $3 billion into Turkish government coffers, which comes to around $360,000 per family (foreigners have to invest in property to be eligible)

This is an impressive performance, and there is a strong chance that European officials, fresh from their triumph over Cyprus, will be looking at it with grave concern. The majority of applicants for the program – judging by the origin of foreign investors in Turkish property – are Iranian, Iraqi, Saudi and Russian. If Turkish officials are as accommodating as their Cypriot counterparts, and if anything I’d imagine they would be even more so, these newly-qualified Turks will be able to change their names on their new passports, and apply for visas to Western countries without anyone knowing who they really are. That is not a particularly comforting thought.

Traditional passport powerhouse St Kitts and Nevis isn’t taking the challenge from Turkey lying down, however. It had already slashed the prices for its travel documents to $150,000 for a family of four, and has now announced that a sibling counts as a dependent (a category that previously only included under-age children) and can be included in the same application as the main applicant.

I think I’ll ask my brother for a new passport for Christmas. It’s about time he started looking after me.

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WHAT I’M LOOKING OUT FOR

On Friday, the Tax Justice Network will be publishing its inaugural State of Tax Justice report, which hopefully will become a regular fixture alongside its Financial Secrecy Index. The report will put a figure on the amount lost globally to tax dodging, propose some measures to help solve the problem, and point out which countries are suffering most, as well as who is benefiting most from the current injustice.

The Tax Justice Network is at the forefront of proposing radical, imaginative policies for helping fix the most urgent financial challenges the world faces, and I look forward to talking about the report in next week’s newsletter.

See you next Wednesday,

Oliver