Category Archives: Trade

COVID-19 bulletin 27: misgovernment – arms manufacturers thrive, US/UK economies suffer

 

Mark Shapiro draws attention to an article by Alan Macleod reporting that –  though the US economy is suffering – American arms manufacturers are thriving.

It opens:

“The American economy has crashed – only the military industrial complex is booming. A nationwide pandemic that has (officially) claimed some 84,000 Americans has also led to an estimated 36 million filing for unemployment insurance and millions frequenting food banks for the first time”. But weapons manufacturers are busier than ever, advertising for tens of thousands more workers:

  • Northrop Grumman announced that it was planning to hire up to 10,000  employees this year.
  • Last month, the Air Force commissioned Raytheon to develop and build a new nuclear cruise missile.
  • Raytheon is still advertising 2,000 new jobs in the military wing of its business.
  • Boeing is looking to add hundreds of new workers in its defense, intelligence, and cybersecurity departments and
  • Lockheed Martin, the world’s largest arms dealer, announcedon Friday that it is “actively recruiting for over 4,600 roles,” in addition to the 2,365 new employees it has taken on since the lockdown started.

Washington has designated weapons manufacturers as “essential” services during a pandemic (CNN report)

In February, the Pentagon released a $705 billion budget request for 2021, revealing that there would be a “shifting focus from the wars in Iraq and Afghanistan and a greater emphasis on the types of weapons that could be used to confront nuclear giants like Russia and China.”

Confronting nuclear giants like Russia and China

MacLeod points out that, just as Donald Trump was increasing the military budget, he slashed funding for the Center for Disease Control and for the World Health Organization, perhaps the only international body capable of limiting the spread of the virus.

In America and the rest of the world, poverty and disease have inflicted a far higher death toll than warfare

Yesterday US COVID-19’s death toll was 99,886. The United States has suffered the highest death toll from COVID-19 and the pandemic has led Americans to ask whether the enormous military budget is making them safer or whether well-funded healthcare, education and social care would have saved or enhanced more lives.

(War figures include American military deaths in battle, and in-theatre deaths as available. DEPARTMENT OF VETERANS AFFAIRS; JOHNS HOPKINS UNIVERSITY)

Alan Macleod ends: “However, that question appears not to have been debated within the walls of the White House, where it is full steam ahead with weapons production”. 

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Journalist Simon Jenkins reported last year that the British government boasted of record sales with 80% going to the Middle East.

He asserted that Britain should not be weaponising the suppression of dissent in Egypt, Bangladesh, Colombia, Uzbekistan or Saudi Arabia and other Gulf states – their national defence better termed, regime defence.

Calling the last London arms fair (above) “a stain on the nation . . . the most awesome glamorisation of death on the planet”, he added “The reality is that Britain and the US are in an arms race with the Russians in this theatre – with no remotely peaceful objective”.

And Symon Hill, in an article on security, points out that for years, “security” and “defence” have been euphemisms for war and preparations for war, adding that the coronavirus crisis is a fatal reminder that security, safety and defence cannot be found in armed force.

He ends: “In the long term, we must put our resources into addressing real threats, not into the waste and destruction of war”.

 

 

 

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COVID-19 bulletin 26: FT, “The pandemic risks delivering a knockout blow to globalisation”

This fear, expressed today by the FT’s editorial, will not be shared by some, who see globalisation as ”another version of colonialism or imperialism – with Amazons, Facebooks and Googles, Nikes and the garment industry in many aspects of their conduct as more acceptable looking British or Dutch East India companies” (reader’s comment). 

Manila port ‘bursting at the seams’ in the Philippines on Tuesday, March 31, 2020. Read more here.

Following an FT report of drops in rail freight and containerised exports from the UK of as much as 50 to 60% while imports are also declining, its editorial points out that supply chain disruptions and struggles to obtain medical supplies, have accelerated calls for countries and trading blocs to ensure they have sufficient capacity at home — prioritising resilience over producing goods where it is cheapest.

The US trade representative, last week hailed the end of “reflexive offshoring” (NY Times, log in) and in the EU Thierry Breton, the EU’s internal market commissioner, wants government grants, loans and direct intervention to build up European supply capacity.

The FT editorial points out that, in shifting manufacturing jobs out of rich countries and into poorer ones, globalisation reduced poverty in the developing world and prices in the rich ones.

But those working in these sweatshops (a small section of a sweatshop in Karnataka is shown above) still live in poverty and cramped conditions, working far from home in unhealthier conditions than the subsistence agriculture (Karnataka below) which was formerly their lot.

The low prices for their products in rich countries have encouraged a wasteful throwaway culture there, which has added to the waste mountains

The editorial also admits that millions in the ‘rich countries’ lost their jobs in the process, and lost the sense of pride and ownership people felt in their once thriving communities.

But the FT asserts that global supply chains and co-operation are a source of resilience, allowing countries to focus on their strengths and share expertise.

“Spreading people and factories around the world allows companies to guard against risks by diversifying”:

But it has also broken family circles and communities, increased deforestation and reduced the amount of land available for food production

“There will be higher prices and lost export markets”

But higher prices (due to higher wages) will mean a greater market for local goods and better tax revenues. A reduction in exports will lead to a great reduction in transport-related greenhouse gases.

“The direct cost to the taxpayer of subsidising domestic production . . . will make (economies) more fragile, not less”

But huge subsidies are currently given by government to foreign water, energy and transport utilities (including nuclear projects and fossil fuel producers) working in this country, to arms manufacturers and other exporters. That money could be redirected to domestic production which would reduce welfare payments and transport-related pollution.

It can be argued that a knockout blow is long overdue and that purposeful employment created by import substitution and Green New Deal projects might, in time, bring about an environmentally aware, low-crime, harmonious and employment-rich society.

 

 

 

 

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Brexit 13: Continued EU access to the UK’s fishing waters required

On January 8th, prime minister Boris Johnson told European Commission president Ursula von der Leyen that Britain would insist on “maintaining control of UK fishing waters” after it leaves the EU.

During his first meeting with Ms von der Leyen, the prime minister laid down his terms, insisting that any trade deal with the EU must be complete by the end of 2020 and that Britain would “not align” with the bloc’s rules.

An EU condition for future trade & financial services deals is access to the UK’s fish-rich waters

In January, Ireland’s prime minister Leo Varadkar warned of a fish-for-financial-services Brexit clash on the 27th, suggesting that the City of London could lose access to European markets unless the UK opens up its coastal waters to EU boats. Britain has long suspected that Brussels would demand continued EU access to the UK’s fish-rich waters as a condition of a future trade deal, with an explicit link being drawn to an agreement on financial services.

Alex Barker notes that French, Dutch, Belgian, Swedish and Danish fishing fleets are highly dependent on operating in UK waters, and abruptly losing access would potentially deal a devastating shock to many coastal communities. In what he describes as “an admission of the bloc’s vulnerable position over the politically sensitive industry”, Brussels has recognised that EU member states may need to negotiate country-by-country fishing deals to access to UK waters if there is a no-deal Brexit.

In March, the first round of negotiations on the EU’s future relationship with the UK in Brussels took place. Michel Barnier, the EU’s chief Brexit negotiator, said the meetings highlighted areas of “very serious divergence”:

  • the role of the European Court of Justice,
  • Britain’s determination not to align with EU rules and standards,
  • and Britain’s insistence that fishing rights to its waters must be decided by annual negotiations with the EU (Norway-style model).

The BBC reports that in the latest round of UK-EU trade talks this week, there were detailed discussions on access to UK fishing waters and other top EU priorities this week. The UK’s negotiator David Frost said a far-reaching free trade agreement could be agreed before the end of the year “without major difficulties”, but it was being held up by the EU’s desire to “bind” the UK to its laws and seek unfair access to fishing waters.

Boris Johnson ruled out any agreement that guarantees EU fishermen’s long-term access to British waters and also rejected EU demands for a binding “level playing field” of labour market, environmental and competition standards that would draw heavily on European law.

Mr Barnier stated clearly that the EU will never agree a trade deal with Britain unless access to UK fishing waters and the level playing field arrangements are settled to the bloc’s satisfaction.

Robin Healey foresees that French labour unions ‘in solidarity, no doubt, with their fishermen confrères, the French port, customs, immigration, dock and railway workers’, could paralyse all Calais-Dover transport facilities and no commercial or private traffic could move in either direction.

In its detailed account the FT’s George Parker explains that the 26-mile Dover-Calais route (above) is a commercial and physical chokepoint for the UK. No other cross-Channel route can match its two-way traffic capacity; Dover’s roll-on roll-off ferries handle about 10,000 trucks on a busy day, many carrying perishable goods.

Barker suggests the development of east coast ports for greater “roll-on, roll-off” ferry traffic in the event of disruption in France. This would allow Britain to carry out more trade with Belgium or the Netherlands. Business Live reports that a new daily service from Calais to Tilbury, is saving up to 75 road miles each day compared with the Calais-Dover crossing, using less fuel and landing goods on London’s ‘doorstep’.

As strikes by French fishermen have previously blocked Calais, Parker warns that Mr Johnson’s ‘hardball negotiating tactics’ on fishing quotas in post-Brexit trade talks risk triggering another protest – and as Healey says “the UK will be truly cut off, not the Continent”.

Which side will blink first? The UK faces disruption of supplies, but as a bloc, EU countries sell more goods to the UK than vice-versa, so would seem to have more to lose in financial terms.

 

 

 

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COVID-19 bulletin 23: will a ‘shock-resistant food system’ be adopted?

Since the coronavirus pandemic took over and some supermarket egg and flour shelves are still bare here – and in parts of America – there has been greater public awareness of the fragility of our food system.

An earlier post said: “After 50 years of unjust returns for perishable produce, the coronavirus is beginning to affect food imports, just as bombing and submarines did during the last war”.

As one article in Prospect magazine commented earlier this month, supermarkets currently dominate the retail sector, with the “Big Four” often lobbying together and using their significant bargaining power to push down prices paid to farmers.

It is widely quoted that in 2016, according to ‘official estimates’, producers on average received 9p for every pound spent in a supermarket, compared with 45-60 per cent of the money consumers spent on food in the 1950s.

Yasemin Craggs Mersinoglu reports that more farms have turned to home delivery services and a YouGov survey has found that three million people are trying box schemes or buying food from a local farm for the first time.

A Share of The Crop, a veg box supplier which sources produce from southeast England, received a year’s worth of additional orders during a single week in March.

Lauren Simpson, a farmer based in West Wales, hopes that this shift to local food will create a fair transition into a more sustainable food system.

She is a member of the Landworkers Alliance which is lobbying for the government to build a shock-resistant food system.

An emergency support fund for small farms during the pandemic, would be followed by provision of grants to new entrants to the industry, citing the need to grow more food in the UK and further assistance to create local supply chains, processing facilities and distribution networks.

To these measures should be added promotion of the Ripple Farm model: good practice which attracts reliable local workers (right):

  • holiday pay,
  • sick pay
  • good protective clothing
  • year-round employment five days a week,
  • job rotation: a hard stint outdoors in the morning, balanced by a less arduous indoor job in packing and admin in the afternoon.

Security: relying on imports or increasing the supply of home-grown food?

The government has consistently asserted that improving international trade relationships is the route to food security, but, as climate instability and Covid-19 have shown, the UK is vulnerable to global political, economic and public health challenges.

Yasemin concludes that short supply chains, with veg boxes and comparable schemes supplying fresh fruit, dairy and poultry, are not only better for the environment — they also help small producers to get a fair price by enabling smallholder farmers and smaller-scale retailers to sell directly to members of the public. They are then in control, having direct support from their community, no longer harassed by overnight order changes by the big supermarkets.

 

 

 

 

 

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COVID-19 bulletin 11: in future, rely on fossil-fuelled imports or reorient agriculture?

Some shortening of global supply chains is inevitable . . . the pandemic has exposed just how far even the richest nations are from strategic self-sufficiency (associate editor, FT).

Certain vested interests are increasingly un-nerved by the Government’s acknowledgement of the crucial role played by food producers

As the Food and Drink Federation (FDF) notes: post-COVID-19, politicians have learnt to celebrate ‘more than four million hidden heroes’ who work in Britain’s farm‑to-fork supply chain (but not yet to insist that they receive a fair price for their heroism, we add). There is a growing recognition in political circles that food security requires a return to post-war levels of production. 

Processors, export/importers and commodity speculators call to arms . . .

The FDF said – in a letter co-signed by 30 trade bodies this week – that ministers must fight to keep goods moving around the world after the pandemic has shown how essential global supply chains are for feeding consumers. On 18th March it launched a survey (above), hoping to gain support for its cause.

In a Telegraph article FDF warns that long supply chains must continue, stressing that ‘free trade’ is critical to economic recovery – aka their profits? 

They write: “The British food and drink industry is an international success story. The country exports more than £23 billion worth of high-quality products each year”. This ‘success’ depends on exporting British produce and importing not only tropical fruits but beef, lamb and apples, easily available here – see The Great Food Swap, Lucas, (research: Hines, Hurd, Jones). And who profits from this polluting activity? Certainly not the average British farmer.

The alternative: more local, accountable and inclusive

As huge numbers of small suppliers are currently left stranded by the closure of local cafes, hotels and restaurants and vulnerable households can’t even get onto the telephone or internet queues for supermarket deliveries, Alan Simpson (right) – in a recent paper – notes that we grow only half of our own food needs.

“Internationally, buffer stocks of food are getting caught up in siege mentalities. Domestic needs will come before international trade . . . It won’t stop there. Floods and drought across Europe and beyond will cause mayhem with global food supply . . . food security is not going to be delivered by any compact between government, the army and the big supermarkets. The alternative needs to be more local, accountable and inclusive”.

William Sitwells (British) sheep farmer friend seethed

“Freezing lamb, putting it on a ship and sending it on a 12,000-mile journey to a country that produces the best lamb in the world is simply ridiculous . . . Supermarkets would retort that they stock the best cuts, when in season – which suggests there is not enough British lamb currently available”.

Not so, Sitwell points out: “Breeds such as the Dorset, for example, can lamb in November, but a lack of grass in winter makes the meat more expensive as farmers have to pay for feed”. Supermarkets have failed to invest in farmers rearing these types of animals in favour of cheaper meat from, say, New Zealand, causing a vicious circle: less British lamb available, so demand remains low and prices stay high.

Arch-exponent Helena Norberg-Hodge (left) addresses the issue of local, accountable food production and distribution in the latest episode of Russell Brand’s podcast, ‘Under the Skin 

Pre-COVID-19, Pantheon Economics recorded that world trade had already fallen “sharply,” dropping 1.4% in the year to June 2019 (text & photo: Business Insider). Arjun Kapur, New York Investment strategist, asserts in a letter to the FT’s editor that “2020 will go down as the year of ‘deglobalisation’ “.

He suggests, “Company leaders and world leaders would be wise to ditch their reliance on vulnerable supply chains in favour of more resilient, self-sufficient means of delivering health, economic, and business outcomes for their constituents and shareholders. The ship of globalisation is sailing away”.

 

 

 

Brexit 8: Post-Brexit: moving from globalisation towards resilient self-reliance

A call for building strong productive local and regional communities and new trade systems that fulfil human lives without wasting resources and energy  

Today the Financial Times (paywall) reports that the number of foreign investment projects has dropped by 14% to 1,782 in the financial year ending March 2019, since the 2016 Brexit referendum. This is the lowest level in six years, according to a report published on Wednesday by the UK’s Department for International Trade.

As multinational profits continue to fly out of the country and taxes are evaded, we return to the valuable 2017 report by Victor Anderson and Rupert Read entitledBrexit and Trade Moving from Globalisation to Self-reliance’, published and launched by Green MEP Molly Scott Cato. 

Although it regrets leaving the EU and wishes we wouldn’t, the report is written as an alternative approach assuming we are outside the EU. Its Executive Summary states:

This report puts on to the political agenda an option for Brexit which goes with the grain of widespread worries about globalisation, and argues for greater local, regional, and national self-sufficiency, reducing international trade and boosting import substitution”.

Colin Hines comments: It details the need for an environmentally sustainable future involving constraints to trade and the rebuilding of local economies. On page 14, the report calls for ‘Progressive Protectionism’:

“Reducing dependence on international trade implies reducing both imports and exports. It is very different from the traditional protectionism of seeking to limit imports whilst expanding exports. It should therefore meet with less hostility from other countries, as it has a very different aim from simply improving the UK’s balance of payments. It could be described as ‘progressive protectionism’, or ‘green protectionism’“.

The report’s recommendations are summarised under three headings: the environment, globalisation and localisation (below):

  • Change trade agreements to allow governments to promote greater national, regional, and local resilience.
  • Shift taxes, subsidies, and public expenditure on infrastructure, away from unfairly favouring large and global companies, and redirect them to help build up local economies.
  • Link banking directly to local and regional economies rather than to the international financial system.
  • Boost the number of places for skills training in sectors where UK production can substitute for imports.
  • bring in short-term government subsidies to invest in and develop economic sectors where UK production can be expected to substitute for imports as part of the new strategy. These would not necessarily be ‘infant industries’: they might be old sectors being revived and renewed.
  • Introduce or increase tariffs on imports of goods and services, especially those where domestic production is a viable and environmentally sustainable option.
  • Democratise English sub-regional devolution arrangements and reform local government finance, so as to provide for effective decentralisation of power.

The globalisation of recent decades has been very one-sided. There have been enormous benefits for large business corporations, financial institutions, and the super-rich. As smaller companies have found it difficult to compete, the multinationals have used a worldwide network of tax havens to escape from taxation and regulation.

‘Brexit and Trade’ sets put a new option for Britain. Instead of removing protective regulations against environmental threats it advocates establishing high Green standards and practical localisation measures. It would address the very real social, economic and environmental problems of globalisation, serving present and future generations well.

 

 

 

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Inaction over climate change is shameful: Martin Wolf

Martin Wolf, former senior World Bank economist who left after becoming disillusioned with its policies, reminds readers that a goal of the Paris agreement of 2015 was to limit the global average temperature rise to less than 1.5C above pre-industrial levels. He comments:

“Achieving it means drastic reductions in emissions from now. This is very unlikely to happen. That is no longer because it is technically impossible. It is because it is politically painful.

He refers to the latest report from the Intergovernmental Panel on Climate Change on the implications of warming of just 1.5C, making plain the risks the world runs if this limit is ignored and concluding that life will survive, but not life as we know it, continuing:

“We are the shapers of the planet now. This ought to transform how we think. Unfortunately, it has not”.

Wolf believes that the theoretical and empirical arguments for man-made climate change are overwhelming, supporting this and other points made with graphs in his recent Financial Times article. The rise in average temperatures above the pre-industrial average is already about 1C. That shows how hard it will be to keep the final increase below 1.5C, or even 2C. Under the “nationally determined contributions”, he adds, we are in fact on a track towards warming of 3-4C by 2100.

if we are to have a high chance of keeping the ultimate temperature rise to below 1.5C:

  • net global CO2 emissions would need to fall to zero not long after 2040
  • and other sources of climate change — emissions of methane and nitrous oxide, for example — would also need to fall from 2030.

Emissions from industry would need to fall by 75-90 per cent by 2050, relative to 2010. This would need a combination of electrification, hydrogen and product substitution. These options are technically proven, but their deployment on a planetary scale is another matter. Emissions reductions by efficiency improvement will be inadequate.

(Ed) One reservation: many will disagree with Wolf’s assertion that generating energy from bio-based feedstocks is necessary and that agriculture will need to shift to production of energy crops on a huge scale.

He calls for planning changes in urban infrastructure and carbon capture and storage on a large scale, shifting the world on to a different investment and growth path right now and commenting, “This is more technically possible than we used to think. But it is politically highly challenging”.

The natural tendencies are either to do nothing, while insisting there is no problem, or to agree there is a problem, while merely pretending to act. It is not clear which form of obfuscation is worse.

Wolf points out that to preserve our planet requires co-operative effort on a planetary scale – a challenge human beings have historically only met in times of war. Climate change involves huge distributional issues between countries that caused the problem and those that did not, and, not least, between people today, who make the decisions, and people tomorrow, who suffer the results.

He warns that the chances of co-operative action seem near zero in today’s nationalistic world . . . Donald Trump has already repudiated the US pledge – other countries may fail, too:

“It is five minutes to midnight on climate change. We will have to alter our trajectory very quickly but appear to be set on running an irreversible bet on our ability to manage the consequences of a far bigger rise even than 2C, risking a world of runaway — and unmanageable — climate chaos.

“Our progeny will see this as a crime”.

 

 

 

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Brexit 5: Contingency plan for a no-deal Brexit: proposals to ferry in critical supplies – food, medicines and possibly car parts

The FT reports that David Lidington, Mrs May’s de facto deputy, has briefed the cabinet that under a no-deal Brexit, the Dover-Calais route could be running at only 12-25% of its normal capacity for up to six months.

“Whatever we do at our end, the French could cause chaos if they carry out checks at their end,” said one government official. “Dover-Calais would be the obvious pinch point. The French would say they were only applying the rules.” This would force Britain to seek alternative ways of bringing in “critical supplies”.

Chris Grayling, transport secretary, has discussed with government colleagues the possibility of chartering ships, or space in ships, to bring supplies into other British ports, thus avoiding the Dover-Calais bottleneck.

Government officials say they do not expect to have to use legal powers to requisition ships, although with only five months to go until Brexit on March 29, there is little time to charter ships on the open market.

According to the FT’s George Parker and James Blitz this move was greeted with disbelief at a stormy meeting of Theresa May’s cabinet on Tuesday. The prime minister announced there would now be a weekly cabinet discussion on preparations for Brexit, whether under a deal or no-deal scenario. If Britain left the EU under World Trade Organization rules, the UK and EU would be in different customs jurisdictions and would be expected to carry out checks on trade across the English Channel.

Some 30% of all Britain’s food requirements are met from imports from other EU countries; Dover is a key port of entry, with over 2.5m heavy goods vehicles passing through the port each year.

Pauline Bastidon (sic), head of European policy at the Freight Transport Association, said: “We are open to all kinds of ideas about how to keep supplies flowing in a no deal Brexit. But it’s hard to see where the extra ships would quickly be found. Nor can I see how other UK ports could possibly handle the huge volumes currently going through the Dover strait.”

The Times adds: Dover handles more than 2.5 million lorries a year and has no capacity to hold trucks waiting for advanced customs clearance. Other UK ports (Ed: see map, right) do have that capacity and could be used to take some Dover traffic. And, reassuringly:

“Ministers say that disruption would also damage EU companies and that there would be political pressure from member states for the European Commission to mitigate the most damaging aspects of a breakdown in talks”.

 

 

 

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Can Britain afford to offshore ship building?

Cammell Laird, working to full capacity in 2012

Though Cammell Laird’s Birkenhead shipyard won two contracts this month, worth a total of £619 million, to provide spares, repairs and do maintenance work for the Royal Fleet Auxiliary over10 years, news of plans to axe about 40% of the workforce (290 jobs) by the end of March 2019, was given to union representatives and workers today (11th October).

The Unite union is demanding that Cammell Laird sets out the business case for cuts which will see the loss of vital skills and ‘backdoor casualisation’ of the workforce. It fears that the proposed job losses will undermine the shipyard’s ability to fulfil new contracts.

Unite’s assistant general secretary for shipbuilding, Steve Turner, said: “The loss of jobs at Cammell Laird would see skills gone for a generation and be a further blow to the UK’s shipbuilding industry . . . it is clear that the government must and can do more to support UK shipbuilding jobs. This must include the government stepping in and supporting the retention of skills and jobs while shipyards like Cammell Laird wait for new contracts to come on stream”.

Instead of ‘offshoring’, the government should be handing contracts to build the Royal Navy’s new fleet solid support vessels and a £1.25bn contract for Type 31e frigates (maritime security-focused platforms) to UK shipyards, using British made steel as part of an industrial strategy that supports jobs and communities across our four nations.

https://www.savetheroyalnavy.org/fleet-solid-support-ships-an-important-part-of-the-naval-logistic-chain/

Yesterday it was reported that MPs had urged civil servants (defence officials) to pick a UK company for the £1billion contract for three Fleet Solid Support vessels for the Royal Fleet Auxiliary. Commons Defence Committee chairman and senior Tory MP Julian Lewis feared that foreign firms subsidised by their governments could undercut British rivals.

Penny-wise, pound foolish?

The MoD’s director general for finance told MPs the department’s biggest concern was “what will deliver the greatest value for money”- meaning the lowest bid – a narrow perspective. But as Labour MP John Spellar pointed out, the Treasury would benefit from tax revenue ploughed into public coffers if the work was carried out in the UK  –  “a significant return” – which would be multiplied by work given to British steel and component manufacturers.

Steve Turner said that a failure to have these ships made in Britain would be ‘a gross betrayal of UK ship workers and regional economies, putting at risk manufacturing skills vital to our country’.

 

 

 

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Broken Britain 18: captured by corporate interests?

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George Monbiot recently pointed out that the Commons report on the Carillion fiasco is one of the most damning assessments of corporate behaviour parliament has ever published. It trounces the company’s executives and board and laments the weakness of the regulators.

But, as Prem Sikka said in his April article, it scarcely touches the structural causes that make gluttony a perennial feature of corporate life.

Both agree that the problem begins with an issue the report does not once mention: the extreme nature of limited liability. Sikka points out that this system, under which executives are only financially accountable for the value of their investment, has also benefited frauds and led to the self-enrichment of executives at the expense of workers, consumers, creditors, pensioners and citizens.

Monbiot adds that the current model of limited liability allowed the directors and executives of Carillion to rack up a pension deficit of £2.6 billion, leaving the 27,000 members of its schemes to be rescued by the state fund (which is financed by a levy on your pension – if you have one). The owners of the company were permitted to walk away from the £2 billion owed to its suppliers and subcontractors. (Left: the former Carillion chief executive Keith Cochrane in Westminster after appearing before the Commons work and pensions select committee)

Monbiot continues: “There is no way that fossil fuel companies could pay for the climate breakdown they cause. There is no way that car companies could meet the health costs of air pollution. Their business models rely on dumping their costs on other people. Were they not protected by the extreme form of limited liability that prevails today, they would be obliged to switch to clean technologies”.

So what is to be done?

Prem Sikka (right) proposes that the bearers of unlimited risks and liabilities should be given rights to control the day-to-day governance and direction of companies.

He advocates including employees and citizen/consumers on company boards – because both ultimately have to bear the financial, health, social and psychological costs associated with environmental damage, pollution, poor products, industrial accidents, loss of jobs, pensions and savings. Through seats on company boards, they could secure a fairer distribution of income, challenge discrimination, curb asset-stripping and influence investment, training and innovation.

Across the 28 European Union countries (plus Norway), most have a statutory requirement for employee representation on company boards – unlike the UK, Belgium, Bulgaria, Cyprus, Estonia, Italy, Latvia, Malta and Romania.

George Monbiot proposes a radical reassessment of limited liability.

He points out that a recent paper by the US law professor Michael Simkovic proposes that companies should pay a fee for this indemnity, calibrated to the level of risk they impose on society. He adds, significantly, that as numerous leaks show, companies tend to be far more aware of the risks they inflict than either governments or the rest of society. Various estimates put the cost that businesses dump on society at somewhere between 4% and 20% of GDP

His own ‘tentative’ and ingenious proposal is that any manager earning more than a certain amount – say £200,000 – would have half their total remuneration placed in an escrow account, which is controlled not by the company but by an external agency. The deferred half of their income would not become payable until the agency judged that the company had met the targets it set on pension provision, workers’ pay, the treatment of suppliers and contractors and wider social and environmental performance. This judgement should draw on mandatory social and environmental reporting, assessed by independent auditors.

If they miss their targets, the executives would lose part or all of the deferred sum. In other words, they would pay for any disasters they impose on others. To ensure it isn’t captured by corporate interests, the agency would be funded by the income it confiscates.

Monbiot then says “I know that, at best, they address only part of the problem” and asks, “Are these the right solutions?

  • support them,
  • oppose them
  • or suggest better ideas.

He ends: “Should corporations in their current form exist at all? Is capitalism compatible with life on earth?”

 

 

 

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