Unmasked – Corruption in the West

Unmasked – Corruption in the West

by Laurence Cockcroft and Anne-Christine Wegener

 

Yesterday, 9th December, 2016, was International Anti-Corruption Day and many newspapers and journals used it to publicise the most venally corrupt nations, often those in Africa and the Middle East viz. NY Times.

 

These are developing nations, highlighted by Transparency International’s Corruption Perception Index, where those affected by corruption are most at risk of its exploitation by their leaders.

 

What Laurence and Anne-Christine have done is to shine a light on the developed West, where corruption remains a standard and where the mechanisms that enable corruption around the world, such as highly proficient banking systems, legal and accounting expertise, sophisticated technologies, exist to maximise the ability of those throughout the world to illegally and immorally syphon billions, possibly trillions, of dollars, pounds and euros away from legitimate ownership.

 

This is an important work that provides the bedrock of understanding for those who are interested in dealing with corruption to dig further into the subject. It highlights the enormous degree of corruption in the Americas and Europe, from political to banking, from sport to business to organised crime in a highly readable way but one that provides important information, not gloss. It also shows the huge challenge where, even in highly developed, wealthy economies, the desire to have more seems undiminished.

 

Laurence was a founder of Transparency International (TI) and Anne-Christine was a deputy director of Transparency International’s worldwide Defence and Security Programme (DSP). I am privileged to be both a Trustee of TI-UK and Chair of DSP, so I know the contribution both have made and also the huge work that still needs to be made.

 

The book is an important balance for the anti-corruption world. Corruption is not just in poor countries and, where grand corruption is concerned, the West is involved with the developed world anyway in financing the corruption and in enabling aspects of it such as money laundering. Together with the corrupt practices that appear to be endemic in the West, such as in lobbying, sport, political favours, business, crime-related, the West has a massive anti-corruption agenda to fulfil and knows it.

 

Three things, amongst many, cry out for action. First, there is the need for politicians and business people at the highest level to be far more active and vocal in this area. This includes their associations, such as Chambers of Commerce in the USA that are actively trying to water down the Foreign Corrupt Practices Act to dumb down the level playing field and make corruption easier. Beyond this, politicians in wealthy countries are too devoted to increasing GDP at any cost and the danger is growing that the ethics of doing business will be adversely affected as a direct consequence of the inequalities caused by the banking crash of 2007/8. Brexit and Trump are such outcomes and, viewed from the anti-corruption side, harrowing in their potential.

 

Second, the resources that are provided to implement and manage the laws that politicians might deliver on are woefully inadequate for the task. If legislatures enact new laws to strengthen anti-corruption norms, it is the execution of the laws that fail so often through inadequate expertise and sheer money provided.

 

Third, it is time for anti-corruption to be seen as a positive economic benefit. Corruption is bad for the wealth of the broad population, assisting only those at the top of the tree. In a world that seeks to reduce inequality and where voters are making their positions clear that they will not tolerate their position for much longer, intelligent politics and business (and development aid) means reducing corruption becomes more important. It is a key method of increasing economic well-being by ensuring that enormous flows of corrupt money stays in countries that require it as well as in the economies where it can be properly used rather than syphoned into a tax haven bank account where it remains as dead money. In an age where the velocity of money is slowing, corruption remains a cause of economic decline.

 

Unmasked comes as at important time, just as the world is turning in on itself. The West should learn the lessons that are described so well in the book and use this difficult period to ensure that the first gear in which it has for so long been engaged is kicked into second and upwards not into reverse.

A People’s Charter for the Banks

 

In 1842, Feargus O’Connor led the working people of the United Kingdom into a general strike on behalf of the People’s Charter. The Chartists’ aim was for the House of Commons, then run by the elites of the landowning class plus some merchants and millowners after the 1832 reforms, to become more democratic. The six proposals were:

 

  1. A vote for every man over 21 years
  2. Secret ballots
  3. No land qualification for voters
  4. Payment for Members
  5. Equal constituencies
  6. Annual ballots

 

It took many years for the first five to be enacted and many more for women to achieve equality (something not even envisaged by the Chartists). The Chartists failed to drive change because the British economy continued to improve and the other motors for change (such as Trades Unions) were continuously provided with small (even if sometimes significant) improvements in factory conditions, better hours, better wages and the like. This meant that pressure for change in the way that the Chartists demanded were stifled by more practical changes that were seen to immediately impact the working classes.

 

However, the impact of elites continuing to run the country and ameliorated only by small improvements in conditions was (in hindsight) bound to result in extreme consequences. The First World War was a consequence of elites throughout Europe playing a game decidedly different to the vast majority of people and using them as mere playthings – whether in armies or in factories.

 

The BBC’s current six-parter, Tolstoy’s “War and Peace”, shows clearly who was in charge in 1805. That continued throughout Europe until 1918 at least after millions of lives were lost.

 

It may seem difficult to equate the financial crisis of 2007/8 and the consequences of that crisis to the class crises of the nineteenth century but the similarity of elites that are unwilling to give up any power over the economy remains. The elite may now be different (although bankers held great power in the nineteenth century as well) but the way that Banks and their allies in Governments in the UK (Conservative as well as Labour) see the rest of the country as mere playthings is no different.

 

A new film is about to hit the screens in London – “The Big Short”. Based on Michael Lewis’s book of the same name, published in 2010, it portrays the banking world in the USA as completely indifferent to the problems faced by society as they pursue their own, short-term gains and bonuses. Government is either unable or unwilling to address the problems because the banks are so important to the country – too big to fail – and also because most in Government do not understand what to do.

 

Just as the mill owners of the early nineteenth century were seen by landowners as a necessary partner for the future, Governments see bankers and banking in the UK as necessary for themselves. This means that they tolerate all but the very worst abuses.

 

The FCA – Financial Conduct Authority

 

The FCA is the organization that Parliament developed under the Financial Services and Markets Act 2000 to oversee the financial system. Part of its remit is:

 

The reduction of financial crime.

(1) The reduction of financial crime objective is: reducing the extent to which it is possible for a business carried on—

(a) by a regulated person, or

(b) in contravention of the general prohibition,

to be used for a purpose connected with financial crime.

(2) In considering that objective the Authority must, in particular, have regard to the desirability of—

(a) regulated persons being aware of the risk of their businesses being used in connection with the commission of financial crime;

(b) regulated persons taking appropriate measures (in relation to their administration and employment practices, the conduct of transactions by them and otherwise) to prevent financial crime, facilitate its detection and monitor its incidence;

(c) regulated persons devoting adequate resources to the matters mentioned in paragraph (b)

(3) “Financial crime” includes any offence involving—

(a) fraud or dishonesty;

(b) misconduct in, or misuse of information relating to, a financial market; or

(c) handling the proceeds of crime.

(4) “Offence” includes an act or omission which would be an offence if it had taken place in the United Kingdom.

(5) “Regulated person” means an authorised person, a recognised investment exchange or a recognised clearing house.

 

All this is within a framework of law that sits the financial community within itself. By this I mean that the regulator is charged with the above but only insofar that it does not harm banking competitiveness and so that the resources of the FCA are used efficiently under Section 2 of the law. While consumer information is called up in the law, there is no balancing of the “reduction” of financial crime against the needs of the consumer and nothing about how the financial system and banking in particular is to be used to benefit the overall British economy.

 

This means that the FCA is bound by rules that err on the side of the banking and financial fraternity – a financial brotherhood – and does nothing to impact the financialisation of the economy to which I referred in a previous blog.

 

Evidence of the ability of Government to “rebalance” the objectives of the law in favor of the banks is the recent decision of the FCA to shelve its report on the culture of banking and for it to work on an individual basis with banks (behind the scenes). As Michael Lewis’s book and the film so amply shows, culture is at the heart of the problem. The FCA’s step backwards under acting Head Tracey McDermott appears to be sold evidence of its inability under the current law to be effective on behalf of the British economy unless it has a leader within the FCA with enough integrity of his or her own to challenge the banks on behalf of all consumers and all those potentially impacted by wrongdoings of the banks – like Martin Wheatley. Ms McDermott is now no longer in the running for the Chief Executive position. Does anyone on the shortlist that Chancellor of the Exchequer, George Osbourne, has interviewed come up to those exacting standards: someone that has the integrity to see through the shortcomings of the Financial Services and Markets Act 2000 (FSMA 2000) and is able to bring the banks into line so that they serve the economy?

 

I doubt it as this Government has shown repeatedly that it is hell-bent on balancing the books at the expense of all else – even if that means allowing banks to keep the economy from re-balancing to an economy that uses banks and finance from one where the banks suck the rest dry.

 

This means that the law needs to change. It is so important that the UK is “de-financialised” (like an addict that needs to be properly drawn from drugs) that we should seek the FSMA 2000 to be brought up to date with a Charter for economic improvement so that, at the very least, the FCA has to minimize financial crime not just reduce it and so that, in any decisions it makes, the needs for economic well-being override the considerations in Section 2 that could lead to favouritism towards bank and those individuals within that system.

 

Because it has never been shown that a massive banking system does anything other than reduces the ability of other industries to survive because it raises exchange rates, raises property values, sucks the best people into it, restricts business loans because of short-terminism, pays for short-term advantage and (often) criminality at the expense of good business decisions and overly impresses economically uneducated civil servants and politicians with their results.

 

The lessons of an elite taking hold of an economy and leading it to disaster have not been learned. The lessons of 1842 that led to the First World War and the lessons of 2007/8 have been sidelined as this Government now has a majority in the first-past-the-post House of Commons (still undemocratic) and a Chancellor who has decided that bashing the banks has gone far enough. He has done this without any notion of economic objectivity whatsoever.

 

We now need a People’s Charter for Banking and De-financialisation – maybe just two elements to start with:

 

Change the Financial Services and Markets Act 2000 to:

 

  • Section 6 – Minimize criminal wrongdoing not “reduce”
  • Section 2 – Add an over-riding requirement so that any decision of the FCA has to show that it is taken in regard to overall economic well-being of the country not just to the financial industry.

 

Just like those that had been left out of the elite ruling classes of the 1830’s and 1840’s, those that are not allowed entry to the financialised sector, i.e. the mass of people – the British public, need to challenge how decision-making in that sector, now taking far too much of the British economy and with very disputed benefits to the mass of people (just like early capitalism) need to agitate for change.

In the 1840’s, the Chartists were successful only in bringing the issues of the working class to the attention of the ruling classes. They did not succeed in most of their demands. It took decades until those demands were met and eighty years before women were given the vote. This country still has a House of Lords and unrepresentative democracy in the Commons as a result of first-past-the-post: we are very conservative. Nevertheless, when British people have their backs to the wall, they react. The FCA is putting British people’s back to that financial wall by their inability to tackle banking as it should be tackled – at the centre. With a pending recession in the UK – in the midst of austerity – this is a dangerous situation. Time to make changes.

 

 

 

 

Don’t Look, Won’t Find

DLN

 

Don’t Look, Won’t Find – Money Laundering in the UK

Transparency International – UK just published “Don’t Look, Won’t Find” which exposes enormous gaps in the UK’s ability to stop illicit money coming into the the country.

The report shows how all sectors, from banking to the enablers of money laundering like the accounting firms, legal firms, company registration firms to the sellers of final products and services like auction houses, private education, fail the test of oversight and reporting on a consistent basis.

This means that huge amounts (tens of billions of £’s) enter the country illegally from China, Russia, Africa and elsewhere – depriving those countries of the money they need and, as a by-product, pumping up house prices in London.

I had the privilege to Chair the Advisory Committee for this report – part of the Corrupt Capital project at TI-UK which aims to uncover how London (a major financial centre) needs to work hard to rid itself of corrupt capital that enters its system here and in the many tax havens to which it is connected world-wide.

Those who have written this report have done an excellent job of uncovering the chaos that exists in oversight and reporting systems in the UK.

 

Don’t Look, Won’t Find

Swing Riots to Zero Hours

 

150402_Swing Riots

The early 19th Century contains a forgotten history lesson in trying to understand the changes in the relationship between the workforce and business.

Farming in the early 19th Century (by far the main employer) was mainly open field farming where wealthy landowners leased out their farms to tenant farmers. These tenant farmers then brought in labour to work the farms. Farm labourers were selected at annual labour fairs in the villages and small towns close to the farms. When selected, the labourer would be employed by the farmer for a year or so and live on the farm – usually sharing in the work and eating with the farmer and his family.

This seemingly idyllic relationship can be likened to working relationships in the 1960’s and 1970’s when employment was meant to be “for life”. It was the breakdown in that relationship and the tensions that ensued that led to British trades-unions forcing a mass of industrial disputes in the 1970’s that Margaret Thatcher’s government sought to end.

In the 1820’s and 1830’s, the annual fairs gave way to monthly contracts and then often to weekly and daily as the world of agriculture was devastated after the end of the Napoleonic Wars, as weather conditions worsened for farming and as poor conditions led to a rise in disease that devastated cattle and sheep in many areas. The need to keep costs lower and lower led to wage reductions on a regular basis and the invention of the threshing machine was seen as a needed investment by farmowners that could afford the investment.

For the farm workers, by 1830, life had become intolerable and the “Swing” riots ensued. Rowland E Prothero (Baron Ernle), writing in his “English Farming” (1888):

“While the Luddites broke up machinery, gangs of rural labourers destroyed threshing machines, or avenged the fancied conspiracy of farmers by burning farm-houses, stacks, and ricks, or wrecking the shops of butchers and bakers. In the riots of 1830-31, when “Swing” and his proselytes were at work, agrarian fires blazed from Dorsetshire to Lincolnshire.”

Fast-forward to 2015 and we are now confronted by the realization that business (our 21st Century equivalent of 19th Century farming in terms of employment) is now employing zero hours contracts with increasing regularity. This 19th Century response to a 21st Century problem goes hand-in-hand with the UK’s inability to increase its productivity to anywhere near the levels of Germany and France (let alone the USA).

Luddism (and its followers, the Luddites) was a cry against the fear of mechanization in mills and early factories (and the farms) while the “Swing” riots, although exacerbated by the introduction of threshing machines, was more than this. It was a reaction against a change in relationships that had been developed over many years. This breakdown of the relationship between the farm labourer and the farmer (and the poverty into which farm labourers were thrown) led to riots and the extraordinary backlash of Government (labourers were imprisoned, many were banished to the colonies and many were executed).

Zero Hours Working and Independence

This time around, zero hours contracting is also a symptom of a breakdown in relationships. It is common in low-skill environments and very common in many areas where Government (local and national) has decided to outsource. Many of these jobs occur where the individual on a zero-hours contract is working in social care. This is an example of short-term cost requirements that can easily lead to long-term quality disappearance – as the ability of the carer is their responsibility as far as the contractor is concerned.

For some time, the relationships between employer and worker in manufacturing and services has been changing – and reflects the way of agriculture in the early 19th Century. Workers are now more like sub-contractors as Tom Peters  (a leader in management thinking) envisaged back in 1994 when he wrote an article in The Independent – “Travel the Independent Road”:

“I contend that…everyone, bellhop, boss, scientist, had best achieve the mindset of the independent contractor.”

With the growth in self-employment in the UK since the financial crash of 2007/8 (where 15% of all workers are now self-employed and one-third of employment since 2010 has been in this area according to the Bank of England), we do appear to be changing the relationship between bosses and workers. In the Bank of England’s Q1 2015 Report, it asserts that “much of the recent increase in self-employment reflects longer-term trends.”

The steady ageing of the population and the increased distance between business managers (the most similar to tenant farmers in the 1830’s) and the average worker (at least in terms of salary) suggests that the 20th Century may well have been just a phase in the development of capitalism. It may well be that the natural default position is more ambiguous – offering those with skills the ability to sell into a marketplace with a range of options rather than the existing with one employer that pays for those skills for the whole of a working life.

In highly skilled jobs within the film industry, for example, it has been common for some time for companies to be formed just to make one film. Skills are brought to bear on that film (whether by actors, directors, script writers, cameramen/women and all the rest) who then disperse at the end of the production. They leave with payment for their role and investment of time and skill and, hopefully, with their reputations enhanced – reputations that will help them towards the next collaboration.

In most work, the old mentality of learning on a job and working for the same company for life persists. Zero hours contracts splits the worker from the employer so that they cannot gain training and benefits from that skill accumulation.

The Labour Party, in the run-up to the May 7th General Election, calls for the curtailment of such contracts. However, as argued in many areas, there are many types of such contracts (not all bad) – Independent 3rd April 2015 – and the move to such contracts may well be a harbinger of changes in the working structure. If the latter, while abuses at work need to be stopped, then we still need to have a change our thinking about how we assist those who are independent contractors to develop skills and capabilities (and also help them to negotiate good independent contracts) and to help them to access the work where it is available.

This calls for government to understand and work with the organisations that represent the self-employed – who have been for so long the virtual bystanders in a game carried out by business and representatives of permanent employees (trades unions and staff associations).

There may well be no repeat of the Swing Riots in the 21st Century but as inequality of income and wealth become progressively worse, it is critical that we ensure that inequality of opportunity for all those who want to work but may decide (or have it decided for them) to work as independents is minimized. This can be done by enabling training in skills and enhancing the networks of opportunity for them.

Independent working can be entirely fulfilling but the old (Ed Miliband?) mindset needs to change to the way the world is working in the 21st Century and to maximize the ability of the self-employed / Independent worker to achieve success in this changing (and uncertain world).

 

 

 

 

 

 

Gulliver’s Travails – HSBC’s Satire on the rest of us

150225_Gulliver

 

It seems like Jonathan Swift’s best act of satire has been mixed with Robert Louis Stevenson’s best story-telling and then updated to the 21st Century as HSBC were derided before the House of Commons Treasury Committee today (25th February, 2015).

Nick Shaxson wrote “Treasure Islands” about tax havens but even he could not have foretold what looks like a complete satire on British society perpetrated by our biggest bank.

The Chair and CEO of HSBC Holdings (Stuart Gulliver and Douglas Flint) may well have been crafted by Swift and Stevenson. Lemuel Gulliver and Captain Flint (or his parrot that sat on the shoulder of Long John Silver) are two of the greatest characters in British fiction.

Gulliver’s Travels was (especially in its pre-Bowdlerised version) a satire on government and the British people.

Treasure Island was a story about man’s greed.

How odd that its two best-known characters come together before the Commons treasury Committee – both trying their best to defend their own position and that of their bank’s.

The Satire

HSBC are surely being disingenuous or maybe downright satirical pouring scorn on the general public. As they have been dealt blow after blow around money laundering, gold pricing, Swiss bank tax evasion and others, the satire has grown.

We sit open-mouthed at the sight of senior business folk that have earned £ millions but who take no overall account for the problems that were caused on their watch. Banking is now held in total contempt by most yet no-one has been brought to account in the UK since the banking-induced recession in 2007/8.

To the banks, the rest of society appears to be merely a group of Lilliputians finding a giant on the beach but being so impressed by their size and strength that we can do nothing.

To the banks, the rest of society appears to be like treasure chests that are theirs to own.

This is the reversal of their original intention – which was to lubricate business and to enable tomorrow’s investments to be made earlier. Society needs to find a way out of the satire that is being played on itself and what better opportunity is there than in the dual presentation of Swift and Stevenson’s characters before us?

No Impunity?

It is very hard to feel empathy for wealthy bankers who have presided over such failings. Douglas Flint points out that he has not taken bonuses for some time and Stuart Gulliver believes that banks are now being held to higher account than the Church and the armed services. The first is irrelevant and the second is a disgraceful statement that does much dis-service to any organization that has made so many gross errors of judgement and suffers so little governance – governance that is only applied when mistakes are found out.

The ability of senior bank staff in the UK to maintain complete impunity from prosecution remains a singular insult to the rest of the population that has seen real wage deflation since 2007/8.

However hard it is to bring bankers to justice under UK law, there seems to be as little chance of action now as there was when Gordon Brown was snuggling close to that community when the roof caved in.

HMRC appears complicit in its investigations since the receipt of whistle-blown data five years ago but that should not inhibit the UK’s investigators from doing more than the Treasury Committee – which seems to accept that it cannot find anything out before it goes wrong time after time after time and just hopes that HSBC gets it right sometime.

Messrs Gulliver and Flint had an uncomfortable day today and I am sure that they are working hard to make things right. Yet, claims that they did not know what was going on in Switzerland (or elsewhere where the bank failed) are weak claims that have not been sufficiently critiqued. When HSBC bought the Swiss private banks, they knew the secrecy laws in that country and they knew that there were major risks. To adhere to the escape clause of Swiss secrecy in a UK-registered company with world-wide shareholders seems to be an attempt to escape responsibility for any problems that might ever be encountered when an acquisition is made.

The reputational losses to HSBC as a result of the acquisition is substantial. HSBC’s shareholders should be mounting a class action on that basis alone as today statements were made that seemed to suggest that when HSBC makes an acquisition in a place of opacity, no matter what the outcome the senior staff that signed off on the acquisition cannot be held to account.

That is in addition to the nonsense that HSBC Board members should be relieved of governance responsibilities if there is secrecy in a jurisdiction.

This is surely a great satire perpetrated on the rest of us. Someone does need to unravel it. Swift originally wrote Gulliver’s Travels as a gross satire on society. We should not allow Gulliver’s Travails (and Flint’s) be Bowdlerised in the same way.

Banging the Cultural Drum for Banks

 

Banging the Cultural Drum for Banks

Banging the Cultural Drum for Banks

Culture – the total of the inherited ideas, beliefs, values, and knowledge, which constitute the shared bases of social action (Collins English Dictionary) 

Ethics – the moral value of human conduct and of the rules and principles that ought to govern it |(Collins English dictionary)

“The epitome of the multifarious cultural and ethical failures at the bank include the fact its investment banking arm, now due to be largely shut down, was only able to thrive by cheating, and that the arm, now called Markets and Investment Banking (M&IB), continued to rig various benchmarks, swindling investors and counterparties, for years after the bailout.” Ian Fraser – describing one aspect of his book “Shredded: Inside RBS The Bank That Broke Britain”


 

Just last week, Cass Business School and New City Agenda issued: A Report on the Culture of British Retail Banking . It is a useful analysis of the banking failures but, for once, centred on culture at the banks. As such, it deserves attention.

In a previous note my focus was on how the banks had got themselves into a grand mess because they rushed into a culture that was short-term and focused more on individuals working for the banks than their customers.

The Cass / NCA report is a useful attempt to understand the cultural problems of the banks and what needs to be done to change those problems. It seems churlish of me to sound a note of concern with the analysis bearing in mind how much I have written on the need but, despite the work that has gone into the study, I do find some serious gaps in the assumptions, the recommendations and the risks.

 

  1. Society

 

One concern is that the study suggests banks (particularly the larger ones) are similar to any other large companies – like those in the oil sector (to which reference is made concerning culture change) – and should therefore be treated like those in other sectors. Unfortunately, banking is unlike any other sector.

 

  • No other sector creates money;
  • No other sector holds the rest of the economy to ransom through its systemic economic risk;
  • No other sector is so intertwined with economies and governments.

 

For these reasons, the thought that banks have to be allowed to take care of themselves (which is a crucial assumption of the report) contains dangers that the report does not examine. While banks are intimately involved with other organisations in both private and public sectors, the report does not seem to share a view that wider society has a stake in them. The fact that general taxpayers are paying off the burden of their recent misdeeds is a real and proper concern. It is not just “customers” (a key focus of the report) that feel the problem of poor investment in IT or bad service – it is also all those affected by huge government deficits and cut-backs that have been the result of the banking induced crisis. I don’t see this recognition.

 

What this means is that banks cannot just be left alone to reflect on their cultures. There does need to be a societal involvement in the cultural thinking that shows banks understand what they are there for – which is different to most industries. This culture is not just about being sustainable or not creating “externalities” (like oil companies should be focused on – e.g. pollution) but on the central role that banks play in society and the huge risks that they provide. This short note is not the place to examine the role that banks should perform (although I have touched on that before – https://jeffkaye.wordpress.com/2012/02/05/banks-and-time-travel/) but their national and economic roles and their inherent risks have to be important aspects of their culture.

 

  1. Ethics

 

The mention of ethics in the banking system is a touchy one. Ethical codes are often there to be abused (viz. FIFA) but the banks perform such a key role in society that they should not be allowed to differ in how they develop ethics codes and they should be regulated around ethical behavior.

 

The word “ethics” appears fleetingly in the Cass / New City Agenda report. Yet, it should be the basis upon which culture is developed. It is via an ethical approach to its customers and wider society that banks need to be based. The report focuses on how banking culture has been “Sales” led (even excessively so) but this would not have happened if banking culture and banking leaders had been ethical in their approach.

 

  1. Accountability

 

Again, the report states that the banks operated a “Sales Culture” – and was excessive in that direction. Of course, all businesses have to operate a sales culture to a degree or they go out of business. But, the extreme form of “sales culture” that operated was enabled by top management.

 

It can be stated reasonably that banks operated (and still operate) without a culture of accountability. Another crucial organisational mandate that appears to be missing from the analysis in the report is this one – individuals within the banks seemed to be accountable to themselves or to just small groups. The businesses did not seem to have areas of key accountability for such fundamental mistakes and still do not. Any successful business or organisational culture requires accountability – culture is driven from the top so that it must be clear that “the top” has to be clearly accountable for major deviations.

 

This accountability has to be within the Board, Board Committees, Regulators and Auditors. The culture has to be clear that accountability is embedded within it.

 

  1. Governance

 

This is linked to accountability, of course, but Governance has to include the oversight of business culture – which is itself wrapped within the overall purpose of the organization. Governance is, by law, the responsibility of the Board acting on behalf of shareholders. However, in the case of large banks – and this becomes a crucial requirement – societal governance should also be required. A bank’s board, when deemed to be large enough, should include Directors who are there to judge whether the bank is meeting its societal objectives – a privately owned, market-driven business but with key societal objectives. This is, therefore, linked to both accountability and societal inclusion. Having The Banking Standards Review Council under the auspices of Sir Richard Lambert is fine but this Council is likely to be dominated by the banks – indeed, Sir Richard is looking to the banks and building societies for members – a bit like the police governing the police. The BSRC (if it is to work at all) needs outside members who are not influenced overmuch by the banking fraternity.

 

  1. International Norms

 

Another problem for the banks (and the report) is that we now live in a global economy. As in the period leading up to the disasters of 2007/8, our banks did not act alone but were in a group of western banks throughout Europe and the USA that played the same game. Next time, the centre of the storm may be elsewhere.

 

This requires some real thought being given to how British banking will (if it adopts sustainable cultures) not be persuaded to ditch their ethics if others go haywire as in 2007/8. This requires international banking to be based on the same footing. It may require a set of ethical baselines such as the one that EITI (The Extractive Industry Transparency Initiative) has developed for that industry.

 

  1. Sustainability

 

Covering all of the above is the need to banks to be properly sustainable – and the report does focus on ridding the industry of its short-termism. However, this is, again, for both the industry and for society to develop a sustainable path – as banks are often too big to be left to themselves and have shown a distinct lack of ability to judge what will make them sustainable.

 

  1. Risk and pay

 

The final issue I believe has been de-focused is that bankers pay themselves when they do well and just lose bonuses when they don’t. Assuming they work within the law, why are bankers paid as entrepreneurs on the upside but as staff on the downside?

 

If pay is to be maintained on the upside, then so does the opposite apply. Entrepreneurs are risk animals that bet their own money to reap fortunes if they succeed. A major flaw in our economies is how the financial sector and managers within it (to a reduced extent the same in other sectors) have captured the winnings from those with “skin in the game” – which used to be the shareholders.

 

The latter suffer the risk of loss on the downside, bankers do not. This should be changed.

 

21st Century Banking Culture

 

Society, Ethics, Accountability and Governance appear to be the basis for any banking system in the global economy of the 21st Century. While the report is highly practical and research based, leaders within the UK (not just bankers) should be developing the strategies for the future based on a society that will perform and that we want to be part of.

 

Banking is too important to be left to just practical considerations. Real leadership is required and unless societal, ethical, accountability and governance concerns are fully embedded into banking culture, the same problems will arise time and again.

The Strange Death of the Party System (A Siren Call)

In 1935, George Dangerfield published “The Strange Death of Liberal England”. This book has been much discussed recently as it analysed the combination of women’s votes, Ireland and rights for workers and showed how the traditional and paternalistic politics of the world in 1914 and before was radically changed by those events.

One hundred years’ later, and this country (and much of the Western world) has a different problem. Except where a sudden (and usually short-term) issue arises, political parties are progressively being shunned by voters.

As a report in The Spectator showed in September, 2013 (mainly using data from the House of Commons Library report from December, 2012), membership of the traditional political parties has collapsed in the last 50 years – true of all the three, main parties. Only about 1.5% of the electorate are now members of the three, main parties – less than ¼ of the rate that existed in 1964.

This trend seems inexorable and, while it does not portend the end of democracy, it shows that (in the absence of possibly short-lived parties like UKIP in the UK Beppe Grillo’s Five Star Party in Italy) the gap between the political parties and real people grows daily.

Single Issue Politics

Dangerfield’s three shifts in politics that were in place when the First World War struck – Ireland, emancipation for women and workers’ rights – have, progressively and with much work, been largely dealt with. After that, the Second World War saw the forces of fascism and nazi-ism smashed. The end of the Cold War saw the attempt at Communism dismantled (China not representing anything like communism after the death of Mao – or probably before).

The world has new problems but economic prosperity and the global economy have shifted focus. Sure, immigration is a hot topic in the UK and the Scots are understandably excited by the prospect of independence, but, with a seemingly stable revival in economic fortunes, the public is not engaging with politicians – outside of single issues.

The older parties in England especially seem to have no vision of the country they aspire to lead or at least no ability to convey one. This lack of vision has disenchanted those who should be engaged. For others, who are far more focused on short-term economic necessities, politicians long ago lost their interest.

The Sirens (Seirenes) of Civil Society

All this was brought into focus at the ACEVO (Association of Chief Executives in Voluntary Organisations) Leadership Conference on 7th May. With exactly one year to go to the next UK General Election, the conference began with a tour around the electorate from Ben Page, CEO of Ipsos MORI and there were also talks from Nick Hurd, Minister for Civil Society, Lisa Nandy MP, Shadow Minister and John Cruddas MP, Shadow Minister for the Cabinet Office and Head of Labour’s Policy Review.

Understandably, there was indignation from the audience of charity leaders about the Lobbying (Gagging) Bill and Liz Hutchins of Friends of the Earth especially. She claimed that the political parties wanted the restrictions on charity lobbying because they were concerned at the effect that such campaigning has prior to elections. It appears that the pressure groups within Civil Society now have Siren-like qualities and the Gagging Bill was introduced as a sort of earplug with which to render their song silent.

This insight was, for me, a central theme of the day. Politicians tried to assuage such concerns but Sir Stephen Bubb, ACEVO’s CEO, was not so comforted. He was foremost in wanting charities and the sector as a whole to raise its voice.

Now, charities and NGO’s may not be single-issue bodies but they are singular in context to political parties. In a digital age, they also, in some ways, replicate the more focused requirements of the internet – for short stay issues. From discussions that I had with several of the attendees, they have no intention of being silenced as they give voice to people who are otherwise disenfranchised by a system of politics that is too remote and where the “political class” (as John Cruddas himself called it) has fostered that remoteness.

From this conference, a clear message is that political parties are too focused on short-termism and on presenting a wide range of policies that may have engaged fifty years ago but do not now. John Cruddas, who is working to re-energise the Labour programme, pointed to his party’s desire to rid itself of a top-down, centrist mindset that was no longer suited to the 21st Century. In itself, this is fine, but the positive ability to reach out to people with real needs is, perhaps, too great a reach.

Are Charities a sign of a new Politics?

The Lobbying Bill gained most of its publicity as a result of the attempt to gag charities – a ridiculous aspect of the Bill that the Labour Party has promised to revoke. It showed a worry amongst politicians that charities (especially vocal NGO’s like 38 Degrees) offer a voice to people that is being taken very seriously. Amongst the 166,000 registered charities, there are many established to challenge society. Many others see the need to campaign in order to enhance its aims for beneficiaries. The charity sector, despite its quantifiable size relative to the rest of the economy, has a clear voice on many issues but has to fight its way in a society dominated by corporate and public sectors.

It is an understandable situation where politics is dominated by the sectors that seem to dominate our lives economically. We mainly work for the two dominant sectors and receive most of our quantitative benefits from them. Between them, they dominate. The battle between them, as J K Galbraith showed in “The Affluent Society” is between the quantity of life and the quality of life – both required to some limit but where a social balance is needed.

Unfortunately, we all appear to see the debate between public and private sectors as a battle – not as a need for social balance. Libertarians believe that the market economy will meet all requirements – there are others that believe in the ownership of all economic producers by Government. In between, the battle lines persist: private vs public.

However, there is another battle line where charities and NGO’s exist. It is not all about economics – although it is linked. This battle line is about serving those who are not covered by the armies of private or public sector or where the issue is more quality vs quantity. The debate about the future of our habitat – where the eco-warriors exist – is mainly an NGO battle (in the UK at least as Greens have, to date, low votes cast on their behalf despite them being perceived as single issue). Elsewhere, charities run the whole gamut of causes – medical, social, humanitarian, ecological.

It is into this wide range of causes that people may be engaging. In a world where politics is remote and bland, where politicians are not trusted, charities and NGO’s are seen as trustworthy recipients of funding but also as voices. Unlike the sirens, political earplugs will not cause the charities to give up. The word at the ACEVO Conference was the opposite – a louder voice was needed.

It may be that organized groups such as charities and NGO’s (aided by the digital facilities now available – which suit individual issues) will lead to a different type of political environment. Allied to the extraordinary power of economic (quantitative) sectors such as public and private sectors, the sector that represents the quality of life will likely be seen more and more as a real player in the life of politicians. Maybe the so-called Third Sector will get a Minister in the Cabinet; maybe there will be an annual budget for this area – linking the quantity of our lives (measured through GDP – life by numbers) to the quality of all our lives.

 

 

A Bermuda Triangle off the Black Sea

Russia, Ukraine and the Triangle of Mis-rule

 

Everyone knows of the Bermuda Triangle. Not many know of the mysterious area just off the coast of Ukraine that has also suffered a number of strange activities. Various disappearances have occurred in this area which some call the Black Sea’s Bermuda Triangle.

 

Others, not so swayed by superstition, also use a similar phrase to describe the politics of the area. In their paper, “the Black Sea and the Frontiers of Freedom”, Ronald Asmus and Bruce Jackson called that region “the Bermuda Triangle of western strategic studies”. It is an area of confusion, forever (or so it seems) bound up with the history of Russia.

 

Russia’s history is one of suffering and hardship. Its people are hardened by centuries of serfdom, relative poverty and rigid rule from the centre. It is also a history of power and control: from well before the first of the Tsars (Ivan IV) through to the Romanovs, via Lenin and the short-lived Communist regime to the present day. In the West, even after so many years, we misunderstand the core drivers behind the leadership and the people.

 

Russia changed dramatically after the 1905 Revolution and then the October Revolution of 1917 into the expensive experiment that was Communism. Marxist thought was “developed” through Lenin and Stalin into a model of dictatorship that, whilst a complete political change from before, continued the power to rule from the centre.

 

The fall of this elite in 1979 under Gorbachev was an opportunity to ally Russia with western thought on democracy and economics but the power of libertarian economics was too much. For a time, the rush for economic power was electrified across Russia as an elite (the Oligarchs) wrested the power of the economy from the State. The new gangster rule – hugely corrupt, murderous and allowing no opposition – took over from the endemically corrupt regimes that began with Stalin and his underlings.

 

Yeltsin enabled this robbery and corruption by his lethargy and inability to rule a people that prided itself on central control. The West, misunderstanding the rigours of power in Russia, stood by hoping that the new economic opportunities would, somehow, generate a desire for democracy. But, market economics does not need democracy to survive (viz. China) and the Russian economy was not becoming a market economy but a new kind of centrist yet libertarian economy: one that was predominantly corrupt (hugely corrupt) and where individual centres of economic power (whether oligarchs or regional centres) dominated. This new economy was, for a time, the true government of Russia.

 

The Triangle of Mis-Rule in Russia

Slide1

Vladimir Putin came on to the scene relatively late but enshrines the old order of (mis) rule. He made his way to the top by promising an end to economic shambles and strong centrism in terms of government. The years of Gorbachev and Yeltsin are seen by him (and many Russians) as a disaster – leading to governmental shambles, a loss of Russian honour and an economy shared out between a few ruthless gangsters.

 

Putin has worked to centralize government to himself (the new Tsar) while piecing together an economy based on market basics but which remains heavily unbalanced by corruption and key centres of economic power. This Triangle of Tsarist mis-rule, corruption and economic centres of power are not dissimilar to the pre-communist set-up. It is a reversion to the norm in Russia after communism and the Gorbachev-Yeltsin period of chaos. It is a reversion to what Russia knows best and what its people are still willing to accept – knowing that they cannot have any power of thought, that they will be ruled from the centre both in terms of economics and in terms of the way they live; knowing that corruption will endure and that they will be OK as long as they have enough to get by on and keep quiet. It is a world where the Duma has resumed its original status – merely as an organ to assist the ruler – the Tsar (Putin) – rule.

 

China and Russia – centrism and market economics

 

The world’s heartbeat of communism pulsed in Russia and China. Both countries suffered tremendously for the experiment of their own type of communism – Lenin-Stalinism or Maoism. Both have now moved towards what we perceive as market-driven economies. We (the West) think that our form of economics has won out in both countries and that democracies will automatically follow.

 

Unfortunately, both models show how market-driven economics can be developed in different ways and to suit the ruling elites.

 

China operates as a legalist society whereby the ruling elite sees itself as above the law. This is a blurring of its communist ideology whereby the state is run for the benefit of the ruling ideology. The fact that communism no longer exists means nothing: a ruling elite is considered by itself to be above the law.

 

Of course, the economy is managed very differently to how it was managed under Mao. Deng changed this to entwine market forces within a rigid centrism – made real by ownership of the banks and finance and of key industries and resources. While most pricing mechanisms are set by the market, it is massively influenced by interest rate manipulation, by endemic corruption and by key units of power in local government – and by the family-focused culture. This is a mix of market economics, centrism and Confucianism that is uniquely Chinese.

 

This is wholly different to the Russian model which is far more dominated by the strong man culture. In this way, it could be argued that there is more hope for change. The intertwining of Confucianism with the long-term centrism of Emperor rule through to the Communist rule and now the post-Communist legalism makes China’s “Civilisation State” very hard to break down. Economic change was relatively easy as this was only communist for a relatively short period. Governmental change is far harder to crack.

 

In Russia, this may be true as well but there is no equivalent of Confucianism in Russia and the state apparatus is not as broad in Russia as in China – it was destroyed under Gorbachev and Yeltsin. So, in that short period, the West hoped for real change. Now, Putin has embodied the state apparatus in himself as Tsar.

 

Ukraine – Catch a falling Tsar

 

Putin’s aspirations for a renewed Russia have seen him march into the Crimea and undermine Ukraine. Ukraine was for many years just a smaller version of Russia in Russian minds – Ukainians were termed “Little” or “Southern Russians” in the 19th Century and Stalin saw them as a tribute nation (similar to the way that China views its neighbours). The Russification began in the 1860’s and it was only the fact that Kruschev was Ukrainian that gave them a measure of independence (and Crimea) around 40 years ago.

 

But, Ukraine is similar in other ways, too. It is endemically corrupt from the top down. It is not just IKEA that has found the corruption difficult to penetrate.

 

Ukraine has seen endemic and high-scale corruption for many years. In 2006, for example, Global Witness (an anti-corruption NGO and this year’s winner of the TED award) published “It’s a Gas” – an expose of the corrupt Turkmenistan – Ukraine gas trade.

 

The report highlighted the case of former Ukrainian Prime Minister Pavlo Lazarenko, who, it claimed, syphoned off huge amounts of money from questionable business practices: money that was then funneled into Swiss Bank accounts. Lazarenko (who served time in the USA) recently had substantial assets seized in the US.

 

The Global Witness report also highlighted the barter economy which anti-corruption experts know as one of the best-known ways to hide massive money transfers illegally.

 

Yet, Lazarenko was not part of the Government clique that Ukrainians pulled down earlier this year. He was closely linked to the earlier regime of Yulia Tymoshenko (the West’s best friend) – very closely linked as an article in January showed.

 

Those in power in Ukraine followed the Russian model. Little Russians modeled themselves on Russia in many ways and this was not limited to one party or one clique. The EU desire to bring Ukraine into the EU tent was not necessarily misguided in the way that Nigel Farage would have us believe but the powerful in Ukraine are essentially part of a highly corrupt clique that dominates the country in the same way that Russia is dominated by its own corrupt. They have divided up the nation’s assets between them.

 

Tsar Gazing

 

This is one reason why Putin is keen to bring Ukraine back into Russia’s control. The horror of the break-up of the Soviet Union was bad enough but assuaged by the economic benefits that accrued to the Putin elite and the retention of power in the hands of the few. This was mirrored in Ukraine – the home of many Russians. The call to patriotism has been partly a response to the shouts for democracy but underneath is a need for Russian mores to be maintained.

 

This is the Triangle of Mis-rule: Tsarist centrism, corruption and economic centres of power that Ukraine has witnessed since it was deemed to have left Soviet control – an exact image of big brother Russia. This is why it is so difficult to break down the stranglehold. Ukraine is fixed within the Bermuda Triangle of the Black Sea.

 

The EU may well have been Tsar Gazing when it simplistically assumed that riots on the streets could topple a government in a bankrupt nation with such a history and such conventions. It appeared not to understand enough about the pull that Russia had on it: Russification going back over 150 years and a model of the economy and government that is a replica of the Russian model.

 

Breaking this down was bound to be a challenge – but it is not clear that the model is sufficiently understood even now. Many write on the endemic corruption but provide little guidance to solving it. Many write on Russification but have no answers other than a hope that “democracy” will triumph. Others write about Putin’s urge to control without too much understanding of the Russian legacy that goes back to the 15th Century.

 

Can Ukraine break free?

 

It is not just one aspect or another that has to be broken in Ukraine. They have the three corners of the Triangle of Mis-rule to break in addition to the large numbers of Russians – patriots to Russia – in their midst and the larger numbers just over the border in Russia itself.

 

This is a massive challenge and there is no rapid solution.

 

Ukraine is in a mess – as we know. It has lost the Crimea and may well lose the Eastern half of the country. It is not often stated that this may be the best medium-term solution even if it is not one that appears wholly palatable. A loss to Russia of this scale may appear too much and it is, of course, for Ukraine and others to decide. But, the devil’s triangle that operates in Russia and Ukraine is endemic to the Eastern side of the country in a way that could be shaken off more easily in the West. The unthinkable may have to be thought. Without much effort, Putin could regain the Eastern side of Ukraine and the West of Ukraine would then be welcomed into Europe.

 

It is highly likely that governments in the West are already planning for this. As ethnic Russians pore into Ukrainian security buildings, it is clear that the fight for Eastern Ukraine is in its early days. The Western half can, through massive economic help by Europe, be purged of corruption, centrist rule and economic stagnation. Without the East and as part of Europe, it can be made good. While it remains affixed to the Russianised East, it is unlikely to do so for many years.

 

Russia is likely to see eastern Ukraine back in its orbit and remain enclosed with the Triangle of Mis-rule that epitomizes both. What happens after that is something that is also, I am sure, being actively discussed in governments throughout the world.

 

The problem is that nothing will really have changed – Putin’s Russia is endemically riddled with forms of entwined government and economics that are alien to modern-day Europe and the west in general. Changing this will take a long time and Putin, a fit 61 year-old, is in no mood to give up all that Russia provides to him.

 

To an extent, the rest of the world will play a waiting game with Putin. In Ukraine, it may have to understand that Plan B (the break-up of Ukraine) is a potential and real outcome. Maybe, over time, Eastern Ukrainians, bordering an economically advancing Western Ukraine, will begin to appreciate the benefits of freedoms brought by the rule of law that is above all (including government), economic freedoms that are not concentrated in the hands of the few and democracy that can (when done properly) do away with bad government. Maybe, over greater time, Russia (and China) will adapt as well and copy not just the basics of market economics but much more.

 

For the rest of us, understanding the Triangle of Mis-rule would be a good step before the results of misunderstanding are yesterday’s news.

 

 

Natural Capital – CIMA – Ethical Lens

February’s edition of CIMA’s (Chartered Institute of Management Accountants) Ethical Lens –  features my blog post from November 27, 2013 – Being Cynical About Natural Capitalism

Ethical Lens says:

“In his blog, Jeff Kaye FCMA CGMA , Chair of Future Brilliance Limited, writes about the challenges and possible moral implications of “pricing the priceless”. Highlighting that GDP rose during the BP oil spill, he argues that GDP and numbers won’t always be a good indicator of of how businesses or communities are doing.”

Ethical Lens goes on to report on Integrated Reporting as one of the ways that business is reporting on wider social issues.

It is interesting to re-read Eric Hobsbaum’s “Age of Extremes” about the world between 1914 and 1991, where he refers to John Maynard Keynes’s focus on macro-economics (virtually his invention) and that national estimates of the size of an economy were not developed until after the Second World War probably with an eye to the USSR.

“The first governments to do so were the USSR and Canada in 1925. By 1939 nine countries had official government statistics of national income, and the League of Nations had estimates for twenty-six in all. Immediately after the Second World War estimates were available for thirty-nine, in the middle 1950’s for ninety-three and since then national income figures, often with only the remotest connection with the realities of their people’s livelihood, have become almost as standard for independent states as national flags.”

Eric Hobsbaum, Age of Extremes.

Antigonistically Speaking – the Permeability of Governance

In a world too confused by the economic rise of China to question whether democracy will ultimately produce the best results for humankind; in a world where fighting between Sunni and Shia, between secular and religious, between Dinga and Machar dominates the news as much as Catholic and Protestant did in the UK not that long ago; in a world where the after-effects of the Arab Spring result in a literal chaos; in a world where street demonstrations in Turkey, Brazil, Thailand and elsewhere have threatened the rule of “law” – we need to question how our political institutions work and whether they are robust and durable enough to withstand the constant pressure that we put them under. In a “global” environment, in the so-called “west”, we should also question what political systems we are operating under – as we fit perilously into local, national, regional and global systems.

Around 441BC, Sophocles wrote Antigone http://en.wikipedia.org/wiki/Antigone -a Greek tragedy that, as a school kid, I could immediately appreciate – not through the tragic figure of Creon but through Antigone herself. She dared to push against the tyrannical rule of a king at a time when no-one else, let alone a woman, would dare to do so and lost her life as a result. Opposing the law that Creon laid down was, in her view, proper if that law was wrong – if it was tyrannical. I liked that as a pupil in a school where teachers could appear to be on the wrong side of tyranny.

In nearly 2,500 years since Sophocles wrote Antigone, humans have learned and unlearned the story many times. Because we focus on economics so much (i.e. how we generate wealth) we seem no longer sure whether there are other questions that we should be asking. As 2014 gets under way, maybe we should be questioning what the world needs in order to be Antigonistic – being able to prod the rule of law when that law or the implementation of that law is wrong and to understand where it is impossible to do so.

This is not just an argument for democracy but for a system of government and implementation that is permeable – allowing for change. We also should be asking how we fit into the various levels of government – local, national, regional and global.

It is also worth looking at how we understand where the permeability does not exist at all and where gentle prodding is not likely to succeed – for it is there that fractures happen.

Permeability

It is the ability of our human systems to be permeable (in normal times) that enables them to evolve as our needs change. It means that old-fashioned notions can be changed and that structures which are worn-out can be thrown away. When permeability does not exist, then tyranny wins out.

The permeability of authority is applicable to any organization or structure: from corporate to national government and beyond. In the 21st Century, as communication systems and capabilities continue to rise, how such structures take in information and change is a critical factor for our social existence.

The change in governmental structures from strong individuals (appointed by the gods) through the tyrannies of dictators and various forms of democracy can be seen in their permeability to new thoughts and to absorb the thoughts of others.

God-given rights to rule (whether Charles I of England or Louis XIV of France) were thought of as indisputable in the same way that the earth was thought of as flat. Such rights were disposed of in the 20th Century by political “truths” such as communism or fascism. These “truths” swapped god-appointed rulers for political dictators. Elsewhere, the “big man” tradition as shown by Idi Amin in Uganda or dos Santos in Angola is similarly impermeable to change or outside thought.

In China, the story of impermeability is writ large. The civilization state (Martin Jacques) has evolved at the top from god-appointed rule to political dictat but the impermeability remains. Whether the excuse is heavenly authority or communist or legalism, the ability of that nation’s leadership to restrict change through the impermeability of its structures remains.

The Permeability Grid

Any organization can be assessed as somewhere on the grid of permeability. At its worst extreme today, North Korea stands out – completely impermeable to any thought of change or even discussion, it embodies the lunacy of not just tyranny but of the inability to listen to any reason. This is not just about governing but also about the basic rights of its people. North Korea would get 0 on the scale of impermeability.

Of course, moving too far towards complete permeability is towards chaos. The other extreme (100 on the scale) would be where every thought is taken on board and acted on. This represents an organization that has no control – which some would find enjoyable even if chaotic – but often leads to mayhem. An example of this may be Waterworld  or some other dystopian view of the future, but the tendency here is that it leads towards strong group asserting themselves and veering back towards 0.

The balance between tyranny and chaos is commonly held to be democracy and open societies where the key parameters of society allow and enable freedom of thought and opinion with individual and group rights yet within structures that avoid chaos. This is not at the centre politically but may well be at the centre in terms of permeability.

 Slide1

This grid works in a similar way to complexity theory – the way that complex adaptive systems work. The tyrannies occupy the areas of stasis at the opposite end to chaos. In the middle, where real evolution happens, stands the “edge of chaos” – it is reasonable to assume that the best democratic, open societies or organisations exist here or should have ambition to do so. It is at the edge of chaos that real permeability exists – the ability of groups of people to listen, understand and adjust. This is where evolution happens without revolution.

The Common Threads blog has been all about how we are mired in rigid 19th Century establishments – even in democratic nations like the USA and the UK. There are a myriad of examples. Humans have evolved many ways to do itself down and ruling elites, wherever they are, enforce lack of permeability through many devices.  Even in supposedly open societies like the USA and UK, rigidity seems to be the natural default mechanism. This leads to poor voter turnout and reactions to Edward Snowden as we have recently seen.

Of course, these can be considered minor against other nations which vary from terror to corruption. South Africa, for example, has moved decidedly from one extreme – the tyranny of apartheid (terror) – but is in danger of side-stepping back into chaos.

Mandela shined a light into the darkness

The worldwide sadness that accompanies the death of a great man or woman shines some light into the cavernous darkness of those who do not live by the same high principles. This has been the case with the death of Madiba as was witnessed by the South Africa’s President Zuma when he rose to speak in front of his subjects in the memorial event in Johannesburg.

Jacob Zuma has been accused of corruption – millions of Rands of government money allegedly spent on his own property – an excess now termed Nkandlagate after the name of the region. The Guardian reported on this in November.

Yet, both fought the tyranny of apartheid – where a dictatorship of a minority (mainly of whites over blacks) could have been fractured by conflict but was changed by an eventual collapse of belief by the majority (under pressure from the rest of the world and its own black population) and nurtured to a peaceful outcome by Mandela.

Nelson Mandela was not one to overtly criticize those in the ANC that committed corruption. The ANC was his “home” but Mandela’s spirit of understanding and compassion must have been stretched to the limit when seeing his ANC brothers and sisters involved in enriching themselves at the expense of the mass of poor people in his country.

Andrew Feinstein, a former South African MP and ANC member, has written vividly on the post-Mandela corruption in South Africa in his book: “After the Party

Lighting up the shadows

Under Nelson Mandela’s giant shadow, there lies a worldwide web of corruption that is not just within the borders of his home country. As the boos rang out to embarrass Jacob Zuma, the question is whether they sounded loud enough to make a difference. Can the moments of reflection on Nelson Mandela’s life shine a light into the shadow so that those who see the problem act on it?

Throughout the world, corruption exists in many forms. The recent edition of Transparency International’s Corruption Perception Index showed that South Africa ranked 72nd (along with Brazil) out of 177 nations evaluated. Jacob Zuma and his compatriates may have corruption issues but there are (according to the Index) 105 countries in a worse state.

Nigeria – which is 144th on the 2013 list – has just recently seen a letter from the Governor of the Central Bank of Nigeria being sent to the President asserting that $50 billion of oil revenues has gone missing – representing 70% of the value of such revenues since 2012. Mr Sanusi’s letter calls for immediate audits of the oil accounts.

Whether or not the revenues have been misappropriated, the fact that the Governor of the Central Bank believes that they may have, this points to a society that is prone to corruption – and it is known to be on a grand scale.

Corruption can be seen as the brother of tyranny. Instead of terror, it provides a method of keeping the population quiet. Zimbabwe’s use of income from the Marange diamond fields ensures that the political leadership there is relatively secure and that real democracy / open society cannot permeate.

Angola is another example where Sonangol (the State Oil business) serves to ensure that oil revenues find their right place in the hands of the President and his family and retinues.

In both, terror accompanies the corruption of the resource curse and shows the methodology of keeping stasis – maximising the chances of ruling elites clinging to power and power over the resources of a nation.

How Do we Want to Live?

The rise of China and our continued reliance on economic growth / GDP as the only measure of our success as humans should give us pause – where “us” includes the Chinese as much as anyone else. If those of us in the democracies of the world believe that open societies are important, how important are they to us? How do they compare with a bit more GDP (knowing how unreliable GDP is anyway as a measure of wealth) and how unreliable is it to see economics as the foundation for the quality of our lives? How threatened are we by the non-democratic regimes elsewhere? Does China’s economic success of the past thirty years) threaten their internal structures or the rest of the world’s? Should we react to other nations’ lack of permeability – statis enforced by terror or corruption or legalism?

Common Threads has been about the impermeability of our legal, political, economic and social structures and changes needed in nations like the UK and USA. With the global economy upon us and with world-wide challenges such as climate change and resource scarcity; with G8 and G20 providing economic mechanisms for mutual dialogue; with Arab nations struggling to maintain the Arab Spring against the drive to stasis in places like Egypt and chaos as in Syria and Libya – how hard should we be pushing the “edge of chaos” – democracy – as the right answer throughout the world, knowing that this may cause us economic harm if the Chinese government, for example, don’t like what we say?

Is the alternative to motivating others to our ideals the fear that we could fall into the trap of impermeable extremism (as Golden Dawn in Greece would extol) or even the trap of Tea Party / Ayn Rand rigidity? China, Angola and many other states need an Antigone but it has to be more than brave students at Tiananmen Square. Antigonism will only work when our governments are brave enough to extol our open government world-wide.