Tag Archives: mafia

The Demise of the Liberal Democratic State and the rise of the Corporate State

Francis Fukuyama was wrong the 1990s did not herald the triumph of liberal democracy, but its showy demise. George Bush’s attempt to impose democracy on Iraq by force demonstrated the folly of this premise. Even the democratic programme that he sketched out gave a dominant role to the business corporations that would effectively control the new Iraq. Giving lie the all the claims about remaking Iraq on democratic lines. Prior to the invasion there was a quarrel between two of the main participants in the invasion over the distribution of the spoils  between the victors. British oil companies believed that the post invasion constitution gave too much to American and too little to British oil companies. The chaos of the post invasion Iraq denied the business corporations the influence and income they expected. Although the part of the profitable oil industry that is not under the control of Isis, is run by American oil corporations.

  
Perhaps it is in Europe that the evidence of the new nation state is best demonstrated. What is developing in Europe is a new corporate state, a state which functions primarily for the benefit of the business corporations? The financial crisis of 2008/9 illustrates this all too clearly. Due to irresponsible lending practices the banks failed, even if only a few crashed all threatened by the crash. Rather than let the banks fail the governments of Europe injected cash into the banks to prevent them failing. In Britain the bailout was equivalent to 10% of GDP, although given the huge size of the banking deficit the government was effectively mortgaging the countries assets and wealth to save the banks. It was not the banks that had to pay the price of their failure but the peoples of Europe. Europe wide austerity was regarded as necessary to reassure the banks creditors of the financial worthiness of the nations that were the guarantors  of their debts. A government with small debts would be regarded as a better guarantor of the banks credit than one with large debts. Surprisingly the banks got of almost scot free apart from a demand that they increase their cash reserves to 3% of total liabilities and ring fence retail banking, on which the banks are stalling. The Banks are now asking for the government eforms of an increasingly dysfunctional financial sector. In response to the pleas of the banks the demand to increase their cash reserves to their required total has been constantly put back, nowhere more so than in continental Europe. Despite claiming a government of financial prudence Germany has been one of the worst offenders. Only the other week the government in Britain refused to renew the contract of the chief executive of the Financial Conduct Authority as the banks had accused him of being to hard on them. In Britain as in Europe, what the banks want the banks get.

There are many serious problems that the government in Britain needs to tackle but one of them is not the reform of the state funded broadcaster the BBC. The agreement under which the BBC is funded is up for renewal soon and the government has used this as an opportunity for root and branch reform of the broadcaster. One of the main backers of the winning Conservative party was News International, the largest shareholder in Sky TV. The directors of this company has long argued for a change in the nature of the BBC, a change that would make it less of a competitor to Sky News. Its former Chief Executive James Murdoch argued for a change that would benefit Sky TV. He said in a lecture that the BBC  had a role as an innovative producer of TV programmes but it was not its role to exploit those innovative programmes. Once those programmes had been developed they should be given to the commercial broadcasters as the role of the BBC was to experiment not create popular TV. Unsurprisingly the main conservative spokesman on the media has echoed these views. He wants to end the BBC’s role of producer of popular programmes that compete with those of Sky TV. There is little doubt that one of the priorities of this government is to repay its corporate sponsors with favours.

Rather than continue with list of items that illustrate the increasing corporatisation of Britain, I want to compare the British governmental system to that of Russia. The Russian system of governance is often referred to as a mafia run oligarchy. All these commentators that do so fail to recognise the similarities between the Russian and British system of governance. Probably the only difference is in the level of criminality of the oligarchs in each country.

When the Soviet Union collapsed in 1990 the reformers in charge of the country wanted to adopt the free market of the West, so as to enjoy a similar level of prosperity. However they rushed into privatising their stated owned industries, without realising that the free market economies of the West were only successful because the market operated within a strong legal system that prevented the many abuses that occur in an unregulated market. Given what was literally a ground zero, the oligarchs were able to remake the Soviet economy to their own liking. They bought up the businesses at bargain prices and controlled the various sectors of economy, however for complete control they required control of the governmental system. This they achieved through bribery, intimidation and violence. Now President Putin runs a collective oligarchy, an oligarchy that exploits Russia wealth largely for its own ends. Opposition to the oligarchy is suppressed in ways similar to the former communist system, critics are subject to intimidation, often including violent assaults, and if that fails they are sent either to a mental asylum or camp where the mistreatment continues.

The oligarchs in Britain and Russia believe in a similar free market system, that is a free market in any obstacle to the free operation of business enterprise is removed. Obstacles such as trade unions, labour protection legislation and government interference. In Russia there was little too prevent the rise of the oligarch as in a ground zero economy (one in from which the state was largely absent) there could be no effective opposition and by controlling the government they can ensure that none arises. The task for the British oligarchs was much harder they had to create a society that was favourable to the free market (as they saw it). This meant they had to capture government and ensure that it introduced measures to remove all the obstacles to the smooth running of the market. Chief of these is the trade union movement and not surprisingly one of the first measures of this new corporate friendly government is legislation to further emasculate the trade union movement, so as to ensure that it cannot interfere with the smooth running of the market. The proposed legislation will effectively prevent trade unions from striking, so removing the  threat they pose to employers.

There is however one significant difference between Russia and Britain. Elections in the former are largely controlled by the state and there is never any likelihood that the opposition can come to power. In Britain elections are open and fair and the opposition can become the government. However the two main political parties are coming to resemble each other, when the opposition criticises a government policy, it is not so likely that they disagree with the policy as believing that they could implement it better. Increasingly the two main parties are becoming the mirror image of each other, but are committed to the philosophy of Neo-Liberalism. Unfortunately elections are increasingly becoming a competition between the groups  competing to be the representative of corporate Britain. One of the main concerns voiced by competitors for the leadership of the opposition party is that the previous leader was too distant from the corporate interest. Unfortunately too many politicians now see politics means to win a seat on the board.

The recent history of the Greek crisis shows how dominant is the corporate interest in Europe. When the Greek crisis caused by the nations over indebtedness occurred, the European policy makers could have agreed to a restricting of the Greek debt. This restructuring would have either involved pushing debt repayments in some time in the distant future or forcing the nation’s creditor to take a ‘hair cut,’ that is force them to accept a downsizing of the Greek debt. Either of these policies would have hurt the corporate interest, that is the banks would have lost billions of Euros in the ‘write down’ of the loans that they had made to Greece.  Instead the European politicians forced on to the Greek government a programme Neo-Liberal market reforms. These policies were intended to make the Greek economy more competitive and boost exports. The surplus earned on the export trade could be used to pay of the Greek debts. Unfortunately this Neo-Liberal experiment failed and after five years of austerity, economic growth has stalled and GDP is down 25% making it increasingly unlikely the debt will be paid.The International Monetary Fund states that payments on Greek debts should be deferred for thirty years, as only then will the economy have grown sufficiently to enable the Greeks to begin to pay off their debt.  Despite the urging of the USA the European politicians stubbornly support the banks cause and refuse to allow the Greek nation any debt relief.

Quite possibly the triumph of the corporate state is best demonstrated by the proposed Trans-Atlantic Trade and Investment Programme (TTIP). When this treaty comes into force any business corporation that believes government policies have caused it a loss, can refer their case to an international arbitration panel. This means that if government legislation aimed at limiting the harmful effects of tobacco restricts the sale of this product, the tobacco company can go to the panel asking for compensation or a revoking of the act. There is one such dispute between a South American company and an American Tobacco giant. Soon such actions will become common place  and the sovereignty of European governments will be undermined. In Britain at least too many politicians are in favour of this policy, as they believe their support for TTIP will earn that a well paid position with one of the business corporations, they will willing surrender power for cash.

There is one failing of the corporate state and that it is remarkably incompetent, in that it lacks the competence to deal with a major crisis. The banks only survived the crisis of 2008/9 because they were supported by the government. There will be other such financial crisis in which business corporations will only survive with the support of government. There is in Europe the unresolved debt crisis, not the one of popular imagination but the combined private sector banking debt. A debt that in Britain exceeds 400% of GDP and in Germany 324% of GDP.

These business corporations have only a narrow minded view of the world a view one that is focused on their own self interest. The banks in Britain have been campaigning successfully for an end to restrictions on their less desirabale activities and the government has complied. It has largely passed unnoticed but at a recent City of London banquet the governor of ‘The Bank of England,’ said he saw no reason why banks should not be allowed to increase their assets to 900% of GDP.  The majority of a banks assets are loans which are funded by borrowing from others, so if Mark Carney has his way the debts of British banks will rise to astronomic levels. There will at some time be a crash that in scope will exceed that of 2008/9. A crash of these dimensions would force  a collapse of the corporate state as the government will be no only body with the authority and power to avert the collapse and rebuild the damaged society. One economist Anne Pettifor has written a book called ‘The First Word Debt’ crisis, a book which is ignored by all European politicians. Rather than act on the basis of the precautionary principle, the European politicians seem to act on t’he eyes firmly shut’ principle.

All political systems contain within themselves the seeds of destruction, in the social democratic society of the past it was the conflict between the major business corporations and society. A conflict that the former won. The corporate state is more unstable than other political systems as there is no great vision or commonality of view that unites the community of business corporations. The only commonality is their hostility to any regulation of the free market and in reality they are a number of social units all pursuing their own self interest. This means that the corporate society lacks the strong mechanism for directing society to towards a greater end other than mere self interest, lacking this overarching powerful body, society can only fall apart in the event of being struck by an economic or social tsunami.

The great floods that devastated New Orleans demonstrate how the new corporate state fails to cope with  crisis. Cuts made to the emergency and environmental services made at the behest of a business dominated tax cutting government had left these services unable to respond adequately to the floods and their inaction prior to the flooding worsened the devastation. The levies that protected the town were in a state of disrepair and unable to resist the tidal surge and broke. All the world could do was watch in horror as the American government failed to halt the destruction of New Orleans.

The failure to resolve the Greek crisis points to a future crisis in Europe. Greece is but a small country accounting for but 3% of the European Union’s GDP, yet the European Union struggles to find a solution to its problems. It’s only success is in replacing the various democratically elected governments that are hostile to its austerity programme. Greece only rid itself of the military junta popularly known as the Greek colonels in 1974. The Greek army is the one institution that has not been devastated by the Neo-Liberal reforms imposed by the EU  and it may be the only body that is capable of eventually restoring social order after the havoc caused by the latest austerity and reform programme. Possibly this is the future for us all as the failures of the Neo-Liberal or corporatist state can only result in its replacement by authoritarian state supported by the military. The pro business agenda so having hollowed out the democratic state its institutions lack the resources to respond to a major crisis. This is demonstrated by the financial crash of 2008, the Chancellor of the time commented in a newspaper article that the crash was imminent. Yet despite this knowledge the government and Treasury were incapable of taking any action to avoid the crash, much like a rabbit that is frozen by fear when faced with the headlights of an oncoming car.

How an Economist would stop the trade in illegal drugs.

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Philosophers, sociologists, criminologists are asked to advice on crime, in fact everybody but economists. I want to right this imbalance, because as an economist I have a unique take on this problem not considered by others. Others may for instance study the effects of drugs legislation, but none of them will look at the gangs as business organisations, to whom the usual economic analysis applies.

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What I observe is the the drug laws have had the unintentional effect of creating large profitable monopolistic businesses making vast profits. It is these profits that are the key to their success, as these profits give them the resources to finance their trade and in particular the money to corrupt the law enforcement agencies that are supposed to stop the trade in illegal drugs. There are innumerable stories in the world’s media about police forces being corrupted by drugs money. In Mexico the phrase ‘mafia government’ has been used with some justification. As an economist my first effort would be directed to reducing these monopoly profits and which would reduce the significance of these gangs.

Anti-drug laws rather than stopping the trade in illegal drugs, have eliminated the unsuccessful players from the scene leaving the control of the supply in the hands of the most skilful and ruthless players in the game. The jails are full of minor drug dealers who lack the skill to evade capture, while the members of the largest and most successful gangs usually evade capture. Even if a major gang is broken up it is soon replaced by another. However they are rarely caught. If the money was taken away from these gangs they would lose their power. The most obvious way to do this is to legalise the sale of drugs. This would cause a flood of small time dealers into the market forcing the price of drugs to drop.

Obviously the major gangs would resort to violence to eliminate rivals and maintain their monopoly. However the flood of drugs onto the market would be impossible to stop and prices would inevitably fall. Those major gangs that remained in the drug trade would inevitably shrink in size and become minor players in the criminal world.

My favoured approach would be to return to the system that prevailed in Britain in the 1960’s. Then drugs were available to drug users from doctors licensed to prescribe drugs. Obviously there would still be a criminal trade in drugs, as a number of users would not want to register as users. However the criminal drugs trade would be much reduced.

This would also ensure the purity of the drugs taken and avoid the personal tragedies that result from the use of impure drugs. If drug usage was seen as a medical problem it would remove the glamour from drug taking and reduce the demand for them. It would also give the medical authorities to engage with users and educate them in the harmful effects of drugs such as ketamine and reduce their use.

I should explain that as a student in the sixties I was one of a large number who developed a distaste for drug use, but the genie is out of the bottle and cannot be put back in. The relevant question for me is how do we live with drug use and minimise its harmful effects.

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There is another player responsible for the success of the drug gangs and that is the bankers. Unfortunately wherever there is evil you will find a banker facilitating it. Governments have in the UK for the past thirty years favoured ‘light touch’ regulation and encouraged rich corporations and the super rich to use tax avoidance schemes. This they justify by claiming that these policies attract multinational companies to locate in Britain. One unfortunate consequence is that he schemes used by bankers to help the rich avoid tax, can also be used by criminals to hide their money from the law enforcement agencies. Several years ago the British government set up a special unit to recover money from the drug gangs. It has managed to recover practically nothing. It lacks the resources and wit to recover this money.

It was not so long ago that the London bankers successfully opposed plans by the EU to introduce stronger anti money laundering laws. While it is hard to judge the complicity of the banks in illegal money laundering, what is known that a British Bank, Standard Chartered (part of the HSBC group) was convicted of money laundering for the Mexican drug cartels. One suspects their crime as viewed in banking circles was to be so careless as to get caught. Without the banks being willing to move around large sums of money for these gangs, they would not be able to finance their large scale criminality.

Then there are the drug cartels in the countries that produce these drugs. If it was not for the international banking community, they would remain large fish in a small pool. There is a limit to how much farm land a drug baron can buy in Columbia, they want the personal jet, the yacht etc. items that are to be acquired from the rich countries of the developed world. It is impossible to be a cash buyer for such expensive items. There is the difficulty in carrying such large sums in cash and the law enforcement agencies etc. would make such a transaction impossible. Fortunately the drug baron in Columbia can take advantage of the tax havens in the West Indies. Their drug money can be deposited in one of the many offshore accounts in the banks which are effectively branches in all but names of the major US and British banks. This ‘clean’ money now deposited in banks in Miami or London can now be used for a variety of transactions, either purchasing luxury items or using the money to ‘oil the wheels’ to facilitate major drug trades.
What the law enforcement agencies fail to recognise is that these international drug gangs are more akin to international companies such as Shell or Ford, than the old criminal gangs. Their use of violence disguises their true nature. Just as multinational companies are embedded in the governance of countries so are the multi national drug gangs. Therefore a completely different approach is required to tackle these gangs. They just as with any other business depend on a constant cash flow to function and if this cash flow can be stopped, they will cease to exist.

The means in the form of computer technology exists to make this possible to interrupt this cash flow, but there is a reluctance of governments to go this far. Low level criminality is embedded within the banking system, banks have for many years worked with their clients to frustrate the government tax collectors. Tax avoidance and the concealment of the the origin of the money deposited with them has become standard practice within the banking community. Too tackle this culture of secrecy and it’s associated criminality will require a reversal in government policy towards the banks. Also tax avoidance has become the norm amongst the rich and multinational companies and there would be much opposition to such changes from these quarters. This is an opposition not to be under estimated, it would be organised by the City of London to whom the government is used to acquiescing to its desires.

A representative of the City of London sits behind the Speaker’s Chair when Parliament is in session and is able to represent the City’s interests to government ministers on issues that might affect the City. What is in effect a veto on government policy must be removed.

At present the City and the Banks are ‘self policing’ on matters of money laundering. It is up to them to ensure that they comply with the government’s legislation on this subject. Given that the handling of such money is very profitable the controls are very lax and most laundered money passes through the system unnoticed. The only real threat is the New York District Attorney’s Office or the American SEC. There is no real threat in the UK to such misbehaviour in the banking community. When prosecutions are made usually the initiative comes from the USA.

What I believe is essential to control the trade in drugs is proper regulation of the banking system. Government audits of the banks to check for money laundering are necessary and the sanctions must be effective when abuses are discovered, not just fines but jail sentences for offenders. It would be very easy to design the computer software to check on the origin of accounts above a certain value. If the US and Israeli government can develop computer viruses to infect the computers of a security conscious Iran and if the Chinese government is able almost at will to hack into the computers of British companies and government, designing software to check on the origin of accounts will pose no great problems. The only freedoms that would be infringed are those of wealthy tax evaders and avoiders and the large criminal organisations. The rest of us would never hold the amounts of cash likely to attract the attention of the financial police.

Obviously the banks would try to frustrate such government activity and they may well have some success, but the activities of the international drug cartels would seriously be impeded.

In Italy Pope Francis has pledged to clean up the Vatican Bank. A bank sometimes unkindly referred to as the ‘Mafia’s Bank’. The Mafia certainly recognise this as a serious threat to their activities. It was reported recently that the Mafia may make an attempt on the Pope’s life to preempt this threat to their very profitable activities. The attitude of the Italian mafia to their bank merely confirms my view of the relationship between banking and organised crime.

Economists such as myself can’t change human behaviour, but we can suggest means to mitigate the harmful effects of criminal behaviour.

There is however one caveat I must make. When a student I attended lectures given by Robert McKenzie. He told us of a conversation he had with a senior Italian politician. He was discussing the impact of US government policy on Italian politics. He said we know who are bribed by the CIA in Italy, who are they bribing in Britain? Robert McKenzie left it as an unanswered question. Similarly we know who the mafia have corrupted in Italy, the Christian Democrats and the Socialist Party, but we have no idea of who they have corrupted in the UK and it is these ‘hidden’ politicians who would try to frustrate any attempt to check the trade in illegal drugs.