Cameron’s Anti-Business ‘Snobbery’: Real or Synthetic?
The Prime Minister used the word ‘snobbery’ to deride what he referred to as anti-business rhetoric: the argument that business ‘has no inherent moral worth’, that it ‘isn’t really to be trusted’, and that it had ‘no social concerns’ but was solely to do with ‘making money that pays the taxes’. He was addressing the charity, Business in the Community, attended by the Prince of Wales. ‘Snobbery’ seems a curious word to use. Maybe it is some left-over frisson from the landed gentry, even royalty, of old England, for whom the idea of making money, rather than inheriting it, may be thought somewhat beyond the pale. But surely the Prime Minister doesn’t take such ideas seriously!
So far as is known, Milton Friedman was never accused of snobbery. But it was he, more than anyone, who persuaded business that it should have no social concerns and not strive after moral worth, but focus exclusively on making as much money as possible for shareholders [though he was less enthusiastic about paying taxes]. Snobbery played no part in his argument. It purported to emanate from the cold logic of economic theory, if such a thing were possible.
Messrs Cameron and Friedman both appear to conflate all forms of making money simply as ‘business’. Both fail to distinguish between the real business of making things, and the synthetic business of betting on things. Real business, supported by the traditional financial sector, has all the virtues claimed by the Prime Minister and more. Real business employs real people, relieves poverty, pays for universal education, health and social services, gives individuals opportunities to develop and grow, increases technical knowledge and understanding – the list is endless. Being anti-real business would not be snobbery so much as gross stupidity. And if such anti-business rhetoric had any effect it could be hugely damaging.
The synthetic business of financial trading is different. It has none of those virtues. Synthetic business has been aptly described as ‘socially useless’. It merely serves to make the rich richer without side benefit of any kind. In fact the richer the rich get, the more it pays them to spend money on avoiding taxes. But it’s not just that synthetic business is socially useless, it is also predatory, sucking the lifeblood out of the real economy. It diverts money and highly educated intelligent people away from the real economy where they would contribute positively, into betting on derivative, synthetic and even imaginary financial ‘products’ that could only ever benefit the punter.
This predatory action is unavoidable while ever synthetic business is enabled to make such high returns while the bubble is inflating, and even, if traders are quick enough, continue when the bubble bursts and the real economy has to pick up the pieces.
But as well as being socially useless and predatory, synthetic business is also corrupting. For the people it employs, it crowds out intrinsic human motivations, replacing them with extrinsic, monetarised incentives. So the people are debased, and associated in the public consciousness only with greed. And it’s that greed which ex-boss of Greggs bakery, Sir Michael Darrington, has identified as truly anti-business, a case he makes persuasively in his ‘pro-business anti-greed’ campaign.
Cameron’s failure to discriminate between the real and synthetic is the true ‘snobbery’ that enables him to feel comfortable supporting trader friends in the City, at the expense of the real economy.
Subscribe to Feed
As ever, an excellent analysis. The accusation of snobbery is always interesting, since it positions the speaker as a populist, an ordinary person who cares about ordinary things. Coming from ‘Dave’ Cameron, such a claim is predictable. It neatly makes someone who raises questions about money making into either a perfumed elitist or a jealous socialist. So, if the 50% tax rate is abolished tomorrow, as is being widely predicted, will I be engaged in the ‘politics of envy’ to oppose such a move?
The 50% decision is interesting. The dogma justifying its removal is that the beneficiaries will invest it in real business and so stimulate the conomy from which everyone will benefit. The dogma’s subtext is that the 50% rate only served to activate more avoidance and so never increased taxes anyway. Of course these can’t both be true. But actually neither is. The vast bulk of the extra money the former 50% payers would have, would be put into the hands of fund managers, who, surprise surprise, do not invest it in the real economy, but in synthetic, derivative and even imaginary financial products which earn more than making widgets. The only beneficiaries of this business are the punters themselves.
Some of the pressure to reduce the 50% rate has come from the small and medium size business sector. Typical of such pressure is a report in Guardian ‘Money’ yesterday about the owner of a company which has 11 care homes who is mortgaged up to the hilt (including his house) to maintain his business which employs hundreds of people, but who paid himself just over £150,000 last year. Aside from the question of why he didn’t pay himself just under that amount and stay in the 40% bracket, the obvious question is why he pays himself so much when he owes so much. He himself criticises the millionaire executives who earn so much without any risk to them but he doesn’t ask himself why he needs to take so much out of a business which has so much debt.
Of course the way to deal with avoidance of the 50% rate is to close the loopholes, the most important of which is the ability to be paid offshore. Our care home owner tells us that there should be a 10% flat tax on the very rich so that we would at least get something. But if loopholes exist to avoid tax, who is going to pay the 10%?
The rich can now send their kids to private schools, get private healthcare, fly their own yachts, planes and helicopters, and employ their own security. The only things they need from governments are maintenance of roads from their heliports to their homes and offices and collection of their rubbish. So of course they don’t believe they should pay much, if any, tax.
Taxation has two quite different effects: to pay for public expenditure and to impose some vestiges of fairness. When differentials in income and wealth have become so extreme as they are now, the latter effect becomes more relevant. The 50% limite might not be as persuasive as the French 75%, or the former UK rate of 98%. Historically high rates of tax have oincided with high rates of economic growth.
Ah, fairness. That’s a word we hear a lot about now but it means so many things to so many groups of people. Over the last 30 years what has passed for fairness has been an everyone for themselves philosophy in which the proceeds of gambling (whether on shares or derivatives) are fair game for anyone who can grab them. The ‘if I can, then you can and if you don’t it’s your fault, so don’t expect any help’ philosophy of fair game has ruled. Now an older concept of fairness is back in play, though highly contested by those who stand to lose. I am not sure that higher marginal tax rates are associated with higher growth – the two decades before the crunch suggest otherwise and maybe there is no clear association one way or the other. We should look at the research.In the end this is an idelogical issue about the degree of inequality that societies are prepared to tolerate, and the distrution policies it is considered reasonable to achieve that tolerable level.
Do economists have to buy into the “fair game” definition of fairness? I suspect we at least agree about unfairness. Plato suggested the ratio of highest paid to lowest should not exceed 4 to 1. On roughly comparable data, Peter Druucker suggested 20 to 1. Currently in FTSE100 companies the ratio excceeds 300 to 1. It seems to me there’s a lot of things wrong with that including it being unfair. Re high marginal tax rates and growth a posting on this site last November included the following:
“Relevant data is well known and well documented as, for example, in the National Bureau of Economic Research. The period 1947-1973 was a time of high marginal and progressive tax rates and high growth almost everywhere. In US the top income tax rate varied between 75% and 90% and the economy was growing at an average of 4% pa. In UK, the marginal tax rates were even higher but growth was similarly maintained. In the later period, during and post-Reagan and Thatcher, greatly reduced taxation was accompanied by much lower rates of growth. All that is claimed is the proof that high marginal and progressive taxes do not prevent growth.”
Economists do not have to buy into the fair game story, but many of them implicitly or explicitly do and that’s part of the problem with neoliberal economics. I think we agree on the tax and growth issue. It is certainly the case that cutting tax rates did not produce greater growth than we had when rates were higher. I think I have seen a US study which shows that states with lower taxes had higher growth, but that doesn’t mean that lower tax caused higher growth.
What is also interesting is that we are now told that the 50% rate doesn’t yield much and redcing the rate to 45% will only lose the government £400m and that loss will be more than covered by the gains from tightening up on avoidance, taxing tycoons and raising stamp duty for mansions. So this suggests that the 50% rate yields around £800m – £1billion. Closing loopholes might get this figure up to the £2-3m originally expected from the 50% rate – a small but significant step towards reducing the budget deficit. But Osborne is happier cutting expenditure which helps the lower income groups than raising tax revenue from those who can afford to pay the 50% marginal rate. And his coalition partners seem reluctant to resist on the grounds that the rich will pay in other taxes. We shall see but I am not holding my breath!