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.

Human Rights v Trade

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The Independent today (3rd October) reports that the Foreign Office is placing human rights below trade in its international efforts.

Sir Simon MacDonald, Permanent Secretary at the Foreign Office, said this to the Foreign Affairs Select Committee, chaired by Crispin Blunt – a Conservative MP. The outrage to this frank admission from those like Amnesty International is understandable but the news is not a surprise. The UK has a default mechanism – overseas trade at almost any costs. It is this default that has, at times, been tempered by those heading our foreign ministries (such as Robin Cook and his “ethical foreign policy” and Douglas Hague more recently) but over more than 200 years, Britain has pursued a trade policy which has been usually unyielding.

Mercantile Britain

From the 17th Century onwards, this island nation has pursued conquests and material gain in overseas territories that enabled a minor nation (by population) to erect a massive empire. It was a mixture of bravery, opportunism, single-mindedness and adventurism that took Britain throughout the world as searchers for new lands and the rewards that would come with them. Along with the supreme invention of the joint-stock company that somewhat de-risked such ventures, companies like the East India Company not just took advantage of these overseas territories but set themselves up as military governors of them. This company ruled India until as late as 1858 (after the rebellion of 1857).

From then on, British military might was handled directly by Government. Thus, the mercantile underpinning of our international trade, by then as much as the need to export the produce of the industrial revolution as the need for raw materials, was in place. This was an extrovert linkage between might and trade in the nineteenth century, now it is implicit. One of the worst examples of mercantilism were the Opium Wars in China where Britain fought to ensure that the sale of opium into China would continue.

20th Century Mercantilism

More recently and especially since the end of World War II, when British military might was used to vanquish an evil Nazi regime and almost bankrupted this country, Britain has used its ability to aid overseas trade more subtly. We have now ceased to follow the Palmerston gunboat diplomacy of the nineteenth century but our ability to promote trade along with military capability is still firmly in place.

For much of the twentieth century an example was the Defence Services Organisation (DSO) that promoted our arms exports throughout the world. This was an effective sales force for arms exports that retained the UK’s ability to remain in the top three or four internationally until very recently. Our embassies were (are?) and our military attaches in particular represented not just our Government but the companies that sought to trade in the countries where they were situated.

Alongside this, the UK has developed a record on human rights that is one of leadership on a world-wide scale. In the nineteenth century, our Gladstonian free trade mindset was tempered with a humanity in a section of the population that sought to restrain the might of an empire and restrict its natural tendency to the Benthamite utilitarianism that sought to consider overseas peoples as no more than collateral. While we may seek to measure natural resources in 2015 as “natural capital”, in the nineteenth century, even after we abolished slavery in Britain in 1809, we would still value people our dominions numerically as we would a piece of equipment.

Liberal Free Trade was built on this and while Tories (Conservatives) may have initially tried to stem the Free Trade tide (because of their natural affinity to those that ruled by their ownership of land), they became as fervent in their pursuit of capitalism and mercantilism until now they have adopted the mantle to themselves.

So, while this country spends 0.7% in overseas aid (and trumpets this, rightly, as an example of our desire to alleviate poverty and disease), in this progressively post-Industrial world (where all countries are now so interlinked by trade) we maintain an extraordinary linkage to many tax havens around the world that ensure that companies can reduce their tax burdens at the expense of much of the world’s poorest. London is itself a crucible of money laundering and Tax Justice Network assesses London and its affiliated tax havens in places such as the Cayman Islands, Jersey, British Virgin Islands and elsewhere, as the most secretive combined jurisdictions in the world. This is today’s example of the UK and its desire for financial trade above the rights of the poorest.

Trade vs Human Rights in the 21st Century

Since WWII, the UK has (as stated above) been at the forefront of much that is good in the development of human rights world-wide. Apart from our leadership in the establishment of UN and other basic norms for human rights, this country houses many NGOs that lead in this sector. This is now at risk.

Not only is the current government suggesting that we opt out of various human rights bodies (unable it seems to allow ourselves to be subject to best-case international norms), not only are we potentially removing ourselves from the historical capability of being a home for immigrants that are subject to terror in their own countries, but we are looking to enhance our ability to trade in nations that continue to abhor basic human rights in their own countries.

This is a pandering to economic welfare and materialism that has not been seen since the days of Bentham and the focus on such utilitarianism (then at the expense of the poor working class in this country but now internationalized) is a stark throwback to the default mechanism of our forbears – those who maybe knew they were wrong but had no experience to turn to.

Now, we have no such excuses. The desire to trade unabashed world-wide and not concern ourselves with the dire consequences of the countries with which we trade points to a shallow materialism that is in danger of throwing aside all that so many have worked for so many years. That this country, one of the world’s richest, should consider that the problems faced by those in the countries with which we do business are not of any concern to us is not just wrong but a short-termist mistake.

George Osborne’s recent visit to China is a good example of this. He is not just a head of finance but a senior Cabinet Minister that goes with the blessing of the Government. He left China with the endorsement of the Chinese government as voiced through their newspapers for not overstating human rights issues. Apparently, the UK cares less about people than about profits or increasing our GDP.

So, Mr MacDonald’s statement before the Foreign Affairs Select Committee is no surprise but it is a statement that will have chilling effects. It states that we are giving up our responsibilities on the back of a desire to enrich ourselves at the expense of those outside the UK that suffer oppression and poverty. While we maintain out 0.7% (although some of that is being deflected into defence spending) much of that, in effect, buys us more ability to sell products and services.

Robin Cook did not last long in office as a result of his ethical foreign policy beliefs. We no longer even hint that this remains our aim but the lesser aim of maintaining human rights and challenging those that do not follow our example is now not just under threat but clearly is seen as history. It may be that quantity of life is the belief of this government (and the defocusing on climate change is another example) rather than quality of life and the desire to lead lives that are worth living. We do have average levels of material wealth in this country that are envied in many countries and much that our democracy and ability to live relatively freely within out nation that propels many to want to live here.

Yet, in a global economy, it appears that materialism is now the only objective as we go back in time to the nineteenth century. This time, we have no excuses. Human rights as enshrined in the United Nations Declaration of Human Rights are essential components of how we should not just run our own country but how we should see the world.

On December 10, 1948 the General Assembly of the United Nations adopted and proclaimed the Universal Declaration of Human Rights the full text of which appears in the following pages. Following this historic act the Assembly called upon all Member countries to publicize the text of the Declaration and “to cause it to be disseminated, displayed, read and expounded principally in schools and other educational institutions, without distinction based on the political status of countries or territories.”

 

PREAMBLE

  • Whereas recognition of the inherent dignity and of the equal and inalienable rights of all members of the human family is the foundation of freedom, justice and peace in the world, 
Whereas disregard and contempt for human rights have resulted in barbarous acts which have outraged the conscience of mankind, and the advent of a world in which human beings shall enjoy freedom of speech and belief and freedom from fear and want has been proclaimed as the highest aspiration of the common people, 
Whereas it is essential, if man is not to be compelled to have recourse, as a last resort, to rebellion against tyranny and oppression, that human rights should be protected by the rule of law, 
Whereas it is essential to promote the development of friendly relations between nations, 
Whereas the peoples of the United Nations have in the Charter reaffirmed their faith in fundamental human rights, in the dignity and worth of the human person and in the equal rights of men and women and have determined to promote social progress and better standards of life in larger freedom, 
Whereas Member States have pledged themselves to achieve, in co-operation with the United Nations, the promotion of universal respect for and observance of human rights and fundamental freedoms, 
Whereas a common understanding of these rights and freedoms is of the greatest importance for the full realization of this pledge,

 

Now, Therefore THE GENERAL ASSEMBLY proclaims THIS UNIVERSAL DECLARATION OF HUMAN RIGHTS as a common standard of achievement for all peoples and all nations, to the end that every individual and every organ of society, keeping this Declaration constantly in mind, shall strive by teaching and education to promote respect for these rights and freedoms and by progressive measures, national and international, to secure their universal and effective recognition and observance, both among the peoples of Member States themselves and among the peoples of territories under their jurisdiction.

Article 1.

  • All human beings are born free and equal in dignity and rights.They are endowed with reason and conscience and should act towards one another in a spirit of brotherhood.

Article 2.

  • Everyone is entitled to all the rights and freedoms set forth in this Declaration, without distinction of any kind, such as race, colour, sex, language, religion, political or other opinion, national or social origin, property, birth or other status. Furthermore, no distinction shall be made on the basis of the political, jurisdictional or international status of the country or territory to which a person belongs, whether it be independent, trust, non-self-governing or under any other limitation of sovereignty.

Article 3.

  • Everyone has the right to life, liberty and security of person.

Article 4.

  • No one shall be held in slavery or servitude; slavery and the slave trade shall be prohibited in all their forms.

Article 5.

  • No one shall be subjected to torture or to cruel, inhuman or degrading treatment or punishment.

Article 6.

  • Everyone has the right to recognition everywhere as a person before the law.

Article 7.

  • All are equal before the law and are entitled without any discrimination to equal protection of the law. All are entitled to equal protection against any discrimination in violation of this Declaration and against any incitement to such discrimination.

Article 8.

  • Everyone has the right to an effective remedy by the competent national tribunals for acts violating the fundamental rights granted him by the constitution or by law.

Article 9.

  • No one shall be subjected to arbitrary arrest, detention or exile.

Article 10.

  • Everyone is entitled in full equality to a fair and public hearing by an independent and impartial tribunal, in the determination of his rights and obligations and of any criminal charge against him.

Article 11.

  • (1) Everyone charged with a penal offence has the right to be presumed innocent until proved guilty according to law in a public trial at which he has had all the guarantees necessary for his defence.
(2) No one shall be held guilty of any penal offence on account of any act or omission which did not constitute a penal offence, under national or international law, at the time when it was committed. Nor shall a heavier penalty be imposed than the one that was applicable at the time the penal offence was committed.

Article 12.

  • No one shall be subjected to arbitrary interference with his privacy, family, home or correspondence, nor to attacks upon his honour and reputation. Everyone has the right to the protection of the law against such interference or attacks.

Article 13.

  • (1) Everyone has the right to freedom of movement and residence within the borders of each state.
(2) Everyone has the right to leave any country, including his own, and to return to his country.

Article 14.

  • (1) Everyone has the right to seek and to enjoy in other countries asylum from persecution.
(2) This right may not be invoked in the case of prosecutions genuinely arising from non-political crimes or from acts contrary to the purposes and principles of the United Nations.

Article 15.

  • (1) Everyone has the right to a nationality.
(2) No one shall be arbitrarily deprived of his nationality nor denied the right to change his nationality.

Article 16.

  • (1) Men and women of full age, without any limitation due to race, nationality or religion, have the right to marry and to found a family. They are entitled to equal rights as to marriage, during marriage and at its dissolution.
(2) Marriage shall be entered into only with the free and full consent of the intending spouses.
(3) The family is the natural and fundamental group unit of society and is entitled to protection by society and the State.

Article 17.

  • (1) Everyone has the right to own property alone as well as in association with others.
(2) No one shall be arbitrarily deprived of his property.

Article 18.

  • Everyone has the right to freedom of thought, conscience and religion; this right includes freedom to change his religion or belief, and freedom, either alone or in community with others and in public or private, to manifest his religion or belief in teaching, practice, worship and observance.

Article 19.

  • Everyone has the right to freedom of opinion and expression; this right includes freedom to hold opinions without interference and to seek, receive and impart information and ideas through any media and regardless of frontiers.

Article 20.

  • (1) Everyone has the right to freedom of peaceful assembly and association.
(2) No one may be compelled to belong to an association.

Article 21.

  • (1) Everyone has the right to take part in the government of his country, directly or through freely chosen representatives.
(2) Everyone has the right of equal access to public service in his country.
(3) The will of the people shall be the basis of the authority of government; this will shall be expressed in periodic and genuine elections which shall be by universal and equal suffrage and shall be held by secret vote or by equivalent free voting procedures.

Article 22.

  • Everyone, as a member of society, has the right to social security and is entitled to realization, through national effort and international co-operation and in accordance with the organization and resources of each State, of the economic, social and cultural rights indispensable for his dignity and the free development of his personality.

Article 23.

  • (1) Everyone has the right to work, to free choice of employment, to just and favourable conditions of work and to protection against unemployment.
(2) Everyone, without any discrimination, has the right to equal pay for equal work.
(3) Everyone who works has the right to just and favourable remuneration ensuring for himself and his family an existence worthy of human dignity, and supplemented, if necessary, by other means of social protection.
(4) Everyone has the right to form and to join trade unions for the protection of his interests.

Article 24.

  • Everyone has the right to rest and leisure, including reasonable limitation of working hours and periodic holidays with pay.

Article 25.

  • (1) Everyone has the right to a standard of living adequate for the health and well-being of himself and of his family, including food, clothing, housing and medical care and necessary social services, and the right to security in the event of unemployment, sickness, disability, widowhood, old age or other lack of livelihood in circumstances beyond his control.
(2) Motherhood and childhood are entitled to special care and assistance. All children, whether born in or out of wedlock, shall enjoy the same social protection.

Article 26.

  • (1) Everyone has the right to education. Education shall be free, at least in the elementary and fundamental stages. Elementary education shall be compulsory. Technical and professional education shall be made generally available and higher education shall be equally accessible to all on the basis of merit.
(2) Education shall be directed to the full development of the human personality and to the strengthening of respect for human rights and fundamental freedoms. It shall promote understanding, tolerance and friendship among all nations, racial or religious groups, and shall further the activities of the United Nations for the maintenance of peace.
(3) Parents have a prior right to choose the kind of education that shall be given to their children.

Article 27.

  • (1) Everyone has the right freely to participate in the cultural life of the community, to enjoy the arts and to share in scientific advancement and its benefits.
(2) Everyone has the right to the protection of the moral and material interests resulting from any scientific, literary or artistic production of which he is the author.

Article 28.

  • Everyone is entitled to a social and international order in which the rights and freedoms set forth in this Declaration can be fully realized.

Article 29.

  • (1) Everyone has duties to the community in which alone the free and full development of his personality is possible.
(2) In the exercise of his rights and freedoms, everyone shall be subject only to such limitations as are determined by law solely for the purpose of securing due recognition and respect for the rights and freedoms of others and of meeting the just requirements of morality, public order and the general welfare in a democratic society.
(3) These rights and freedoms may in no case be exercised contrary to the purposes and principles of the United Nations.

Article 30.

  • Nothing in this Declaration may be interpreted as implying for any State, group or person any right to engage in any activity or to perform any act aimed at the destruction of any of the rights and freedoms set forth herein.Human Rights

Why use GDP for our EU Membership Fees?

There was some useful analysis in the Financial Times on how the charge for the UK’s membership is calculated but the real question should be how the UK’s membership fee is actually derived and whether it is proper to do so in that way.

75% of our membership fee is based on Gross National Income – see Eurostat website – basically GDP plus overseas resident income less foreigners’ income from the UK.

The base of GDP (so well explained in Diane Coyle’s recent book “GDP“)  is fraught with problems as GDP is a measure of gross output in reality and not a real measure of wealth. In addition, it seems that there is no sense of income per head of population so that we could be getting poorer per head and still pay more into the EU.

The focus on GDP (imports and VAT making up the rest of the membership fee) should be what we focus upon. While sales figures may be fine as the base for membership clubs, using it as the major source of our EU fee is problematical and deserves more scrutiny as GDP was never intended to become the source for such calculations but is a lazy measurement – ignoring, for example, factors for wealth per capita.

In a 21st Century organisation such as the EU, the cost of running the central bureaucracy should be something that is transparent, understood and rational. It is now time for a thorough review of our membership fee – and an understanding of how we are taxed to pay for the EU political hub in Brussels.

The USA rebelled over taxation without representation and it is interesting that we in the UK (the electors) have never been asked about this issue – maybe minor in terms of our GDP but clearly a raw nerve. There is a rebellion around the concept of the UK within the EU and the fact that our membership costs are not understood (by the Treasury as well as the rest of us by all accounts) does need to be remedied.

 

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.

 

 

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.

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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.

Being Cynical about Natural Capitalism

A Cynic “Knows the Price of Everything and the Value of Nothing” – Oscar Wilde

The World Forum on Natural Capital took place in Edinburgh from 21-22 November 2013. This was around 18 months after the Natural Capital Commission was set up in England – see my earlier note on this.

The stated aim is to develop a way of costing the natural environment. In Scotland, the host for the Forum, the Scottish Wildlife Trust stated this as:

  1. Calculate the monetary value of Scotland’s natural capital and the cost of depleting it. This will involve coordinating experts including accountants, people from business, academics and policymakers.
  2. Communicate to a broad range of businesses and other stakeholders the risk of depleting Scotland’s natural capital and the huge economic value from protecting and enhancing it.
  3. Set up collaborative projects to deliver tangible action to protect and enhance Scotland’s natural capital.

Now, I am sure that all those accountants, business people, academics and so on are completely transparent about the not just perceived benefits but also the pitfalls of accounting for natural assets. I hesitate to criticize my own profession (yes, I am a qualified accountant) but the relatively simple task of accounting for profits, business assets, transfer prices, taxation, royalties, inflation, shareholder value and the myriad of other pricing mechanisms is an industry in itself.

Valuations of properties and land values (land which is marketable) are very difficult; valuations of anything is except in key market driven areas. So, before we consider whether everything should have a price, can everything be priced?

Pricing in the eye of the beholder

Michael Sandel has written vividly about the dangers inherent in pricing everything. The market continues to stretch itself to many aspects of our lives – to everything a price. Oscar Wilde described a cynic as “A man who knows the price of everything and the value of nothing.”

Well, maybe it is time to be a little cynical. The Greek Cynics such as Diogenes believed that humans should be rid of worldly goods and live as close to nature as nature intended.

To them, “natural capitalism” would be a paradox and if the word “cynic” has been usurped to mean one who distrusts others’ motives (a somewhat jaded negativity), then it is still worth us having a good look before we hurtle into the world of valuing nature – purportedly to enable it to survive.

The problem for us all is that we (humans) seem to respond automatically to numbers. Whether it is GDP or wages and salaries or league tables or baseball and cricket statistics or KPI’s or health targets or bankers’ bonuses, the human mind seems to adopt numbers as the common language. This has had ridiculous consequences.

We now actually believe that Gross Domestic Product calculations are a real and meaningful simulation of the value of our existence. We may note that GDP rose when the BP oil spill was in the headlines because of the way that GDP is counted. We may know that GDP rose enormously when the Viet Nam War was in full flight – a rise in our prosperity at the time when so many were dying. We may note lots of things and then discount the “knowing” as we allow our brains to consider only the number.

Just like economic theory is a very poor simulation of reality, using numbers to simulate life is very difficult and a very poor approximation of reality.

Pricing is in the eye of the beholder. When there are many of the same item and large numbers of buyers, then prices can be developed that (at a particular time) can be adjudged reasonable. A day later and the price will change; a bit more demand and the price may rise if the supply stays the same or there is no alternative; a bit less demand and the reverse – all other things being equal (which hey never are).

Yet, pricing is the underpinning of the marketplace and serves its purpose – allowing us to satisfy demand through the pricing mechanism. Where it is less workable is where the market is not large enough or where the item being priced is unique.

For a work of art, this does not matter too much. Such a work of art as the Francis Bacon triptych which recently sold for $142m or the $58.4m for a Jeff Koons painting potentially hurts no-one but the wealthy buyer should the price collapse overnight. Anyway, no one will be revaluing these works until they are re-sold. While the loss to public exhibition may be a shame (if they are kept locked away) it is not a tragedy.

For our natural capital, there is a different set of criteria.

Valuing quality

 Traditionally, major projects have used a form of cost-benefit analysis. Prices or costs are provided to each part of a project and the benefits calculated overall. In this way, countless projects (corporate and public sector) are continuously appraised.

Recently, the HS2 rail project proposal in the UK has been treated in this way. HS2 is a plan to link London to the north of England by a £50 billion investment programme (which some think will rise to £80bn) – to speed up rail links and to provide much more capacity. In this way, it is believed that significant benefits will accrue to the northern towns (although many see the benefits accruing to London as more northern towns become commuter towns for the capital).

As Frank Ackerman (an Environmental Economist) wrote in 2008 in an excellent paper for Friends of the Earth that there are six major flaws with cost-benefit analysis that he calls:

  •    Pricing the priceless
  •   Troubling Trade-offs
  •   Uncertainty and Precaution
  •   Distorting the Future
  •   Exaggerated costs
  •   Partisans and Technicalities

His paper warns against the simplistic tendency of cost-benefit analysis – its atomistic view of the world (a world of numerical opinions – usually slanted towards where the answer is directed to be).

The alternatives to simplistic cost-benefit analysis include one (the precautionary approach) that approximates to Nassim Nicholas Taleb’s antifragility proposition – or at least an approach tending to resilience.

The inclusion of natural phenomena and the benefits that accrue from them into a numbers game is a tremendous risk. It suggests that we hurtle towards some valuation methodology because we are caught up in the spirit of pricing everything. Yet, we don’t hesitate enough to consider the ability of the valuers (those who make the key assumptions which drive the computations) – which include those who work backwards from decisions they want taken to those who are inadequate in their assumptive judgements.

It is normal for large projects to overrun in terms of cost by two to three times and most large projects overrun substantially on timescale. This means that basic projects cannot be properly valued – how difficult is it to put a price on our natural capital and use those calculations in determining how we use the natural resources / capital? It is not our ability to compute that is at question – it is a mix of our ability to ask the right questions, to set the right assumptions and to reason on a qualitative basis.

Private and Public (People) needs

The sectors involved in developing natural capital accounting and using them for decisions are naturally coming at this from different directions. The private sector, especially large companies naturally concerned about the long-term sustainability of their businesses, need to evaluate their impact on the environment and on their raw material base in order to see their long-term survivability.

This is an essential survival tactic in a world with limited access to natural resources and where it is understood by companies that their customers are also taking impact on environment (for example) seriously. For almost all businesses, taking account of natural capital is a fundamental need of the 21st Century marketplace but should not be seen as companies becoming primarily societally driven. Accounting for natural capital wherever possible is a natural go-to for business. It sets up an accounting mechanism which, after all, is the basic language of business and which can be used for decision-making and for influencing those decisions internally and externally.

The external decision-makers are citizens – local, regional, national and international – often (not always) represented by the public sector (and, in many countries, misrepresented).

Quantity versus Quality

 

The problem for people (us) is, of course, fundamentally different to those of businesses that are fighting for long-term sustainability and want to manage their use of resources (and look for substitutes) and help the marketplace to view them as 21st Century businesses that are aware of society’s needs. Accounting for natural capital can help to do that.

Citizens (however grouped) have another consideration – the quality of life outside the quantity of goods and services that they can buy.

Quality of life includes good air to breathe and a sustainable climate – items not quite on Maslow’s hierarchy of needs or developed in his basic needs structure – which was, after all, originally developed for business marketing purposes.

Government (local, regional, national and international) is our representative – tasked with managing our natural capital to our benefit (along with private owners). The key question is whether Government understands that the issues are not just about how business remains sustainable (a world dominated by GDP) but how the quality of life is sustained for all of its citizens. While this includes key quantitative factors such as economic well being, that is not all.

To citizens, the environmental impact of business misuse is not just an “externality” that needs to be costed into business decisions. These so-called externalities are central parts of our existence.

So, one of the key questions is how to develop a framework that incorporates the requirements of the two sectors – private and public (here being used to define what people need) and the issues of quantity and quality.

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Keeping that balance is the key – we should not be overly dependent on the numerically calculative approach as that leads to more goods and services but a natural environment that is depleted not just of raw materials but also the naturally occurring benefits on which life depends.

We cannot completely guard our natural capital either – as that will deprive us of needed goods and services.

Counting the costs and benefits of natural capital may assist in some ways to prolong sustainable business but real leadership on behalf of all of us should understand that counting is a tool – only to be used in certain situations and only as an aid to considered thinking – the use of our human brains in determining qualitative outcomes.

The Business of Sport

                                                                       

The Question: as the gap between elite sport and its fans grows ever-wider, should those who pay for the sport (its fans) expect to have a say, should the communities on which the clubs and associations depend be better treated by those at the top and, if so, how?

Many of us have a love affair with sport – many play it directly and millions watch sport and maybe actively or passively support a team. Sport underpins many of our lives – it makes us fit and provides excitement, motivations, inspiration, team-building and social cohesion.

As the 20th Century went on, professional sport was progressively distanced from the amateur and the fan by its takeover by business interests – initially, the local businessman but later, by international business.

This provides a distancing of ownership from the mass of people that generate the income in an industry that is unlike so many others: where the customers are so involved, often so passionate, often players.

This means that sports authorities (and especially businesses that own the major teams) have a responsibility that is different to other businesses or business organisations. They have a duty of care to their customers around the “game” and how it is played. This opens up the issue of how individuals (or groups of individuals) who are customers can be “played” because of their commitment and what can be done to protect them. There may be lessons for all industries from the examples available.

Business Governance and Sport

Governance in sport impacts many beyond the teams themselves. That is why Deloittes show their involvement in all the following areas :

  • licensing systems for sporting competitions;
  • cost control mechanisms;
  • transparency measures and anti-money laundering;
  • events and/or membership application and selection processes;
  • sporting calendar matters (national and international);
  • regulations in respect of players’ agents;
  • measures to protect the integrity of the competition;
  • independence of clubs – ownership rules and other means of influence;
  • player transfer rules; and
  • ‘football creditors’ rules.

Governance is much wider than this in regard to sport and its impact in  and on society can be shown by three articles in The Independent (Saturday, 18th May) that highlight the difficult interconnections between business and sport (here, England football teams) and the intertwining connection between sport and the community.

·      The first by Chris McGrath attempts to show the worst side (Manchester City’s owners sacking of Roberto Mancini) and the best side (the Portland Timbers superb response to a charity – Make a Wish – for help for an eight-year-old cancer victim).

·      The second (in the business section – Jim Armitage) reflects on the Arsenal blog that shows the support of Doan Nguyen Duc (a wealthy timber merchant from Viet Nam) for Arsenal and questions whether they should take the support (financial and otherwise) from someone that Global Witness (an anti-corruption NGO) says was responsible for much of Viet Nam’s destruction of its forests and the displacement of many people that lived there. He is said to have made the comment: “I think natural resources are limited, and I need to take them before they’re gone”.

·      The third (also in the business section by Simon Read) reports on how Sheffield Wednesday turned down a deal with a “payday lender” which it refuses to name but was said to have offered 25% more than anyone else.

The three articles (I assume “coincidentally” in the same newspaper on the same day) highlight the mistrust of journalists for the businesses behind the clubs but also for the type of ethical questions that the clubs have to consider at this time.  “This time” means at a time when business and the community is undergoing strains and, in football, when the position of a team as part of the community it serves is strained to the full. In the USA, big teams moves State; in the UK, only smaller teams like Wimbledon (now Milton Keynes based) have tried it as fan bases are crucial to the business (even if more revenue than ever is via TV and international support).

Whose business is sport?

It is a long time since amateur sport ruled anywhere (the top tennis players rarely joined the professional circuit until well into the 1960’s; athletics was similar and rugby became professional in the UK in the late 1990’s). In the UK, football was severely structured with maximum wages well into the 1960’s as well and even if clubs were limited liability companies, they were owned by local families who kept them private.

In those days of amateurism, sport was for the community. Players were not paid much (outside the USA) and players were close to those they played in front of, living in the same streets and drinking in the same pubs and clubs.

In the USA, football, basketball and baseball (and ice hockey and the rest) became business pursuits earlier. Europe and the rest of the world (and most sports) have followed. It is now the normal way of life that business had taken over professional sport to the financial benefit of players and (mainly through TV) the income for sport worldwide is now massive.

Whether the Olympics, football (through FIFA and its major tournaments such as the Champions League and World Cup), the Superbowl, 20:20 cricket in India and so many more, sport now generates massive income through its massive fan base and the ability of TV to generate that income. So, there has been a rapid shift by large businesses and entrepreneurs to own sports team and have influence over the organisations that manage sports – such as Formula 1 or baseball or football (of all types).

This income has been generated through the opportunity that sports presents over almost anything else – to transmit excitement visually and aurally through radio, TV and the internet to a mass audience that is entranced by the game played – with an excitement and passion rarely found elsewhere. This mass appeal is now available and reach-able worldwide and with that appeal comes massive advertising revenue (and, with the internet) growth is coming faster.

So, sport (something we all get involved in to some extent) has both appeal as participants and observers (although to a greater extent than anything else, the two are mixed with sport). This appeal is then converted into income for companies that are able to transmit sport into the home – via pay per view, rents and advertising.

Sky in the UK has become a dominant operator (although BT are now incurring on their territory).

Owners of sports teams (especially in football in Europe and all the major sports in the USA) benefit wherever they operate.

The Duty of Sport

Because sport is not just another product and because the “customer” is so involved, there is a chance that sport offers something different. The players are celebrities and, in modern culture, people that youngsters look up to (rightly or wrongly). More people know David Beckham than any politician or scientist – it is a (maybe unfortunate) fact.

This means that businesses involved in sport (and that means the sports clubs and managing organisations themselves) have opportunities to involve themselves with society that is not there for other businesses. Not only that, but they have a duty because of the nature of their business and for their own protection.

This duty can be said to be to serve the community that provides them with the income they derive. This is not about BSkyB or BT doing some CSR. They are the middlemen in all this – the means of transmission. No, this means the sports entities themselves working out how much their “community” means to them and how much they should give back to that community. It can be done.

A good example is Arsenal Football Club that has set up the Arsenal Foundation and, in turn, developed real partnerships with Save the Children (its international charity) and Willow Foundation (a national charity). I have an interest here in that I am Chief Executive of Willow Foundation – which provides special days for seriously ill young adults.

Arsenal is an international business these days but has worked out that it also has local roots and its Foundation works in the local community and with Willow on a national scale. With Save the Children, it operates internationally. At its recent Annual Ball, Arsenal Foundation raised over £300,000. That maybe small compared to the Football Club’s annual revenue of £226 million in 2011, but it is a start. Moreover, the time and effort of the club and those within it (like Arsene Wenger – an Ambassador of the Foundation) are worth a lot.

However, the balance sheet is patchy on sport’s involvement with their support base and through them with the community. There is no real driving force that connects through the massive distance that exists between them. While the same distance exists between many businesses and their customers (banking is a very real example, but the same can be said of energy companies and so many others), there is a very real difference in sport that is both for bad and for good.

The Sporting Difference  – and Opportunity

The business sector has been buffeted by recession and, in such a recession, business leaders and their companies are vulnerable to attack from other sections of society. So, the tax avoiders like Apple, Google, Starbucks and others (all under attack by newly-zealous politicians in the UK and the USA along with the tax havens that they employ) are not just seeing their potential tax bills increase. Their relationship with customers is also under attack that can lead to reduced sales. This may not be the case for Google (now so big and dominant that it may no longer care) but others may well feel the pain.

In the sporting arena, it is easy to see a large array of problems: FIFA and football corruption, allegations on racism across the world, NFL alleged behind-the-scenes collusion on player wages (the NFL is a not-for-profit – which may surprise) and the general disbelief that ordinary fans have with the salaries that players “earn”.

Football in the UK is an example of the changes that have taken place in the last forty years where salaries of £100,000 per week are not unusual (Gareth Bale is negotiating £200,000 a week at Tottenham) and the difference between that and the average wage in the UK of around £25,000 per year is stark.

Taking all this together, sport (as epitomized by the 2012 Olympic Games in London) can be magnificent but clubs and sports organisations have to take notice of the communities upon which they rely. The piecemeal CSR and charitable work should be as competitive as their sport rather than resisted or an afterthought – or done just for publicity.

Sport is a collective experience – whether in teams or the association between individual sports stars and their fans. This provides an opportunity to seal the gap between the stars and the fans that small groups of supporters on their own can never fill.

The link between the stars / clubs / associations (the elite) and the fans / amateur groups has always been a struggle. It is for each club to decide how it deals with the community upon which it depends. Some ensure the players get into the community – at Tottenham Hotspur in London, Ledley King and Jermaine Defoe are well-known for the time they spend with young, inner-City kids and clubs. Other set up Foundations and / or develop relationships with charities (usually connected in some way to the work they are doing or the area they are in).

Heading for Rollerball?

Deloittes produce an annual report on the top football teams – with the last issued in January of 2013.

No one (that I can see) assesses annually the contribution that sport and teams make in society or the potential for that contribution – let alone any analysis on the work individual clubs perform.

Business seems now to be the only driver – which is a Rollerball outlook on sport – a dystopian future that may well be here already. Made in 1975, the film showed the world in 2018 as corporate-controlled where sport was the controller – like 1984 with sport instead of three political blocs fighting each other.

So the Question: as the gap between elite sport and its fans grows ever-wider, should those who pay for the sport (its fans) expect to have a say, should the communities on which the clubs and associations depend be better treated by those at the top and, if so, how?

Bodies such as Sport England, the Department for Culture, Media and Sport and the major associations of all the sports and clubs discuss the wide range of benefits and opportunities that exist. Because it is hard to measure the impact of sport and the part played by big corporations in sport (it is not something easy to measure like GDP), the real impact of large corporations on communities and people in the UK is not assessed.

Like the problems of measuring the benefit of a woodland or a river, our focus on numbers (and scores) misses the potential for large sports organisations to do good – and the result is that newspapers see the Rollerball potential.

The Government has set up a Natural Capital Committee to measure the value of natural capital in the UK. It  just published its first Annual Report

Because of its enormous impact on society and people, one response may be to set up an equivalent in the area of Sport – to assess the benefits and problems associated with the business of sport and the benefits to society, people and communities in ensuring that Sport is well managed for the benefit of as many as possible and that Businesses in Sport gives back to society sufficient of the benefits it derives from those communities and show how they take those communities into account. We would then get to see an Annual Report on the state of sport in the UK.

Trickle-down Economics – The Thatcher Legacy

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This was originally posted in 2013 just after the death of Margaret Thatcher. Now that the Conservatives have amassed a majority at the General Election, I am re-publishing as the message holds even firmer today.

“In our system, everything is done according to a pyramid approach: the order is given from the top and carried out at the base.”

No, this was not Margaret Thatcher but Jiangwen Qu – professor at Kumming’s Centre for Asian Studies, talking about China. (Taken from China’s Silent Army, Juan Pablo Cardenal and Heriberto Araujo).

He went on to say: “We believe that other countries should follow this model, because if you let everybody give their opinion it is difficult to make decisions.”

Yet, it demonstrates how in our so-called democracy, the top-down theory of decision-making was so faulty. Margaret Thatcher won three general elections because the Labour Party was split between the left-wing (originally led by Michael Foot) and the right, which broke away to form the Social Democrats. In the UK’s ridiculous “first-past-the-post” election system, a party needs only 35-40% of the vote for a substantial majority – that was Margaret Thatcher’s luck. This luck had already been seen in her victory over Edward Heath in the leadership contest in 1975 – although it has to be said that she took full advantage of that luck.

Margaret Thatcher always said that she believed in democracy but made great fortune from its deficiencies. Apart from a rigged election system that gives minor parties full majorities, she did not practice democracy in terms of decision-making. Her cabinet (where the Prime Minister is supposed to be prima inter pares – first amongst peers) was where “the order is given from the top and carried out at the base”. This was her style from the time she became Prime Minister to the time she was thrown out by those who had the substance to rebel after 13 years of her idiosyncratic style of democratic rule.

Leadership and Democracy

Within a system such as ours, Margaret Thatcher did not split the country – her support was far less than half the country (usually than 40% of the voting population) and even those that voted for were split between various streams of the Tory party. She fragmented it. Her supporters in 2013 would mainly be found in UKIP today  although she would have still used the Tory Party as it is the only vehicle for power. The split was far worse as it demonstrated that rule of a democratic party would be by just the largest minority and with extreme policies.

Those policies did change the economic landscape that had been moving to rigid control by sclerotic centrist organisations such as Trades unions, Public Sector, old-style corporations and successive governments that had no vision for society.

Thatcher destroyed the comfiness of society in her own terms and put in its place more top-down doctrines around monetarism. Because liberalism had floundered after the first World War, centrist forms such as socialism and corporatism were, it seemed, all that there was left. Even the linking of Liberals and Social Democrats in he 1980’s was to prove a failure of liberalism as the Liberal Party moved towards a centrist European ideal and away from the localism and bias away from the centre that had characterized the party from its inception.

Strong leadership takes advantage of democracy in the UK (and still does) and the trade-off between the two is a constant battle. Where no leadership exists (and this is a story of today) then democracy does not replace it until some form of leadership appears. In the UK, we still have sclerotic centrist organisations that support the status quo and no vision or leadership for the 21st Century that would inspire the change that wealthier and better-educated citizens would aspire to.

The Centre going Forward

There is a massive danger that the completely centrist and statist system operating in China (as quoted in the first paragraph above) will, because of China’s growth and rapid ascendance, come to dominate political thinking the world over. Liberal Democracy is already wilting in western Europe as major decision-making is made by the unelected (in Brussels and for some time in Italy) with nations such as Portugal, Spain, Cyprus and Ireland ruled from the centre (read Germany). This is far away from localism and screams about the loss of Liberalism. The now-disgraced and jailed Chris Huhne remains a fan of the EU and the Euro – not a surprise that his background is social democracy not liberalism.

The 20th Century was a battleground between the forces of darkness epitomized by  extreme Nationalism, Communism and Fascism on one hand and the forces of democracy on the other. Millions lost their lives and millions more suffered in gulags and concentration camps for democracy and the end of extremism.

The 21st Century battleground is more complex as the war between the different political forces of centrist and localism is splintered by the battles for resources and markets (and by the impending battle for climate and conservation) and between north and south and rich and poor and corruptors and corrupted.

Thatcherism knew only Hayek-style liberalism – an understandable reaction against socialism and the fear that fascism was created around that fear. In its place, The Road to Serfdom (Hayek’s best known work and Thatcher’s quasi-bible) postured a place for Government in monetarism and information provision – working to ensure that the market could work through transparent pricing. This was its limit and disregarded the essence of society (although Thatcher did not assert that society did not exist, she might as well) as did Hayek in his complete opposition to anything that wreaked of socialism – even social democracy was something that Hayek viewed as naturally leading to totalitarianism.

The problems that Hayek missed and that Thatcher and Reagan made possible (and that China is already risking) is that while socialism runs everything from the centre, the opposite camp of economic liberalism naturally tends towards a small minority at the top owning all the assets and all the decision-making apparatus. It is clear from the history of the last 30 years that the rich are getting richer while the poor get poorer (in terms of direct wealth and the supporting services offered to them) and that the dynamism needed in society from the other sectors is dying. Margaret Thatcher notoriously believed that there would be a trickle-down effect. That was nonsense and that is now proved.

Worse, a market-led economy which is based around numbers only (with GDP growth as the religion) leads to huge societal dislocations. The NHS is a valid case where management by statistics leads to deaths and the complete abandonment of human character – as evidenced by the maltreatment of the elderly. The opposite system (as in the USA) based on insurance only leads to only the wealthy having good medical services.

Worse, the motivation by quantity alone means that quality of life is abandoned in the drive for more goods. This is the market at work when left to its own devices. The market is driven by the simplest routes to success – numbers. We cannot be solely market-driven even if the market is the best form of driving entrepreneurialism.

People-centricity not Centrism or top-down

Society has experimented with many forms of government and economics. On the latter, we have a general agreement that market-led economics works best, but it is market-led not liberal or libertarian markets. Market-led means that other decision-making mechanisms are relevant wherever the market tends to extremism – such as domination of the market by monopolies or when the rich 1% control all the assets.

In the West, we believe that democracy works best because we all have a stake and are all equal under the law. Huge, developing countries like India and Brazil have similar philosophies but are riven by corruption. China is a centrist “civilization state” which directs from the core and will, at some stage, erupt into democracy. Russia is a centrist state by tradition and a mafia-dominated chaos.

Where we believe in equality under the law, we have to strike balances which Hayek / Thatcher / Reagan economics cannot achieve. This balance has to ensure that the drive is towards the individual but that society steps in to take out excesses. The balance is developed by society – with civil society and civil society organisations strengthened against the powers of the centre wherever they are.

This is far away from a socialist state where assets are owned and / or controlled from the centre and where equalization is the norm. Balance (whatever it is called) rewards entrepreneurship but would not award bankers or managers in the same way. It would not have made the reduction to 45% in the top income tax rate in the UK – whether or not this had been financially sensible in the short-term – as it shows a total disregard to society and the motivation of the great majority of its citizens that are struggling to prosper.

People-centricity and a focus on society using the best of the market and democracy but using brain power and ingenuity as well as technology represent the 21st Century as we struggle against top-down, centrism, climate change, resource degradation and inequality.

It is not what Margaret Thatcher intended as it requires not just the whip but also the driving force of human capability in all areas of society to see beyond the numbers or the desire to control from the top. It is leadership by motivation and inspiration.

With the death of Margaret Thatcher, let’s lay to rest trickle-down economics  along with socialism and fascism.

When Bush Senior said “it’s the economy, stupid”, society was shelved.

Let’s talk society not just economics. Human brain power not numbers. Ingenuity not GDP. Well-being not hospital stats. Quality not quantity. Society not just economics. Real leadership, motivation and inspiration.

Politics and polar bears – the race for extinction

Polar bears evolved into a niche that for thousands of years gave them a status at the top of their local food chain. Global warming is putting paid to that and, swimming from one ice-island to another they give the appearance of a doomed species. It may take some time, but the human race is ensuring that they are no longer suited to the new environment in which they have survived for so long.

Changing Environments

It’s probably less important, but the world is changing for politicians, too. They are suffering from their own form of global warming that shows that they have not sufficiently evolved to meet the demands of the new environment that they face. It is an environment in which the political systems of the 19th century don’t work and the where the fixed mental states of those in politics and who have grown up in politics and nurtured by 19th and 20th Century models no longer have the validity or purpose that they once did. Populations see them incapable of creating the conditions for us to live well and are giving up on them.

Voting is down to 50% in many democracies; in Western Europe, corruption and greed has isolated the political factions from their people. When Mario Monti said in an article in Spiegel recently, “If governments allow themselves to be entirely bound to the decisions of their parliament, without protecting their own freedom to act, a break up of Europe would be a more probable outcome than deeper integration”, then you know the game is up. Politicians and the people are separated and democracy itself us in danger.

When you have evolved into something of no use, then it is time to give way or you erode (or, worse, implode) with time.

Fukuyama believed that politics had evolved successfully and that liberal democracy had won. The problem with that analysis (apart from being plainly wrong, as he now agrees) is that he was providing an answer to the wrong question. The question was not which political system out of communism, fascism or democracy would win. Nor, was it a question about whether capitalism in one form or other would win – we know the market has its place on the winner’s podium already.

No, the question to be asked is more fundamental – what is the role of government in a modern society? Monti would argue that democracy might well not be part of it. There are other, better positions.

“The Gardens of Democracy” by Eric Liu and Nick Hanauer (http://www.amazon.co.uk/The-Gardens-Democracy-Citizenship-ebook/dp/B0061S3UMA/ref=sr_1_1?ie=UTF8&qid=1344783105&sr=8-1) describes, from an American vantage point, the type of new politics (combined with new economics and new citizenships) that could dominate in the future. More a long pamphlet (but no less important for its Tom Paine comparisons) than a major book, it describes the “big what and the small how” of politics in the 21st Century. But, it will require a sea change in politics and in politicians and take us well away from the technocratic (mechanical) notions of 19th Century thinking.

What is different now?

Liu and Hanauer’s work is based on discoveries made in the late 20th Century in places like the Santa Fe Institute (they base much of their work on the Eric Beinhocker’s great book “The Origin of Wealth”) into complexity and the new rules that completely shake the 19th Century idealism of economics doctrine that still rules (mainly through econometrics – the 20th Century form of alchemy) the policies of the 21st Century.

They bind together the new guidelines into citizenship and politics and, probably for the first time, attempt to develop a society-wide thesis based on the new rules. It is a bold attempt and no different to the aims of Common Threads (this blog) – to rid ourselves of 19th Century prescriptions based on Newtonian (they call it “mechanical”) rules and forward to what they call “gardening” – the desire for politics to shape and cajole (and, as necessary, fund and intervene) but not to control or to allow the unfettered invisible hand of the markets to run riot.

While their focus is on the USA (developing a point of attack against both free marketeers such as the Republicans – or, worse, the Tea Party – and the pro-government-does-all wing of the Democrats), this is a model for all nations.

What is different now is that in many countries people are tired of the old left against right philosophies and are reaching (or have already reached) a level of economic “wealth” (at least measured by numbers) that should allow us to turn our minds to what actually matters – Maslow’s self-actualization but on a global scale. More than this, education is sufficient for people no longer to want to be ruled by governments in every sphere of life but educated enough to know that massive income variations should not be the norm and that society is important – it is our position in society that matters more than the material wealth on its own.

As a Brit, nothing is clearer than the genuine pride shown during the 2012 Olympics – a pride of a nation that (despite may problems) has provided a high value games with genuine affection for all nations as well as pride in itself. The pride of the many volunteers that contributed will resound as long as the concerns over the amount it cost. This was a society working together – a form of national self-actualization.

This self-actualization has to take us away from the mechanical drudge of being a cog in a wheel – focused only on what monetary wealth provides – to a society that encourages growth of all its citizens. That growth is whatever we believe to be important and government’s role is to help us understand what that is (not “tell” – this is not a totalitarian regime proposal) and assist in attainment. It means  (according to Liu and Hanauer) the “big what” – i.e. what we aim for – and the “small how” (i.e. not controlling how we get there but aiding the process).

Politicians as leaders not controllers

Society in the developed world is driven (in the main) by money. We count our wealth in dollars or euros or pounds or yen or yuan. But, we all know that there is more to life than that. Our memories of our lives are far more than how much money we make – they are of family, education, learning, books we have read or films we have seen or football matches played in or viewed, pride in our kids, helping loved ones over illnesses or a myriad of other prized mental possessions.

Yet, modern society always seems hell-bent on just monetary gain – “it’s the economy, stupid”. This is a 19th Century concept given heart by 20th Century victories of democracies run on market economics against totalitarianism, communism and fascism. The result was a victory that was far, far better than the alternatives. We now have a chance to modify that victory and show that the 21st Century offers more than the Chinese alternative of a market economy driven by a legalist clique that fears for its life. Competing on those terms is not what we should consider.

The market economy is the best worst option but not as a free (unfettered) one. Government has to play a role and Liu and Hanauer point us towards that role.

The role of government changes in this worldview and the role of politicians, too. Instead of CEO’s in charge of a business, Liu and Hanauer propose that they become gardeners – working out the general landscape and then tilling the soil, weeding and watering the plants, as it needs it. This is a worldview that is consistent with the way the world works – not the way that 19th Century politicians and economists have developed the simulation.

What’s the next step?

I have been interested in complexity and the new findings of this deeper, richer analysis of how the world works since the 1980’s when I attended a lecture in London on complexity in business – with Michael McMasters, then a guru of the subject. Murray Gell-Mann (who found the quark) and Stuart Kauffman were presenters amongst a stellar mix of experts in science and economics. Work done at places like the Santa Fe Institute and elsewhere have pushed the boundaries of thinking in this area and there are now areas where this new (er) thinking is taking hold. Eric Beinhocker’s recent article in the Independent  (http://blogs.independent.co.uk/2012/08/08/new-economic-thinking-and-the-potential-to-transform-politics/) which highlights the Liu and Hanauer book also provides an example of how computing technology is assisting the process – how the difficult arguments of complexity can be made real.

However, in the last thirty years (since I attended that conference), it has been hard to see the visible signs on a macro-scale that complexity has made to make a difference in a society that is driven by simplicity – the drive to count based on GDP and earnings.

Liu and Hanauer have in a large pamphlet done something important in working to make a tough subject easier to understand. Now, we should be shouting like Tom Paine and working to establish such thinking in schools and universities and to challenge our leaders to address the world’s problems through the dose of reality that complexity provides. This is a major challenge of explanation no less important than any other doctrinal assertion over the years but without (yet) the simplistic notions that the Tea Party or labour rights or communism or centralized government (or left vs. right) have.