Scotland and the UK’s Democratic Deficit

It was Bogdanov who coined the phrase “the Dictatorship of Democracy” to describe one of the options for a post-Imperialist Russia. It was Mao Zedong who used the term “Democratic Dictatorship” to Orwellianise the role of the Chinese people to attack the Imperialist spirit of Chiang Kai-Shek.

It may be harsh to turn this phrase on to the UK, but the current referendum in Scotland is showing that there is certainly a Democratic Deficit that being used to characterize why Scotland is turning towards independence (or at the least more devolution) and why English regions and Wales are now excited by the prospect of real, permanent and growing change.

The UK has always had a centralized system of government. Based on English and Scottish monarchic government, the gradual transfer of power to a London-based Parliament composed of the Commons and the Lords testifies to the history of nations that willed government to the centre.

Regional challenges have, over the years, been destroyed – at least until recently. Nothing signified this more than Margaret Thatcher’s destruction of the Greater London Council in 1986 after Labour had won the elections and the Conservative Government could no longer stand its independence. The reinvigoration of London in its new formation – under both Labour and Conservative Mayors – served to provide a key opportunity to test whether the political centre could resist.

Devolution in Scotland and Wales (and the cross-party and cross-religion agreements in Northern Ireland) has been seen as the centre’s evolutionary resistance to change. It was not until the Scotland Act 1998 (just 16 years ago) that devolution was allowed there – having failed in the 1970’s because those in favour of devolution counted to less than 40% of those eligible to vote.

Partly because of the system of elections in the UK (which are first-past-the-post), Governments in the UK have tended to be elected with small percentages of the national vote (around 40%). As a result, the largest minorities gain the majority of the seats (except on rare occasions such as in 2010) and form the Government. This means that regions and nations such as Scotland and Wales may be governed by parties and ideals completely at odds with their own leanings.

For Scotland and Wales, this has been especially galling as they are both, in recent years, anti-Conservative. Whatever they stand for, the Conservatives are not seen in either country as their own. In England, the same can be said for many areas – the South-West (Liberal-leaning), Midlands and North (Labour). It is the south of England (centred around the highly prosperous heartland of London) that dominates national thought and population. Interestingly, London itself is not a Conservative heartland with a tendency towards social democratic ideals, but the outer London Boroughs and the rest of the South-East are dominated by Tory blue.

Democractic Deficit

Centralisation of power is the norm in the UK. The Centre makes all the decisions and regions (outside of Scotland) have modest powers. Most local authorities have decision-making authority over budgets for street lighting, refuse collection, local social care, local policing and similar but the assault on education and on local authority funding from the centre has been fierce in recent years and strengthened the stranglehold of Central Government. Education is a good example. The vast majority of state secondary schools are now Academies – outside of local control and reporting directly to the Secretary of State for Education. There is argument on both sides, but the centering of power into the Department for Education shows itself as part of a default mechanism in England. In Scotland and Wales, this has not occurred.

For Scots, the desire for change has been in evidence since the failed referendum in 1979. The recent debates on Independence focus on the “Yes” position as positive and the “No” position as negative (even if it is named “Better Together” the argument of this position has been entirely negative). David Cameron may have punctured the UK by allowing the referendum to be characterised in this way and none of the UK parties have been able to capture the essence of what positively makes the UK worth having apart from a nod to tradition and the past.

The reality, though, is not much different. Scots do not see the Conservative Party as relevant to them and while devolution has provided much decision-making power, the voice of the UK, spoken through Cameron and his ministers, is a daily reminder of the downside of Unionism. That voice speaks from elsewhere.

Before Cameron was Brown and Blair. Blair was characterized by centrist governance, dogma and, although leading Labour, was still seen to represent a distant (by miles and ideas) government. Brown was so dogged by problems (international finance and personal) that despite being Scottish, he fared no better. He was also a “died in the wool” centrist.

This has meant that the desire for self-government is also a desire for real “voice” – one that inspires people. Most Scots are no longer inspired by politicians that they see as remote in terms of distance and in terms of policies. Around half the Scots may well vote that way on 18th September.

Democratising the “Democratic Deficit”

The dictatorship of democracy (that leads to the democratic deficit) by the largest minority is central to UK politics and has been throughout its history in a country that has a relatively benign and social population. Of course, this is not the case in Ireland – a special case. In the rest of the UK (Great Britain), the democratic deficit has not caused national strife since the Civil War in the 17th Century – where there was no democratic ideal even with Cromwell. Apart from skirmishes (such as over the poll tax under Margaret Thatcher), British people have been notably sanguine. There was no Freedom of Information until Tony Blair (and there are many exceptions to this) and ministerial privilege can overturn national accountability such as in the alleged corruption at BAe Systems in Saudi Arabia.

However, the Scots have slightly opened Pandora’s box. Out of this referendum may well come the opportunity to reduce the deficit at least. This has long been a Liberal tradition – blind-sided by the link with Social Democrats in the 1970’s – before the Liberal Democrats came into being. Liberalism was meant to enshrine the spirit of “localism” – against the centrist doctrines of Conservatives and Labour. This localism would have prized a federal Europe (EU) and been at the forefront of devolution for Scotland, Wales and the regions of England.

Devolving as much power as possible to the most local area possible reduces the Democratic Deficit. This is hated by traditional politicians because it loosens power. In a world where national politics is such a profession, it becomes harder to achieve. It is argued that local power begets local corruption – the type of prolonged power that means the same party stays in power for too long and becomes corrupted.

This means that the second pillar of Liberalism, voting by proportional representation, is needed to offset the potential for local dictatorships.

The people of the UK are not naturally inclined to shake up the centre and their desire to maintain first-past-the-post elections shows a desire for little change. It may be that the Scots show the way to change and a reduction in the Democratic Deficit whether they vote “Yes” or “No” on 18th September. It may be a big decision for the Scots – it it already a potential game changer for democracy in the whole of the potentially dis-United Kingdom.

Russia = Putin = Corruption = Disaster

and how to “PEP” up sanctions

 

Ben Judah has a great article on the Russian problem in today’s (July 27, 2014) Sunday Times which can be summarized as a set of simple equalities:

 

Russia = Putin = Corruption = Disaster

 

In Stalin’s time, the USSR (especially in the period after the Second World War to his death in 1953) was equated with one man – Stalin – and he ruled through intense fear. When Gorbachev succeeded in the destabilization of the Soviet Union, the West believed that the tumbling Berlin Wall symbolized the breakdown of Soviet norms, the ending of Communism and the establishment of democracy.

 

What was misunderstood (and remains misunderstood) was that the intrusion of market economics into an historically centralized set of nations that made up the USSR had massive risks. The risks were not considered by the libertarian economists that ruled in the 1980’s and for some time after that. In mature economies, the rivalry between Keynes and Hayek could be maintained with pendulum swings from one to the other as decades passed. Indeed, as we now know (or some of us know) the drive towards economic equilibrium is a fantasy but mature economies can adjust regularly and maintain decent GDP growth (even if the measure if substantively flawed).

 

In the newly emerging states that had formed the Soviet Union, the drive for libertarian economies in states that were predominantly centralized in terms of power and decision-making led (without any real checks and balances) to an elite ownership of resources (mainly natural resources) through which wealth in such under-developed economies was generated. Thus, the oligarchs were formed – and they have dominated those states ever since.

 

The oligarchic state is driven by elites and supported by fear, corruption and domination of those not in power. To many in those countries, this is just another chapter in their history of such elite domination. The incipient middle class (as Ben Judah points out), which had been promised a new world order, is now dispossessed. The working class sees no change and as long as jobs are there for them cannot force themselves to complain.

 

Into this oligarchic domain, Vladimir Putin has risen to the top. He is no more than the prime oligarch – the most elite in a country of corrupt elites. His ability to clean up the chaos after Yeltsin and to show who’s boss in a country that always seemed to prefer strong, central leadership (an ingrained characteristic made part of the Russian DNA for centuries) meant that he could dominate political and economic levers. Those who he considered risks were quickly destroyed (sent to prison or even killed). He is not Stalin and he does not control the masses because of a communist-type brainwashing. There is no-one in Russia who believes he has a moral suasion. It is the immoral suasion of power through corruption that keeps him in power and he is tolerated by many and venerated by many others for just that.

 

This power through corruption showed itself in a country like Ukraine. Yanukovych was simply Putin’s oligarch in situ – his corrupted vassal in Russia’s little sister. The danger to Putin that began with Yanukovych’s downfall was stark and a risk to his strategy of power through corruption. When people (some who may well be of the extreme right and no better for that) rise up and force out one strand of corruption in a vassal state, it is a danger for Russia and Putin in particular. This could not be tolerated.

 

It has led directly to the deaths of 298 passengers on Malaysian Airways flight MH-17, most likely hit by missiles from a Russian Buk anti-air missile system stationed in Eatern Ukraine and manned by Ukrainian dissidents. This disaster is a natural outcrop from the corruption at the heart of Russia and Ukraine. In my earlier paper on this I showed the Triangle of Misrule at the heart of such societies:

 

 Slide1

 

This triangle which engulfed Russia and several of its ex-Soviet Union states, now impinges on the West. The deaths of 298 people from across the world as a direct result of Russian corruption provides a shocking example of the risks. Putin has put himself above the law in Russia in a similar way to the Chinese politburo in China and the dos Santos family in Angola (and many others around the world).

 

The UK has played its part in that London has acted as the money-launderer for many oligarchs that have bought properties here and used the banking system to wash money corruptly (although not illegally under Russian law – until Putin changes the implementation of those laws) gained.

Sanctions

As the West considers its next move, it should be ensuring that each and every wealthy Russian seeking to move money outside of Russia is seen as a PEP (politically exposed person). Banks have to treat individuals that are politically entrenched in their own countries and have to seek assurances that their money is not the result of illicit political activities.

 

In Russia, every oligarch has been involved politically – that is how most obtained the “rights” to natural resources or phone systems or whatever in order to make their money. Why not do the obvious and require each bank world-wide that is asked to deal with such individuals to treat them all as PEP’s unless they can prove otherwise? FATF (Financial Action Task Force) produces guidelines on PEPs which describe them as people who have had or have a prominent position that can be abused. In endemically corrupt nations, all senior corporate positions are such – you don’t have to be a government minister or civil servant to have a prominent position that can be abused (or where the prominent position was the result of such abuse).

 

Make all such oligarchs and their staff and their lawyers and accountants PEP’s. It won’t stop them doing business but it could reduce their ability to flow their corrupt money around the world – and money is the basis for their power. It is also the basis for Putin’s – a PEP if ever there was one who has used the banking system and hidden behind the opacity of trusts and companies seemingly owned by others to stash billions outside Russia. Now is the time for Governments to deliver on better transparency in international cash flows and identities of companies and trusts.

 

Opacity = corruption = elites = Putin = Disaster

 

 

Going Soft on Power

We are all looking back on 2012 as the year when the UK has been said to lead the way in a number of areas – the Olympics, Sir Bradley Wiggins and the Tour de France, Murray and the US Open, James Bond and the Queen, with Danny Boyle wrapping it all up to show the UK on the side of good.

But, like every nation, we are not just the nice guys. The UK has also become better known internationally for bribery and bank irregularities (LIBOR fixing, money laundering for terrorists), the Leveson inquiry into the press and phone hacking, the indictment of our police over Hillsborough, alleged police wrongdoing that led to a cabinet minister resigning (Andrew Mitchell) and Jimmy Savile reminding us all of what this country was like just recently.

So, 2012 has been a very strange year for the UK – a “curate’s egg” of a year. Monocle Magazine (itself named after an eyepiece that was popular in the 19th Century) rated the UK the world’s top “Soft Power” in 2012 as a result of the Olympics, Murray’s tennis feats and James Bond (among other things). Yet, at the same time, our banks are being shown up for massive failures on LIBOR, HSBC’s lack of control and willingness to allow money laundering on an exceptional scale and the recent Rolls Royce bribery allegations.

The UK is home to amazing ideals and potential: from sports stars and a tremendous passion for sport, home of democratic freedoms, a country based on welcoming the world to its shores and an internationalism based on a long-lost Empire and a need to be important but be seen to be doing the right thing; an independent spirit that makes us not want to be subsumed in Europe or the USA but to straddle the middle and be all things to all.

The UK is also home to the World Wildlife Fund and to a host of NGO’s and charities that see the UK as the centre of the struggle for the world to be a better place. Our aid programme (directed by DfID) is well-meaning even if sometimes misguided (recent nonsense in Rwanda being a good example).

Yet, business and financial irregularity brings our self-righteousness back to earth with a bump.  While we may be able to export a high degree of soft power through our great sporting and artistic talents, a nation like the UK has to be wary that its reputation is not completely destroyed by letting our ancient mercantile and trading instincts come first. Sometimes we don’t know if we are on the side of James Bond or SMERSH.

Britain’s “export” trade

The UK was a mercantile nation well before becoming the first into the Industrial Age and its Empire was established on the back of pioneering instincts and a trading mentality – heavily mixed with politics and ownership. Our wealth was built on the back of exploration and an eye for what sold well – whether it was gold or slaves.

Whereas the Chinese and its tributary system did not seek to rule the countries with which it traded, the UK sought vertical integration through Empire. It exported its laws, its systems, its language and its instincts throughout the world – the good and the bad. Writers like Niall Ferguson have debated whether, on balance, the British Empire has done good or bad overall, but, like the apology being demanded currently for Turing, this is history. As AN Wilson so majestically says in “The Elizabethans”, it is hard for us to look back on that age with the eyes and experience of the 21st Century.

What matters today are the after-effects of the actions taken and also in the actions being taken today along with the belief systems that are current. While Monocle may be right that we export some good and reap some soft power, the UK also exports some bad that may well negate the soft power that we so want to aspire to at a time when the West’s economic power is diminishing fast. Joseph Nye calls the mix of soft and hard powers,  our overall “smart power” and we are in danger of losing the “smarts”

When Transparency International – UK was setting up its “Defence against Corruption” project and I was an adviser to them, a great deal of discussion took place about how corruption has three legs  –  the corrupted (the government and individuals who were bribed), the corruptor (usually a company that did the corrupting) and the nation where the corruptor was based.

Much of the discussion around TI’s Corruption Perception Index is about the first, but the latter two are as much party to the corruption as the corrupted.

When Jack Straw originally produced his white paper which ended with the introduction of the Bribery Act (a very late addition to the codifying of our laws and the subject of many years fighting between NGO’s and companies as well as between the UK government and OECD – where we had signed up to the OECD Anti-Bribery Convention many years before), he pointed out that the UK was a relatively bribery-free nation.

It is true that since the times of Samuel Pepys (when anything could be bought through bribery) the UK has cleaned up its act at home. As we became wealthier, we became less corrupt (although there remain many instances of bribery and corruption still).

However, in some ways we became more Confucian – we were most obsessed with doing right at home and exported our worst sins overseas. Companies from the UK in many industries such as energy, construction and aerospace and defence bribed for business. As the recent ITV programme “Exposure” aired on 10th October, 2012 showed, bribery by British firms overseas remains too common despite the Bribery Act. Rolls Royce is accused of two major acts of corruption in Indonesia and China dating back several years. It will have to show that its systems and policies are now consistent with the Bribery Act requirements or staff could be held culpable.

National reputation – national character

In the defence industry, the cry was always “If we don’t bribe, the French will”. The Chinese and Russians may be the chief bribing competitors these days but we have now enacted the Bribery Act – so, by law the exporting of bribery by companies from the UK should be at an end – including any company that does any business in the UK.

Maybe the issues that have been uncovered at Rolls Royce are old news but many concerns persist and suggest that the short-term gain mentality remains. In a posting from October I reported on a Financial Times article (from a survey by FTI Consulting) that showed a third of board members in the UK would bribe if they felt it was needed to win business. This worrying statistic shows clearly that the UK’s soft power base is in danger.

Our 2012 national reputation was portrayed in Danny Boyle’s Olympics opening ceremony as quirky but unselfconscious; a nation of tremendous artistic, scientific, engineering and business success, caring and cultured. Ai Weiwei summed it up well in an article in the Guardian (it is well worth reading the whole article:

“Brilliant. It was very, very well done. This was about Great Britain; it didn’t pretend it was trying to have global appeal. Because Great Britain has self-confidence, it doesn’t need a monumental Olympics.”

This was a characteristic portrayed throughout 2012 – a year when our sporting achievements have been at their highest in athletics, in golf (along with the rest of Europe), in tennis, in cycling and in cricket (we even beat New Zealand at rugby). Only in football (our national sport) has a less than successful and a less than wholesome image been portrayed.

But, maybe this is where the link may be. Football has become a huge business and business has no ethics of its own – we are continuously told that companies have no souls (as tax avoiders such as Google, Starbucks, Amazon and the rest show clearly). Football was a working class sport but is now a multi-billion pound successful business. Its sporting soul has disappeared as our exports grow – its “self-confidence” becoming mere hubris.

Soft power and hard exports

It could be said that football has not suffered yet along with its financial success (it still has its fan base). It took someone like Lord Coe to defeat the doomsayers that forecast the Olympics in London, with its huge corporate branding, would go the same way but it was a success with real people. Football remains hugely popular but the corruption in FIFA allied to racism at football grounds in Eastern Europe and the huge pay gap between the performers (being paid £20,000 and upward per week) and the fans means that its brand is continuously being corrupted.

If, in the age of smart power, if it is to be a continuing success, brand UK has to be clear and focused, not tainted by bad business ethics. It means not just abiding by the rules of international business but setting the standards – to take advantage of the good will that has been gained in 2012.

This means swapping the short-term (unreal) benefits of poor, 19th trading standards (where bribery and corruption was rife) to set real standards that are enshrined in the 2011 Bribery Act but where the UK has not put in the resources to implement the Act, where the US has shown a willingness to prosecute its own malfeasants in a way that shames successive UK governments.

Soft Power has to become (to use Nye’s term) smart power. Smart power is the ability to take advantage of the benefits that come from our leadership in key areas and to trade on them. Danny Boyle (through the Olympics opening ceremony and his refusal of a knighthood) shows the way away from the 19th Century mercantilistic British norms to a UK that has the ability to lead the world with its soft power allied to economic and political capabilities. This means waking up to what the 21st Century could mean – a global economy where improved communications can kill a business in progressively much shorter times as well as upsetting the benefits that the likes of Tolkein (The Hobbit is a classic British tale) and Fleming and the rest have provided to the country as a whole.

It means being self-confident enough to be seen to espouse good business not business at any price or any cost. There was no government reaction to the FT report cited above. There should have been. Doing good business is becoming the next stage of capitalism – we should be at its forefront as the challenge of the Chinese and others (who aspire less to this cause than the vocalized western consensus since WWII) grow: good business rather than bad business.

This is a hard ask in the depths of recession – but, if the UK is to capitalize on its soft power base, then a UK for the 21st Century has to be built on a smart power base – rather than simply going soft.

Where the Wild things are – bribery at the edge of business

The Financial Times (http://www.ft.com/cms/s/0/e12e0efc-0d71-11e2-bfcb-00144feabdc0.html#axzz28VeYteen) reports that one third of Board members would happily bribe to win business despite the introduction and publicity over the Bribery Act that was enacted in 2010 and brought into law last year. FTI Consulting, which did the survey, believes that the Serious Fraud Office is showing no desire to investigate and prosecute low level crime and is only after the big boys (www.fticonsulting.com/…/the-realities-of-the-uk-bribery-act.pdf).

 

This is no surprise to those of us involved in agitating to bring the Act into being – 34 years after the FCPA in the US and years after we signed up to the OECD convention. Jack Straw advised that around 1.1 extra prosecutions a year would ensue from the Act – so, no real surprise.

 

The Grown-ups get it

 

The report from FTI shows that businesses are being divided into those (usually large and quoted) that comply and other who are becoming the “risk takers” – willing to go for business in whatever way and hope they don’t get caught.

 

Like tax evasion and using deep and difficult schemes to evade tax, these organizations are willing to act outside the law and depend on the SFO’s inability to implement the law.

 

The grown-ups get it, the kids don’t – but, we have insufficient numbers of grown-ups in the SFO (many of whom left to go to private industry when the Bribery Act came into effect).

 

Just like Maurice Sendak’s children’s book, our small and medium companies wander into places and get transfixed by the wilder side of business. It wasn’t that long ago that the costs of bribery overseas were tax deductible in the UK and big companies (especially in defence and aerospace, construction and energy routinely bribed to get business and keep business.

 

Now, most large UK-based businesses act like their American and European cousins and have mainly (not completely) forsaken large-scale bribery. The SFO has said it will prosecute those who threaten the stability and reputation of the UK.

 

ITV’s Exposure on Wednesday, 10th March at 10.35 (UK) – “No Bribes Please, We’re British” – takes a look at the UK one year on. I spent some time helping with this documentary made by Ed Harriman and was interviewed for it – http://www.radiotimes.com/episode/sgzfv/exposure–no-bribes-please-were-british and it looks back at how we did business before the Act – and how many still do such business now.

 

 

This leaves the kids – SME’s / SMB’s.

 

Should we worry about the children?

 

Winning business overseas (especially in the BRICs – where methods of business may be different) in any recession is tough. Competition from those who don’t worry about giving bribes (and that is much more of a norm in the rapidly growing nations of Asia, Russia and South America) is enormous and business leaders want a level playing field.

 

The OECD Anti-Bribery Convention was signed by 39 nations – all the OECD countries plus Argentina, Brazil, Bulgaria, South Africa and Russia (China has not signed) and aims to tackle the “supply-side” of bribery. This is where the money comes from – the wealthy nations that enable bribes to take place. It was on this basis that the UK eventually enacted the Bribery Act.

 

The question asked is now that the Act is in force and most very large businesses comply, does it matter that the smaller ones don’t? Shouldn’t we only concern ourselves with large-scale bribery and corruption?

 

While we don’t want to go back to the 18th Century when you could get sent to Australia for stealing a loaf of bread, the impact of bribery is substantial. From small-scale “facilitation payments” upwards, bribery impoverishes and kills. This sounds overly fraught maybe – but, funds diverted to projects that a country does not need means less is spent where it does – on doctors, hospitals, safety measures and the like. As bad, poor construction of buildings and bridges in China (as an example) causes death each year – the contractors are normally found to have won the work through bribery.

 

In the 21st Century and in our global economy where we are all much closer to each other economically (as customers and suppliers), we need to ratchet up the standards not diminish them. The UK is a wealthy nation that can do without involvement in helping to destroy developing nations. Bribery is a constant threat at any level as Transparency International constantly shows in their annual Corruption Perception Index. Even in industries like Defence which have been subject to anti-bribery investigations for many years, the picture is unclear as TI have recently shown: http://www.transparency.org.uk/news-room/press-releases/13-press-release/375-defence-companies-fail-anti-corruption-test

 

Now countries like Greece, whose economy has been based on corruption, are paying the price. Countries like Mexico are likewise – http://www.nytimes.com/2012/04/24/world/americas/bribery-tolerated-even-as-it-hurts-mexican-economy.html?_r=0

 

Bribery hurts those countries receiving the bribes. If we let our kids (the SME’s) run amok, then the hurt just grows. We have to keep our neighbours safe.

 

Getting an ASBO

 

In the UK, Anti-social Behaviour Orders (ASBO’s) are now routinely given out by police to kids who run riot in the streets and disturb neighbours. The UK was close to receiving the equivalent from the OECD before the Bribery Act was enacted. The UK had to be pushed to enact it – although all party support was eventually forthcoming.

 

Now, a year on, we see that lack of implementation (always feared by those most supportive of the Act) looks like it is providing those with more risk attuned attitudes to buck the system here and enter into the system overseas. Our neighbours (our trading partners) often don’t help – bribery takes a long time to eradicate and often governments are implicit in it. But, countries like the UK managed to stop slavery, made drug running illegal (although after we grew rich on both) and campaign to stop child-labour improve safety standards worldwide. Bribery seems a softer crime to many yet studies have continuously shown that the impact can be as horrific.

 

The UK is in recession but a get-rich-quick attitude that admires tax evasion (and tax havens) and tolerates bribery is not a modern society – it is a throwback to the 19th Century. We deserve credit for enacting Bribery legislation and we deserve an ASBO for tolerating bribery and for tolerating the use by foreign businesses especially in the energy sector that use London to raise capital on the stock exchange – and who are notorious for their poor business practices in poor health and safety and corruption.

 

The current UK Government has been mute in its delivery on anti-bribery provisions and the FTI survey – which should be a wake-up call – has received scant reaction. Watch Exposure on Wednesday, 10th October at 10.35 (UK) – No Bribery Please, We’re British. One year on from the Bribery Act, we should not be rolling back the legislation by lack of implementation.