Sunday 29 January 2012

Sunday, January 29, 2012 Posted by Jake 4 comments Labels: , , , ,
Posted by Jake on Sunday, January 29, 2012 with 4 comments | Labels: , , , ,

By Richard Murphy, founder of the Tax Justice Network , director of Tax Research LLP, and author of The Courageous State*
Ed Miliband has announced himself in favour of good business. I am delighted he has. So am I. It’s astonishing that some are saying that by declaring himself against spivs, chancers, asset strippers, speculators and tax avoiders he is somehow anti-business. Far from it: he’s declared himself very pro-business precisely because it is these people who are anti-business.
But being anti-something is not good enough. Being pro-good business is what is required and that requires a clear understanding of just what a good business might be. I’m not seeking to offer a definitive guide here, but take these as examples. A good business:
  1. Makes clear who it is so people know who they are dealing with
  2. Makes clear who runs it
  3. Makes clear who owns it
  4. Makes clear the rules by which it is managed
  5. Puts its accounts on public record if it enjoys limited liability, and does so wherever it is incorporated whether required to by law or not
  6. Seeks to comply with all regulation that applies to it
  7. Seeks to pay the right amount of tax due on the profits it makes in the place where they are really earned and at the time they really arise
  8. Seeks to pay a living wage or more to all who work for it
  9. Recognises trade union rights
  10. Operates a fair pay policy so that the pay differential between highest and lowest paid in the company cannot exceed an agreed ratio that should never exceed twenty
  11. Makes fair pension provision for all employees
  12. Does not discriminate between employees on the basis of race, nationality, national origin, gender, sexual orientation, age, disability and similar such issues
  13. Does not abuse the environment
  14. Has a clear code of ethics that it publishes and is seen to uphold
  15. Is transparent in its dealings with customers
  16. Seeks at all times to minimise risk to those it deals with and takes all steps to ensure they know what those risks are
  17. Accepts responsibility for its failings and remedies them
  18. Works in partnership with its suppliers and does not abuse them
  19. Advertises responsibly
  20. Creates and supplies products meeting real human need
I could readily add to that list, which I do not think I have tried to prepare before. But the gist is obvious.
So what would this look like in practice, meaning how could this status be assessed?
This was a question I was asked by a councillor who wanted to put good ethics into practice in his council’s procurement policies.
I hope that the assessment criteria for the above should be clear in most cases with the exception perhaps if the fact that this list clearly implies the need for country by country reporting to explain:

  • What it is called where it operates meaning it must name each subsidiary and specify where it operates
  • Its profit and loss in each country and jurisdiction in which it operates
  • How much tax is pays on the profits it earns in each jurisdiction
  • What its internal trading is so that its transactions within its internal supply chains can be identified
  • How many people it employs in each jurisdiction that operates in and how much it pays them in aggregate plus their pension cost
  • How much it has invested in tangible assets and working capital in each jurisdiction on which it works.
Only then is the data to assess whether it is a good corporate citizen available for assessment.
The final part in this equation is suggesting an assessment criteria for what is a good company. In some cases this will, again, be obvious from the suggestions made. For example, it might be expected that a company either recognises a union or it does not. However things are rarely that simple. Different subsidiaries in different countries may or may not recognise unions so composite scores are possible.
Other indicators can be prepared using this data. For example explainable and unexplainable presence in tax havens becomes an issue when the number of subsidiaries in such places are known. The proportion of trade through or assets in such places also becomes significant assessment criteria if country by country accounting data is available. The likelihood of tax compliance can also be assessed properly when country by country reporting data is available.
‘So what?’ might then be the question. What would be the point of all this? Well when things are measured behaviour changes, we know that. But more significantly the government is a major purchaser from many companies. If its procurement policy was based on the requirement that a company meet a minimum standard or no contract could be issued then this becomes a very powerful tool indeed, and those criteria need not be consistent. So, for example, in the case of PFI offshore might simply be a non-starter.
The point though is this: we can identify good companies and the introduction of country by country reporting would make the whole task a lot easier.
What this means is simply this: reform to our currently unacceptable corporate culture is possible. All it takes is political will and we can do it.
Is that will available? That’s the question.

*The Courageous State is my new book published in November 2011. I say three things in the Courageous State. First I argue that because the form of economics that has dominated government policy throughout the last thirty years in all major western countries, which is known as neoliberalism, has said that markets always get things right and we can’t beat them we have ended up with a generation of cowardly politicians who think anything they do will be worse than the market outcomes, so they choose to do nothing.

George Osborne’s walking away from the economy, saying all he can do is acquiesce to the demands of the bond market and deliver the cuts they expect, is perhaps the strongest evidence of this. I argue that this is wrong: I think that the state has a powerful role to play in our lives and our economy.

Second, having waited In vain for more than thirty years for someone to write an alternative economic theory to displace the neoliberal ideas that I think are fundamentally wrong, I have given up waiting and in the second part of the book I present a whole raft of new economic thinking that does, I hope, help explain the mess we’re in. I have heard so many say of late that what we really lack right now are alternative ideas to tackle our crisis when it is so obvious that existing thinking has failed. 

I make no promise that I am right in what I say; that is for others to decide. But what I have most certainly done is offer economic theory quite different to just about anything you will have read before without, I would add, a single formula being used. There are, however, a lot of diagrams to help things along.

Finally, because I find books that offer lots of analysis and no solutions intensely annoying I do in the third part of the book present a whole new range of economic policy proposals that Courageous politicians could adopt to get us out of the neoliberal mess we’re in. There are six chapters devoted to that practical stuff.

The Courageous State can be bought from Amazon and is also available in Kindle format. It can also be ordered from any bookshop or you can order direct from the publisher – Searching Finance. Price £14.99 or less plus postage and packing.


  1. I think this is a good list and in this respect I've moved away a bit from the relatively laissez-faire attitude I used to have. But I'd quibble with a couple of the points:

    5. Small companies have an exemption from putting their full accounts on record, partly to reduce their administrative burdens and partly to protect the privacy of their owners and directors (and to a lesser extent, because the information could put them in a weak position with regard to competitors, or negotiations with other parties). Would you remove this exemption?

    8. The living wage is an amorphous concept because the ability to "live" varies greatly according to the circumstances of the individual (single or in a couple, partner working or not, with or without children, with a mortgage paid off, renting, ...) The minimum wage is already meant to provide a basic standard. Would you insist on this being raised by 50% or whatever takes it up to "living wage" level? And would that vary regionally? What about internationally - would it be OK to pay your employees in Pakistan the Pakistani living wage or would it have to be the British one?

    9. Trade unions are an interesting one. In my company I used to employ about 12 programmers and marketing people. Nobody ever asked me about joining a trade union and there isn't an obvious union that would naturally cover those professions. Would a company like mine have to recognise a union? I think my staff felt they were treated fairly and paid well enough - and they didn't mind coming to tell me if they thought otherwise. Are unions useful in that context?

    11. Mandatory employer pension contributions are about to come into force. Should companies go beyond this?

    15. How transparent? Should we tell customers how much we pay our staff so they can work out our profit margins? Will the customers be transparent with us in return, so we can work out how much they might be willing to pay us?

    19. "responsible" advertising sounds good - but what is it exactly?

    20. Who gets to say what a "real human need" is? One test might be: if a customer is willing to pay for whatever it is that I sell, then presumably it must meet one of their needs. But I suspect that's not what you mean. If I sell pet insurance, is that a real human need? How about investment advice (given that many people dispute the value of managed investments)? Or if I can advise a company on how to save money so they can sell their products more cheaply, giving better value to their customers - and also make more profit (but what if that advice includes designing a more efficient process that results in someone losing their job)? How about if I run an advertising agency, so the results of my work are purely about getting consumers to switch their custom to my client from their competitors - is that a real human need?

    Some of these questions are more serious than others, but I think there could be genuine, well-intentioned differences in interpretation in all those I've mentioned. Fundamentally, I don't think that the definition of a "good" company is as clear as you suggest.

  2. Thought I'd help the writer out.

    "5. -snip-"

    The writer states that any business with limited liability would have to put their accounts on show. I think he was implying that the majority of small businesses would not have limited liability, as many are either partnerships or sole traders.

    "8. The living wage is an amorphous concept because the...-snip-"

    In many ways, you're hinting to the answer that you seek. The living wage should be roughly around the amount to bring a human being out of poverty (Quote from Wikipedia: "Poverty is defined by the Government as ‘household income below 60 percent of median income’. The median is the income earned by the household in the middle of the income distribution.") if working an average weeks worth of hours. The minimum wage still doesn't really provide a basic standard, unless you're say, a student, or still living with your mother. It would vary regionally, as we see with the minimum wage in/outside of London. It would also vary internationally as well, if you use the governments definition of poverty.

    "9. Trade unions are an interesting one. In my company...-snip-"

    The writer says to recognize trade unions. If a trade union doesn't exist, how can you recognize it?

    "11. Mandatory employer pension contributions are about to come into force. Should companies go beyond this?"

    Well, seeing as an unbelievable amount of the workforce have literally no pension scheme set up, I would suggest yes. Of course, this is for the company and staff to agree on.

    "15. How transparent? Should we tell customers how much we pay our staff so they can work out our profit margins? Will the customers be transparent with us in return, so we can work out how much they might be willing to pay us?"

    This is one of those "it depends" points. I mean, it's understandable to disclose information to a consumer if it either affects them, they should want to know and it would be legitimate for them to know. The transparent customer point is irrelevant and mildly absurd.

    "19. "responsible" advertising sounds good - but what is it exactly?"

    No spam, no intrusion, no coldcalling/direct mail. Advertising that annoys you.

    "20. Who gets to say what a "real human need" is? One test might...-snip-"

    I think the writer is trying to hint that companies make goods for need-value instead of exchange value, which is impossible in a capitalist society. If people are starving in the streets, why should we be researching into diamond production?

  3. It would have been really nice if marketers, proprietors and company owners can apply these 'ideal' concepts into their business mindset. Unfortunately, they're too ideal for a realistic market application; add that to the comments above about some of the points not elaborating enough on their arguments.

  4. If only Richard Murphy was as open and honest about his own businesses and tax situation. He says he pays all the tax that is due, but his own company is set up as an LLP (which avoids NI) and we can't tell if he is avoiding tax - and he is loathe to publish any evidence to prove he isn't.

    Not only that, but he is also in charge of the Fair Tax Mark. Something he charges for, but also wants the FTM to be legislated for, so everyone has to have it. And given he is the only person offering it, he is happily trying to create his own monopoly there.

    The man is a complete hypocrite.


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