I am not a natural pessimist. Neither am I a wild optimist. I believe that mankind has shown impressive ingenuity in continuing to reach forward into the future and, when it has encountered problems, impressive ingenuity in overcoming them. But I now feel pessimistic about the future. The problems are here and they are urgent, but there do not seem to be any solutions to them, even on the horizon.
One dubious statistic encountered in writing this series of blogs is that, of the combined social spending of all the governments in the world, almost half is spent by the governments of Europe. The figure is dubious because I have no idea whether it is reliable or merely another slanted round of ammunition in the propaganda war. However, if it is close to being true, it is alarming because it is unsustainable.
Yet the pressure in Europe is to increase social spending, not to reduce it. Unless the rest of the world decides to follow the European model of social democracy, there will continue to be a vast global disparity in social spending. This must have severe economic consequences, unaffected by whether the UK is inside or outside the EU.
It will also be unaffected, in the long term, by whether we embrace free trade when we leave the EU or are dragged into protectionism. I am an avid proponent of free trade, but free trade depends on being competitive, if only in the goods and services that a country chooses to provide. Without that, protectionism becomes inevitable. It cannot be said too often that the EU – despite the fact that it embraces free trade within its own borders – is protectionist towards the outside world, and likely to become more so when the UK leaves.
At worst, I can foresee a future where Europe fails to compete economically, where its governments are politically unable to reduce social spending or to introduce economic liberalisation, where it builds the walls of protectionism brick by brick, year by year, and where it eventually becomes a benign version of what the Soviet Union became. Except that, as time goes by, the benignity will evaporate. It will need acts of extraordinary political will by UK governments, and of extraordinary forbearance on the part of the British people, to prevent us from being dragged into this scenario.
In the past four blogs, I have looked at the various means by which a government might find enough money to meet the public’s expectations on social spending and concluded that none of them would work. Neither do I see much chance that expectations will be lowered.
This may sound like the preface to a neo-liberal tract: ‘too much money being spent’; ‘let people stand on their own two feet’; ‘useless governments’; ‘drain the swamp’. It isn’t. I would love there to be far greater investment in the NHS, in our schools, in social care. But, more than all these things, I would love there to be an open, tolerant democracy stretching into an indefinite future. I fear that those two wishes are now on a collision course. I have tried to convince myself that the circle can be squared, but I don’t think it can.
One of many questions left unanswered (my blog of 13 August) was: ‘If all the companies and corporations that operate in the UK, and all the individuals that work for them, were to pay the amount of UK tax they should pay, how much extra revenue would the Treasury receive?’ Even if the literal answer to that question is ‘not very much, in terms of the difference it would make to social spending’, there is a broader, compelling response to the question.
This response is that the issue needs to be addressed urgently by governments in any event. People will not indefinitely tolerate large corporations evading their tax bills. Nor wealthy individuals doing the same. Nor supine shareholders waving through gigantic salaries and bonuses for the directors of large companies. They will eventually vote for an extreme government, of the left or the right, that promises to tackle these abuses. The fact that the solutions may well make things worse will not matter by then. The sense of public outrage will be too strong and too irrational.
A recent BBC documentary on Silicon Valley showed that the tax evasion practised (amongst many others) by Apple in the UK is repeated in its own country. The value of Apple’s new headquarters was assessed by Santa Clara county at $6.8 billion for local tax purposes. Apple has counterclaimed that it is worth less than 1% of that figure: $57 million.
The theme of the documentary was disruption: the companies of Silicon Valley, Uber and Airbnb prominent amongst them, setting out to disrupt the existing order. Well, change is necessary and inevitable, and all change brings disruption by its nature, but disruption can damage people’s lives, at least in the short term. Such damage can be mitigated only by government action. In the past, that action has been funded by taxes on the earnings and profits of the people and companies who have wrought the changes. If such people now see no moral imperative to pay taxes, and seek to evade them at every turn, the mechanism breaks down.
We are told constantly, and perhaps correctly, that if any country attempts to confront this issue then companies and individuals will simply relocate to other jurisdictions, wherever taxes are low. It would seem that no single country can tackle this problem on its own without placing itself at a competitive disadvantage.
A century ago, domestic companies competed with each other in their own markets. One consequence of globalisation is that countries, as well as companies, now compete with each other in an international market. Just as companies use price competition as one element in their armoury, so do countries, through tax inducements. The chances of concerted international action on tax are remote. So another avenue of change appears to be closed off.
My blog of 23 July, which prefaced the sequence of blogs that ends with this one, featured a quote from Lord Woodhouselee, a Scottish judge and a Professor at Edinburgh University, from about 1800. The sequence ends with another quote from him:
‘The average age of the world’s greatest civilizations from the beginning of history has been about 200 years. During those 200 years, these nations always progressed through the following sequence: From bondage to spiritual faith; From spiritual faith to great courage; From courage to liberty; From liberty to abundance; From abundance to selfishness; From selfishness to complacency; From complacency to apathy; From apathy to dependence; From dependence back into bondage.’
Where are we now in this cycle? And what will stop us completing it?