SANE Views

Vol.7 No.19, 26 July 2007

GOVERNMENTS’ HANDS TIED

SANE VIEWS

Margaret Legum

‘We have to be mindful that we must position (ourselves) in a global environment where there is fierce competition for investment.’

Which Minister of which government said that, in accounting for which policy? Was it a Finance Minister accounting for a reduction in corporation tax? An environmental Minister explaining why s/he cannot more effectively regulate the pollutant behaviour of companies? A Mining Minister handing out tax holidays?

Was it a Health, Education, Water or Social Services Minister refusing to raise more taxation for free services to poor people? Or a Minister of Labour loosening regulations on wages and work conditions to make labour more flexible? Perhaps a Minister for Local Government creating a regulation and tax free employment zone?

And which country did that Minister serve? The new open market French Sarkosy government? Gordon Brown warning supporters to expect no serious change after Blair? One of the new Eastern European democracies? An African government? Or perhaps it was a Minister in a State government in the US - since each state competes against all others to attract investment?

In fact it was our own Mansisi Mpathlwa, Minister of Trade and Industry. He was explaining, in December last year, why the government was exempting ‘foreign players’ from having to sell a 25% stake in their local operations to Black business. BEE is considered essential for South Africa’s recovery from apartheid, but foreign companies are to be exempt from making that contribution: remind you of anything?

That ‘fierce competition for investment’ is encouraged without question or caveat by all the financial media, in South Africa as elsewhere. Their unquestioning chorus of demands for ending completely any limitation on the right of capital (investment) to travel in search of further incentives, at the expense of everything and everyone else, reflects only the interests of ‘foreign players’.

Those interests limit the direction and extent of practically every policy of every Ministry in every government. Governments may wring their hands about their impotence – and it is relatively new that they even admit it – but they have no solution. ‘The blunt truth about the politics of climate change is that no country will want to sacrifice its economy in order to meet this challenge’ Tony Blair said in 2005.

London’s Financial Times at last noticed this trend eighteen months ago (19/1/07). ‘Governments vying to attract inward investment are weighing the advantages of cutting business costs…Tax rates have been falling across the world over the past quarter of a century…This trend is forcing some experts to the conclusion that governments have embarked on a race to the bottom.’

Actually some ordinary non-experts have noticed that trend over thirty years; sadly, the FT and its media cohorts, having awoken, have not moved on to question their prescriptions. What, for instance, would it say about the Oxford Centre for Business Taxation’s prediction that ‘the eventual demise of corporation tax is quite likely’? Would the FT support that?

Ministries of Trade and Industries are especially affected. Here is an example reported in thelondonpaper of 22.1.07. The Walmart subsidiary ASDA ‘is offering customers a passable two-piece suit for a price of a round of drinks in a London bar’. The suits are imported from Bangladesh, where they are made by workers earning the equivalent of $24 a month. A Bangladeshi student said: ‘People can’t live on (that), but if the government protests, ASDA and others will go to China…’ Government’s interference with that exploitation would invoke investors’ wrath.

Contrast that wage with a random sample of the galactic figures for top earnings and profits currently being reported routinely in that same financial press. One example. An American acquisitions group is paying a billion dollars for less than 30% of the shares of the UK hedge fund GLG partners, two of whose directors, now getting $250 million annual salaries, will share a $2billion windfall in cash and shares.

Governments’ mindfulness of the global competition for investment – hence the need to provide escalating incentives for business – entails their equal mindfulness of the global competition for poverty wages. Hence the acceptance of growing gross poverty and inequality - as though it were a fact of life instead of the result of the policy of letting investment capital hold us all to ransom.

Is there anything that can be done about it? ‘There is a collective action problem internationally’, said Britain’s Environment Minister, David Miliband, in December last year. The FT noticed the same thing. ‘Governments remain reluctant to address this threat …because any country acting alone … without similar commitments by other governments, risks damaging the competitiveness of its industries.’

In response, an international Simultaneous Policy organisation, starting in Britain, is collecting signatures from citizens in all countries. They will support candidates and parties that will unite globally to release governments from global financial domination. Go to www.simpol.org.uk