The New Serfdom

by Angela Eagle

  Without active intervention to mitigate the effects on the labour market, there will be a proliferation of low-paid precarious work and a shifting of the costs and risks of employment onto individuals from companies. We have already witnessed this with the rise of tech platforms, such as Uber and Deliveroo, which make up the rapidly expanding ‘gig’ economy. These companies claim to put suppliers in touch with demand, be it for taxis or pizzas, and deny that there is any employment relationship between them and those who offer to deliver the service which is booked on their platform. They are unwilling to take on any responsibility for the duties of an employer, and they operate globally, paying minimal tax. Ensuring that the proper protection of employment rights extends to all employees, offering them the same protection and benefits as others who work in more traditional employment settings, is an important challenge which must be met.

  INDUSTRIAL CONCENTRATION AND MARKET POWER

  Even in its early stages, the Fourth Industrial Revolution has created corporate behemoths more rapidly than ever seen before. Their presence creates an industrial concentration not seen since the end of the nineteenth century, prior to the introduction of the anti-trust laws in the USA. Unsurprisingly, such companies behave in a monopolistic and proprietorial way to maintain their dominant market position, and minimising their exposure to tax liabilities is one example of this. Billions of pounds of turnover have gone untaxed as every loophole caused by the disparity between regulations written for ‘bricks-and-mortar companies’ has been ruthlessly exploited.

  It was recently estimated that Amazon pays eleven times less tax than traditional booksellers in the UK,21 and Facebook recently paid corporation tax of just £5.1 million on its UK operations, despite having revenues of £842 million and profits of £58.4 million.22 As well as exploiting tax loopholes, market power is being abused in other ways, too. The EU Commission, for example, recently fined Google €2.4 billion for privileging its own shopping services with its online search engine. More investigations into a breach of the EU’s anti-trust regulations are ongoing.

  Much more will need to be done to ensure that the huge global tech companies are not unfairly abusing the dominant market power they have acquired so rapidly in recent years and to ensure that they are paying their fair share of tax in all the jurisdictions in which they operate.

  TAX REVENUES AND GOVERNMENT EXPENDITURE

  The rapid economic change now upon us creates a paradox for governments that wish to be active in mitigating the increases in inequality and guaranteeing future prosperity. Just as the need for increased investment becomes necessary, for example in education for those workers of the future as well as retraining those with now-obsolete skills, the tax revenues to pay for it begin to melt away. Much as the invention of the printing press put a high premium on literacy and access to books, so the Fourth Industrial Revolution puts a premium on computer literacy and access to the World Wide Web. In these circumstances, therefore, universal and affordable 5G coverage is a critically important investment which the government should be facilitating.

  Yet, without internationally co-ordinated action and major reform, the tax base available to pay for these desirable investments is coming under extreme pressure. So too is the concept of social security, as the models of work are transformed out of all recognition. The Beveridge assumption of one single male wage-earner who had a job for life has long since ceased to be an accurate reflection of the realities in the UK labour market. This 1940s model is plainly no longer fit for purpose as a basis on which to organise a system of social security. For one, women have moved into the labour market, and prevalence of part-time work has increased too. As the ‘platform economy’ advances, the concept of ‘employee’ itself is in danger of becoming meaningless. Self-employment, whether apparent or real, now comprises 15 per cent of those in employment and its increasing growth demands a substantial redesign of our tax and social security structures.

  CONCLUSION

  These are formidable challenges and they require the re-engineering of many state systems if they are to be met adequately. To cope with the changes to come, the share of GDP growth accruing to labour must be increased so that the undoubted benefits of technological innovation can be shared more fairly. We must not repeat the mistakes of the Third Industrial Revolution, when the rewards went overwhelmingly to those at the very top. This is not the kind of society we want to live in. We must ensure that opportunity and prosperity is available to all the population of these islands.

  CHAPTER FOURTEEN

  AN ETHICAL ECONOMY

  On 15 January 2018, the construction giant Carillion collapsed, sending shockwaves through the British business and political establishments. Carillion had been the country’s second largest construction company and a major government contractor. It was involved in building and running schools, prisons, hospitals, railways and military bases. At the moment of its collapse, Carillion was reported to have financial liabilities, including a pension deficit, amounting to £5 billion. It had just £29 million in the bank. So large was the gap between what it owed and its assets that it had to go into immediate liquidation not bankruptcy. The grotesque mismanagement of this former-FTSE 250 company destroyed 20,000 UK jobs and left thousands of retired employees with reduced pensions and the country with half-built projects including hospitals. There had been three profit warnings and rumours swirling about its parlous financial position the previous year, but this hadn’t stopped the government awarding it three new contracts worth £2 billion. And it hadn’t stopped the board paying out £400 million in dividends to shareholders since 2012 or handing out obscene levels of boardroom pay to senior managers, despite the fact that they had run the company into a brick wall. Indeed, at the time of the collapse, the previous chief executive was still enjoying a salary of £55,000 a month: part of the £6 million in pay and perks he’d guzzled in his five years at the firm. There is no clearer example of the perversities of how our businesses operate and the piratical nature of too many of our self-proclaimed captains of industry.

  After near enough a decade of austerity and nigh-on forty years of a market fundamentalist economy, people are crying out for an assertion of ethics and real integrity in the way in which our economy is run. They are fed up of soaring executive rewards juxtaposed with indifference to the living standards of the workforce or mis-selling to customers. They are fed up of the systematic sharp practice engaged in to evade tax liabilities, obeying the letter but not the spirit of the mutual obligation that paying a fair share of tax implies. In short, they want a more ethical economy.

  The bank bailouts following the global financial crash in 2008 caused huge and understandable public anger. Matters were made infinitely worse by the fact that the colossal short-term gains resulting from this orgy of greed were pocketed by banking insiders for themselves. Those who drove the bubble and caused the subsequent near collapse of the entire global banking system in 2008 thus paid themselves huge rewards for creating a mirage of success even as they drove their banks into near-insolvency. When the banking system was revealed to be teetering on the brink of annihilation, the costs of the rescue were dumped onto the blameless public in the form of cuts to living standards and public services. The rescue was essential, but no one has ever been held to account in the criminal courts for these acts of greed and vandalism, which have caused living standards in the UK to stagnate for ten years. With the prospect looming of a further ten years of stagnation, the sense of anger is growing. No wonder there is popular resentment. When she was Exchequer Secretary to the Treasury, Angela argued strongly in a ministerial meeting that the bonuses which had fallen due in the suddenly nationalised banks for the previous year’s ‘performance’ should not be paid, since it was now clear that the ‘value added’ which was to be so lavishly rewarded was in fact a mirage. Angela was of the opinion that the executives should be made to go to court to claim them rather than simply have their remuneration agreements honoured by the govern
ment. Her suggestion was treated with horror by senior Treasury civil servants, who argued that the bonuses were contractually due: the government must not do anything that might be seen as illegal. The Chancellor sided with the senior civil servants and she lost the argument, but Angela is still of the opinion that the courts should have been asked to decide. It would have been better to test the ethics of the contract and the nature of the ‘value’ which was really added in court in the light of the near-collapse of these institutions, their need to be nationalised and the huge cost of rescuing them. This would have forced very senior managers to account publicly for their actions in the run-up to the crisis. Public accountability was sorely needed, yet instead the government meekly paid up.

  The anger has been made worse and more corrosive by the latest in a string of revelations in the Paradise Papers, on the industrial-scale tax avoidance practised by the privileged and extremely wealthy through a network of UK Crown Dependencies and tax havens. This followed similar leaks from the Panama Papers. The government’s obvious lack of shock or disapproval over this behaviour fuels the already widely held view that there is one law for those who can avoid their financial obligations and shelter great wealth offshore and another for the rest of us, who are chased down by HMRC for every last penny of tax due or are obligated to pay it automatically as PAYE. The promises made after the Luxembourg leaks and the Panama Papers, to lift the veil on such practices and collect the tax due, remain unfulfilled. A succession of Conservative Treasury ministers have wrung their hands on Newsnight and in the House of Commons, but the government has made no meaningful progress in advancing the transparency needed to put an end to this abuse once and for all.

  Market mechanisms do not have ethics or morals, but people do. Society can only be properly and legitimately run in a moral and ethical framework set by law and democratic decision-making. In a democratic socialist society, the law and the practice of enforcing the rules should reflect a healthy ethics which reward genuine excellence but crack down hard on benefits for failure, cheating and free-riding. This is what people still expect, despite the obvious decline in public integrity that has accompanied the dominance of the market fundamentalist ideology over the past forty years. The anger that people feel when they see cheaters prosper may yet illuminate the road to a more ethical future. But we certainly aren’t there yet.

  We see the indifference of market-delivered outcomes to ethics and fairness manifested all around us. It is present in the soaring levels of executive pay – all of it self-justified and ratified by a very self-interested clique who sit on each other’s remuneration committees and appear to have lost all sense of shame. This has now extended to the nominally public university sector, even as students are forced into ever more debt by the tripling of tuition fees. Since the coalition government then cut public funding allocations to universities, it is clear that it is the students who are paying for the huge increases in management remuneration at their institutions, and they are right to question the high level of vice chancellor remuneration which has suddenly arisen in this newly created market of higher education. We see government indifference to discouraging bad behaviour in reports of widespread market abuse in City dealing rooms, when the Financial Conduct Authority has only launched eight prosecutions in the past five years,23 yet there have been 10,000 DWP prosecutions for benefit fraud in the same period.

  The danger, of course, is that we will reach a tipping point of cynicism, where more people decide that the rewards of cheating outweigh the risks of being caught and simply join in to try to grab a share of those ill-gotten rewards. If the risks are minimal and the rewards potentially huge, the temptation grows.

  We see the ethical blindness of market outcomes in the indifference with which some business owners treat their workforce. As we have seen, by using insecure forms of employment contract or forcing them to become apparently ‘self-employed’, they shift all risk onto the employee and short-change the tax authorities in the process.

  We also see ethical blindness in the government’s nasty and divisive rhetoric about benefit ‘scroungers’ and ‘shirkers’, used to demonise and shame those forced to rely on benefits and to justify huge and continuing cuts in levels of benefit, which is causing real hardship for the most vulnerable.

  The time has come to create an economy with democratic socialist ethics at its centre, where cheating by insider trading or tax evasion and avoidance will be tackled with determination, not moral reticence and practical indifference – an economy in which enforcement will matter. The days of lavish remuneration packages would be numbered, since they incentivise short-term rises in share values while minimising the scope for real value creation in business by investment and organic growth. It is this value extraction by a ‘rentier class’ that has so disfigured corporate life in the UK, making it far harder to grow a business and create real value from scratch. Financial crime should be punished and attract the same disapproval as that meted out for any other crime. Until this happens, the view will persist that there are a privileged few who are allowed to buy their way out of their responsibilities to society at large by using their wealth to bypass the rules and shelter increasingly large amounts of capital and income from the taxman. This is unsustainable both financially and morally.

  Hayekian theory has lionised what it calls ‘self-interested individualism’ as the ultimate virtue, yet this is really another way of saying ‘unconscionable greed’. If the only real measure of success is income and accrued wealth, then the matter of how it was acquired takes on a secondary importance. In what author Will Hutton has aptly described as a ‘mercenary society’, the business ethics and subsequent behaviour of the people who benefit cease to matter.

  We urgently need to see a shift away from the current ethics of the spiv, which condones any behaviour as morally acceptable so long as it makes a profit. Acting within the letter, though not the spirit, of the law by appointing clever accountants to subvert the tax laws or ransacking a business by temporary inflating the share price, acting on inside information and abusing the market, should be a cause for shame, not an approving slap on the back.

  A DEMOCRATIC SOCIALIST ALTERNATIVE – THE FRAMEWORK FOR AN ETHICAL ECONOMY

  We need to develop an explicit framework for an ethical economy that will set out the rules by which our system will be run, and we must also put in place mechanisms which embed the social solidarity that is essential to the operation of a good and just society, including a renewal of our public services. Enforcement of the law is currently a major weakness; fraud, market abuse and tax evasion must all become far riskier than they are now.

  REASSERTING OUR DEMOCRATIC VALUES

  We are living in a new age of populism, in which authoritarian voices sowing the politics of blame and division are getting louder and more insistent. There is widespread and understandable cynicism about politics in the UK because it has failed to deliver inclusive growth and social justice; only hardship and insecurity. The malaise is complex, but we believe at its heart lies a lack of optimism that economic prospects will improve. Here in the UK, our parliamentary system seems quaint and old-fashioned to some, and many are put off by the way our elections are conducted and how our Parliament operates. The adversarial nature of the chamber is anachronistic and alienating; it seems noisy and full of dispute and yet nothing really ever seems to change.

  However, despite what many think, politics is not a spectator sport. Neither is it simply a tussle between competing brands. In truth, if you don’t do politics, you get it done to you by the forces which already wield power and influence in our society. The more involvement there is from the population, the more effective and genuine our representative democracy becomes. Achieving profound change to a status quo run by the already privileged can only be done from below. That can only be legitimately achieved by more, not less, democratic involvement – even if our democracy needs to be reformed and renewed to encourage greater participation.

&nb
sp; CHANGING COMPANIES

  Company law sets out the legal framework within which firms in our economy must be created and the purposes for which they will be run. The values and behaviour of those companies are influenced by these laws, as well as any taxation, regulation and institutional structures that surround them. The UK has a problem of endemic short-termism and low productivity which is well recognised. All too often company growth is through mergers and acquisitions rather than building value over time. Executive remuneration has soared to absurdly high levels and is now completely out of kilter with average rates of pay, which breaks down social solidarity and mutual understanding.

  In the UK, company law emphasises maximising shareholder value above all other considerations, using this as a proxy for the highest level of economic utility. Experience has shown, however, that doing so leads to lower levels of investment; managers hoard money for dividend payments to keep the share price high in the short term, reducing productivity and economic value in the long term.

  There are other corporate models we should consider. The stakeholder model, championed by Will Hutton, recognises that shareholders are not the only people in a company who bear the risk should that company fail. The workforce, the supply chain, the customers and often the taxpayer have a stake, and they should therefore have their interest in its future recognised and properly represented. This can best be accounted for in decision-making and accountability systems that give this wider group of stakeholders influence and a voice. Similarly, the Japanese concept of sampo yoshi (triple satisfaction) asserts that the company should pursue decision-making that is good for the buyer, good for the seller, and good for society. How different might our corporate culture be if it was based on this more holistic concept, rather than the market fundamentalist myth of ‘self-interested individualism’ (that is, unconscionable greed)?