While the wealthy evade billions in taxes, ordinary citizens continue to bear the burden of budget cuts. Meanwhile, those who resist are punished for it. Is our austerity world an upside-down normalcy and reality? Je Suis(se) HSBC!! Isn’t it odd, or it’s just another (unintentional) ad?
“What is rewarded above is punished below … Profits are privatized, losses are socialized.”
Ultimately, major scandals like HSBC’s Swiss tax evasion scheme are merely flash points offering us a clearer view of the hidden dynamics at work in the world economy. Credits: telegraph.co.uk
This week it was revealed that HSBC — Europe’s biggest bank — has been actively running and propagating a massive tax evasion scheme through its Swiss subsidiary, allowing some of its wealthiest international clients to hide over $120bn in undeclared assets in 30.000 secret Swiss bank accounts. Leading British regulators, MPs and government officials were aware of the malpractices and the names of potential tax evaders (including movie stars, drug lords and heads of state), but never pressed criminal charges.
Instead, the UK — like the rest of Europe — ushered in an age of austerity. Where the billions of the rich escaped to Switzerland and the Caymans, the benefits of the poor were cut “to balance the budget.” Last year, David Cameron pledged to slash “wasteful” public spending for another decade, as it “comes out of the pockets of the same taxpayers whose living standards we want to see improve.” The irony of the Prime Minister speaking from a golden throne was hardly lost on anyone. Welcome to the topsy-turvy reality of austerity politics.
As for HSBC, of course the diligent observer will not have been very surprised by the news of the bank’s umpteenth mega-scandal. Already back in 2012, financial journalist Matt Taibbi made it clear that HSBC had been engaged in “more or less the worst behavior that any bank can possibly be guilty of.” So far, the bank has managed to avoid prosecution despite laundering billions of dollars for some of the most notorious Mexican drug cartels as well as a Saudi bank linked to Al Qaeda, and systematically rigging interbank interest rates and reaping lavish profits in the infamous LIBOR scandal.
The decision of US and UK regulators to reach deferred prosecution agreements with HSBC and not to press criminal charges in these scandals signals the double standards at the heart of our contemporary justice systems. In the US, where more than half of the prison population is doing time for minor drug offenses, the white collar criminals who aid and abet the violent traffickers of these same drugs get off with a slap on the wrist. As Taibbi puts it, “for the crimes [HSBC] committed, getting away with just [a fine] — and it’s not even their money, it’s the shareholders’ money — it literally is a get out of jail free card.”
Yet it is very important not to let the criminal behavior of a single bank distract us from the bigger picture. HSBC is but one notoriously scandalous player in a financial system that is dominated by some of the most criminal organizations of our times. Focusing our wrath on individual acts of misbehavior risks missing a deeper dimension. While it is the illegal practices that mostly hit the headlines and cause indignation, the real theft still occurs within the bounds of the law — in the everyday transactions and ordinary financial operations at the heart of these banks’ business models.
In this sense, the greatest scandal of our times is systemic in nature and rests upon the wholesale transformation of the world economy over the past four decades. With the onset of financialization in the 1970s, the international banking system began to act like Galeano’s magnifying glass: grossly amplifying pre-existing inequalities and inverting reality in the process. In the first instance, the system sucks up billions in interest and tax money from below. Starting with the bankruptcy of New York City in 1975 and the Mexican debt crisis of 1982, austerity became the key mechanism whereby the banks effected a historically unprecedented redistribution of resources from the bottom to the top.
At the other end, the magnifying glass created the preconditions under which the world’s wealthiest businesspeople, Third World dictators and white-collar criminals could further increase their accumulated capital — obtained through decades’ worth in pillage and plunder of state resources and common property — and stuff it in offshore bank accounts and foreign assets, where this immense stolen wealth largely escapes taxation, regulation and criminal investigation.
The financial privileges obtained through this process, which has been referred to by David Harvey as “accumulation by disposition”, stand in direct relation to the fiscal deprivation at the bottom. Ultimately, major scandals like HSBC’s Swiss tax evasion scheme are merely flash points offering us a clearer view of the hidden dynamics at work in the world economy: what is taken from one side shows up at the other. In a word, there is no such thing as austerity; there is only an outrageously skewed redistribution of resources. In this upside-down world of financial capitalism, money doesn’t trickle down — it steadily flows upwards.
The result is a stable set of outcomes in which profits are perennially privatized and losses are systematically socialized. Those who question this state of affairs are told that “there is no alternative,” and those who actively resist — like the social movements and progressive governments in Latin America and Southern Europe — are ruthlessly punished for it. First the cops will beat ordinary citizens over the head when they protest, then investors will beat popular governments over the head when they do the same. Foreign capital is withdrawn, bond yields spike up, stock markets collapse. Where the bankers above are rewarded for criminal behavior, those who struggle for justice from below find themselves imprisoned within the narrowing perimeters of the permissible.
It should be clear by now that to this systemic injustice there can only ever be systemic answers. Of course regulators should actively pursue criminal charges against HSBC for its latest mega-scandal, but without powerful anti-systemic movements to carry demands for social justice forward, meaningful change remains unlikely. To turn the looking glass around and put the world back on its feet will require mass mobilization and political organization on a scale we have not been able to imagine so far. Now more than ever we need to take back to the streets and start developing a coherent transnational project to confront the criminal rule of global finance head on.
First published by the ROAR Magazine.
231,000 New Jobs Added in Western Balkans amid Ongoing Economic Challenges, Emigration
A 3.9 percent increase in employment over the last year has led to the creation of 231,000 new jobs throughout the six countries of the Western Balkans, according to the “Western Balkans Labor Market Trends 2018” report, launched today by the World Bank and the Vienna Institute for International Economic Studies (wiiw). Unemployment also fell from 18.6 percent to 16.2 percent, reaching historic lows in some countries.
Leading the way for employment in the region was Kosovo, which saw an increase of 9.2 percent, followed by Serbia (4.3 percent), Montenegro (3.5 percent), Albania (3.4 percent), FYR Macedonia (2.7 percent), and Bosnia and Herzegovina (1.9 percent). Despite this progress, however, low activity rates – particularly among women and young people – along with high rates of long-term unemployment and a prevalence of informal work, continue to pose challenges for sustained economic growth in the region.
“The region has made great strides in improving labor market outcomes over the last year – meaning more people are finding jobs,” says Linda Van Gelder, World Bank Country Director for the Western Balkans. “However, we continue to see high rates of people who are not in employment, education or in training programs and we need to find ways to link them to future opportunities.”
Youth unemployment of 37.6 percent is a key challenge for the region. However, this rate is down from last year and nearly every country in the region is experiencing the lowest levels of youth unemployment since 2010. Country rates range from 29 percent in Montenegro and Serbia, to more than 50 percent in Kosovo. According to the report, it may be difficult for young people who become detached from jobs or education for long periods to reintegrate into the labor market. They also face a wage gap, earning up to 20 percent less than those who find employment sooner.
The report also notes that female employment rates are on the rise but they still remain low by European standards. The employment rate for women across the region stands at 43.2 percent, varying from a low of 13.1 percent in Kosovo to a high of 52.3 percent in Serbia. The gender gap in employment has also narrowed since 2010, ranging from 28.9 percentage points in Kosovo to 9.8 percentage points in Montenegro.
“Economic trends in the region look to be headed in the right direction,” says Robert Stehrer, Scientific Director of the Vienna Institute for International Economic Studies. “Getting more people, particularly young and women into employment remains one of the key challenges in the region to sustain economic and social convergence.”
A number of obstacles to employment need to be addressed to reduce ongoing emigration from the region, especially common among young, educated people. In order to address this, further knowledge is needed. Countries in the region should synchronize their data on emigration and improve the registration and publication of migration statistics. By utilizing high-quality data that is in-line with international standards on workforce composition – both domestically and internationally – will produce accurate analysis of labor market dynamics in the region and allow for the design of policies that can simultaneously address the challenges of emigration and reap the benefits of migration.
Better linkages between secondary graduates and the labor market, as well as earlier interventions to retain students, can improve opportunities for employment. Policies, such as child care, care facilities for the elderly, flexible work arrangements and more part-time jobs would also promote labor market integration among women.
The report was produced with financial support from the Austrian Ministry of Finance.
Economic Growth in Gulf Region Set to Improve following a Weak Performance in 2017
The Gulf Cooperation Council (GCC) region witnessed another year of disappointing economic performance in 2017 but growth should improve in 2018 and 2019, according to the World Bank’s biannual Gulf Economic Monitor released today in Kuwait.
The region eked out growth of just 0.5% in 2017 – the weakest since 2009 and down from 2.5% the previous year. The GCC region’s economies experienced flat or declining growth as lower oil production and tighter fiscal policy took a toll on activity in the non-oil sector. External debt issuance continued to rise to help finance large fiscal deficits.
Economic growth is expected to strengthen gradually, helped by the recent partial recovery in energy prices, the expiration of oil production cuts after 2018, and an easing of fiscal austerity. The World Bank expects growth to firm to 2.1% in 2018 and rise further to 2.7% in 2019. Growth in Saudi Arabia is expected to rebound close to 2% in 2018-19 and to strengthen similarly elsewhere in the region.
“Policy attention is shifting towards deeper structural reforms needed to sever the region’s longer-term fortunes from those of the energy sector,” said Nadir Mohammed, World Bank Country Director for the GCC. “While the recent increase in oil prices provides some breathing space, policy makers should guard against complacency and instead double down on reforms needed to breathe new life into sluggish domestic economies, to create jobs for young people and to diversify the economic base. Any slippage could negatively impact the credibility of the policy framework and dampen investor sentiment.”
Looking forward, there are several downside risks that may weigh on activity. Lower than expected oil prices could exert pressure on the OPEC producers to extend or deepen their production reduction agreement and dampen medium-term growth in the GCC countries.
Although fiscal and current account balances are improving, the region continues to face large financing needs and remains vulnerable to shifts in global risk sentiment and the cost of funding. Geopolitical developments and relations within the region could slow growth prospects. Slippage in the implementation of country reform plans arising from weak institutional capacity will rob the GCC of the benefits of fiscal adjustment and of deeper structural reforms that aim to diversify their economies.
Over the longer term, the enduring dominance of the hydrocarbon sector in the GCC economies argues for the vigorous implementation of structural reforms. The terms of trade shocks in 2008-09 and in 2014-16 barely dented the dominance of the hydrocarbon sector in the GCC, with the bulk of the adjustment so far driven by spending cuts rather than the emergence of other traded sectors.
Structural reforms should focus on economic diversification, private sector development, and labor market and fiscal reforms. The GCC states’ long-term ambitions are articulated in various country vision statements and investment plans, and aspire to build competitive economies that utilize the talents of their people.
Implementing these structural transformation programs requires continuing political commitment from the GCC governments.
Saudi Arabia has shown considerable leadership in this regard: the 12 “vision realization plans” associated with its Vision 2030 aspirations aim to significantly transform the economy over the next 15 years by lifting the private sector share of the economy from 40 to 65% and the small and medium enterprise contribution to GDP from 20 to 35%.
“Transforming from an oil-dependent economy to a self-propelled, human capital-oriented one requires some fundamental changes in the mindset; some also call this a new social contract,” said Kevin Carey, Practice Manager at the World Bank. “GCC countries do not need to discard their existing social contracts but rather to upgrade them to reflect new realities of low for long oil prices, increasing global competition and the long-term threats from technological and climate change.”
As with other Arab countries, the GCC states also face sustainability, equity and welfare challenges related to their pension systems. These issues need to be addressed urgently to prevent any negative impact on economic growth, fiscal sustainability, and labor market stability.
Among the potential solutions that could help improve pension outcomes, the Gulf Economic Monitor underscores the importance of improving efficiency by reducing the prevailing fragmentation in many of the GCC pension systems; making access and contributions as simple and systematic as possible through the strengthening of ID and IT systems and the capabilities of pension administration bodies; and strengthening the governance of pension institutions. If GCC countries wish to attract global talent, they will also need to consider potential solutions for expatriates that help to meet their long-term pension and financial security needs.
Poland: Build on current economic strength to innovate and invest in skills and infrastructure
Poland’s economic growth remains strong. Rising family benefits and a booming jobs market are lifting household income while poverty rates and inequality are falling, says a new OECD report.
In its latest Economic Survey of Poland, the OECD encourages policy-makers to build on the country’s current economic strength and social progress in order to tackle major remaining challenges. To sustain rising living standards Poland has to develop its capacity to innovate and invest in skills and infrastructure, as is acknowledged in the government’s Strategy for Responsible Development. The report says that the level of expenditure on research and development, despite recent welcome rises and tax incentives, remains weak. Vocational training suffers from limited business engagement which is hindering many of the country’s plentiful small enterprises from modernising and improving productivity.
Poland is also ageing rapidly. The working age population is projected to decline markedly over the coming decades. The lowering of the retirement age risks increasing poverty among the elderly, particularly women, says the OECD. Women often have patchy career paths and their retirement age is now set to remain unusually low. Workers should be made aware of the benefits of working longer for their future pension income, the report says.
Despite efforts to improve childcare, it remains insufficient and expensive, especially in rural areas. More investment in childcare is required as part of a range of measures to help combine work and family life and strengthen the number of women in employment.
Presenting the Survey in Warsaw, OECD Deputy Secretary-General Mari Kiviniemi said, “Poland is in a strong position. A dynamic job market together with the Family 500 + programme has helped make economic development more inclusive. Many people now benefit from new opportunities and rising incomes.”
“The time is ripe to ensure that living standards continue to rise. Strengthening innovation, improving infrastructure and investing in skills will be crucial. With rising labour and skills shortages, many employers now realise how important it is to invest in training. The government must seize this opportunity to engage with them.”
Measures to improve tax compliance have succeeded in shrinking the public deficit despite higher spending on social benefits. But more resources – or shift in how they are used – will be needed to raise spending in priority areas such as public infrastructure, healthcare and higher education and research.
Limiting reduced VAT rates, increasing environmental taxes and giving a stronger role to the progressive personal income tax would raise additional revenue while contributing to more equity and a greener environment.
Plans to reform higher education and improve research excellence and industry-science co-operation are welcome, the report says. The general health status of Poles and access to healthcare are very unequal, while environmental quality is below the average of OECD countries. Tax rates on air and water pollution and on CO2 emissions are low and many environmentally harmful fuel uses are exempt from taxation. Raising environmental taxes would provide stronger incentives to replace ageing coal-intensive equipment with greener alternatives.
A clear immigration policy strategy is also needed to better monitor integration of foreigners in line with labour market needs, the protection of their rights and their access to education and training.
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