This post is probably not going to be read as widely as my post at the weekend about Danny Boyle and the message of his Olympic opening ceremony to the UK’s government and people. I wish it would be, as it’s at least as important – but the unfortunate reality is that, for the majority of people, economic concepts aren’t as attention-grabbing. But if you’re reading this, thank you – and I think you’ll find it worthwhile, as I’ll try to present some thinking which I regard as entirely sensible but which you’ll almost never hear on TV or radio, or in most of the print media.
The idea seems to be resurging (not that it ever went away!) among right-wing politicians/commentators and in the media (not to mention commenters on this blog) that a fairer tax regime, or a living wage requirement, will simply result in a lot of companies ceasing operations here and moving elsewhere – and in rich individuals likewise leaving and taking their money with them.
We’re supposed to believe, therefore, that expecting these people to pay their way properly is unrealistic; that we just have to accept the status quo in which the rich are powerful and mobile enough to do what they want, while the rest of us have to bear the brunt of cuts in pay and services to balance the economy because ‘we’re all in it together’ (but not them); that we have to continue subsidising business by giving benefits to people whose employers won’t pay them a living wage.
Because of this, this morning I reblogged my post ‘Economic recovery: it’s all about DEMAND, stupid!‘, which outlines why the government is pursuing a hopeless cause in claiming it can balance the budget and generate an economic recovery by cutting public spending. Assuming, of course, they even want an economic recovery – it would give them a better chance of re-election, but the ‘crisis’ provides a useful excuse for their ideologically-based, small-state measures, so it’s a close call.
This post forms a kind of ‘part 2’ to that one. I believe that this country can afford to implement proper, effective tax and pay regimes that makes companies and the rich pay their fair share – and that, while it may not be easy, it can be done. Most companies, and probably most rich individuals, will not simply move elsewhere – and those that do will be no real loss to the country or to the economy. Here’s why:
63+ million people – and rising
Companies, and the individuals who get rich from them, will bitch and moan about taxes, and try to minimise their tax liability, but in the end, if there’s demand, and profit to be made, they will want to be there to exploit the opportunity. The UK’s population of over 63 million people, according to the most recent census data, represents a massive opportunity. Companies are going to get out of paying tax if they can, but in the end if they can’t, they’re going to take the pain so that they can take the profit – and with some legislation to require any company selling in the UK to maintain a tax-registered presence here, we can make sure they can’t find ways to avoid it. I’d even go so far as to pay some good tax-accountants very well indeed to help close off any loopholes and make sure the legislation was well-constructed.
Cost of doing business
This is a key aspect of business mentality that rarely gets a mention in the debate on the consequences of fair taxation. There are all kinds of costs and inconveniences that companies would prefer to avoid, whether it’s cost of compliance with legal requirements on safety, emissions etc or – in some countries and cultures – the cost of freebies, lavish entertainment for key clients and decision-makers and even bribes. If a company thinks they only way it can operate successfully is to carry these costs, they will – it’s ‘the cost of doing business’.
This means that the key issue the UK needs to address is not tax-rates and wage ‘competitiveness’ – it’s loose legislation. We don’t need to participate in the ‘race to the bottom’ on salaries and tax rates, where ‘success’ is prostituting ourselves more cheaply than others in order to tempt companies to come and take advantage of us because it’s cheaper than anywhere else.
On the contrary, it’s being prepared to value our ‘honour’ and defend it – and insist that companies who want to make profit in the UK, and enjoy the benefits of living and operating in an open, free society, demonstrate that they’re prepared to truly invest in, and partner with us in maintaining and extending, what’s good here. A ‘marriage‘ rather than a cheap ‘one-nighter‘, basically. If that’s the cost of doing business, and it’s backed by a proper mentality and legislation, companies will bite the bullet – including paying their workers a living wage, and paying the executives they install to run their UK entities whatever they need to to compensate for the tax they’ll pay as individuals.
Better part of something than all of nothing
Again, a key part of the business mentality. Every company wants to price its products or services so as to make the maximum profit. But in a competitive environment, they have to price to win the business. The mindset is ‘better X% of something than 100% of nothing’ – better to win the business and make some profit on it, than to lose it and make nothing.
Similarly with tax and proper pay. These might be a ‘cost’ that companies would rather avoid, but as long as there’s profit to be made, most companies will prefer to make what profit they can and pay the tax and wages (if we give them no choice) than to make nothing. It’s common sense – though not that common among the people who write and say what we get from the media and the government.
If they don’t, someone else will
It’s a big one, this, and it links full-circle back to the first point. This country offers a market of 63 million, relatively well-off people who like good products and services, and will usually pay for them. If some companies decide that a fair level of taxation is too high a price to pay to operate in this country, we should buy them a nice leaving card and wave them off with a smile. Why? Because if they don’t want to exploit the opportunity to sell their products or services, someone else will.
One of the simplest, most reliable and undisputed laws of economics is that of ‘supply and demand’. Basically, this law says that if demand exists for something, somebody is going to set up a supply to satisfy that demand. If one company leaves and doesn’t meet the demand for what it was offering, either someone else will come in to do so – or someone already here will set up a company to do it. And – in a properly, rigorously taxed system – they’ll do so knowing that paying their taxes fully is part of the ‘cost of doing business’.
Employment will be maintained, even increased. New ‘blood’ in an industry will bring fresh ideas, innovation, ways to solve problems – and new companies will have experienced people available who are no longer working for the companies that decided to bail out, so they’ll enjoy the advantages of experience as well as of new thinking.
We don’t need to fear the threats of those companies who say they’ll leave if we tax them more – in most cases it’s a bluff, and where it isn’t we won’t miss them and will probably be better off for them leaving. After all, if they’re not paying their way fully, there’s not much point in having them here.
It’s better for them as well as for us!
Now, this is a really big one – and it goes against everything the right-wingers want us to believe about the inevitability of the status-quo of spending cuts, low taxes, frozen and even lowered wages etc. That way of thinking – so prevalent at the moment – is actually insane and self-defeating.
Companies and rich individuals are perpetuating a contracting cycle of lower pay and low (sometimes almost non-existent) taxation that enriches them in the short term, but in the long term will have two effects unless they see sense and choose a different path: it will reduce the number of people who can afford to pay for what they offer, and so destroy profits; and it will undermine the fabric of society until it collapses or combusts, and the resulting upheaval, collapse or revolution will make the money they’ve so assiduously hoarded worthless. What use being rich if society is collapsing around your ears, or the angry hoards are at the door baying for your blood and your children’s? It’s insane to pursue such a path.
Even in the shorter term, it’s actually better for companies to operate in a country where the social structure is strong and people feel secure and valued rather than enslaved and exploited. In the end, if you pay peanuts, you do get monkeys – or at best people who will do the least they can get away with doing, and who won’t care about the quality of their work as long as they can avoid the consequences. Far, far better to have people who take pride in their work, who feel they’re a valued part of a family rather than a disposable and preferably-avoided commodity. This excellent post by blogger ‘McDave’ encapsulates why.
If you want people to invest themselves in your business, to bring their creativity to what they do so it gets done better and everyone learns best practice from each other, to care about what they do and to make sure it’s done to the best of their ability, you have to pay them properly.
Similarly, while right-wingers might claim that the rich will leave, and the best executives won’t come to the UK to run companies, if we tax them more, it’s essentially a red herring. Living in a society where people are valued, protected, content and decent has a massive value that we shouldn’t undersell. It’s not something that suits the argument of the low-pay, small-state advocates – but to see the truth of it, just look at those companies that operate in dangerous or poverty-stricken countries, and the higher salaries they have to pay to get anyone to work there.
A reasonable, sane person (do we want any other type running companies here?!) will see that it’s worth the additional cost in tax to live in a country that isn’t turned into a danger zone by poverty and injustice, where their kids can walk the streets safely and without being confronted by poverty and degradation as they go because the vulnerable are looked after properly. And again, if they don’t – others will, or capable people already in this country and who value it, will step up and probably do a better job anyway. A rich person who doesn’t value a decent, strong, just society is a sociopath or a short-sighted idiot, and we’re better off without them.
In effect, the right-wingers who want to give away our state institutions at the lowest possible cost, and effectively pay people and companies to exploit us, want us to believe we’re so weak and worthless that we don’t have any choice but to give ourselves, our rights, provisions and freedoms for next to nothing – that if we don’t, nobody will come and we’ll all be left bereft.
They want us to believe we don’t deserve and can’t have any better, and to be so entrenched in that perception that we daren’t even consider whether there might be a truer, better way – and whether, in cold cash terms, the vast market opportunity we represent allows us to demand more of those who want to make money here.