12 Things you should know about Tory nuclear price-fixing subsidies

Just a few short weeks after deriding Ed Miliband's plan to cap energy prices for 20 months as "price fixing" and "interference in the market" the Tory led government has signed up to a ludicrous 35 year price fixing deal with the French state run energy company EdF, in return for the construction of a new nuclear power station at Hinkley Point C in Somerset.

The Rip-off deal

The deal that has been agreed is an absolutely astonishing rip-off for the British taxpayer. The UK government has guaranteed to buy electricity from the new reactor at £92.50 per megawatt hour, which is almost double the actual market rate. The difference between the market rate for electricity and the strike rate of £92.50 will be made up by the taxpayer using Contracts for Difference (CfDs). This means that the electricity consumer will be paying for their electricity twice; once by buying it on the electricity market, and again through the taxes necessary in order to pay for the price fixing subsidies.

Dr Paul Dorfman, from the Energy Institute at University College London has calculated that these CfD subsidies will cost the taxpayer around £800 million - £1 billion per year. Over the 35 year life of the contract this will add up to a taxpayer funded subsidy of  £28 billion - £35 billion, which is double the estimated £14 - £16 billion construction cost of the entire facility!

David Cameron is lying again

David Cameron has such a shocking track record of lying to the public that it's got to the point where if Cameron says something, it's pretty safe to assume that the opposite is true. If Cameron says the NHS is "safe" in his hands, we know that it is in danger. If Cameron tells parliament that the UK has been "bankrupted", we can be sure that the UK is still solvent, and if he says that the Hinkley Point subsidies represent "an excellent deal for Britain and British consumers", we can be sure that we're getting an absolutely atrocious deal.

How divorced from reality would you have to be to state that a deal to pay £28 - £35 billion in price fixing subsidies for a piece of infrastructure that cost £14 - £16 billion to build represents an "excellent deal"?

Tory hypocrisy

I've already written a lengthy article exposing Tory hypocrisy over their opposition to Ed Miliband's energy price cap policy, so I'll be brief here.

If you are incapable of seeing how hypocritical it is to slag off Ed Miliband as a "price fixer" and "market rigger" for planning a 20 month maximum energy price to help electricity consumers, then within weeks agreeing a 35 year deal that guarantees a minimum energy price (at almost twice the natural market rate) to help energy producers, then there is something terribly wrong with you.

Ed Davey's spectacular U-turn
 

Ed Davey has certainly changed his tune since he sent out
this press release in 2006.

The Liberal Democrat energy secretary Ed Davey has done a lot of bragging about this ludicrous deal, but it is certainly worth considering his boasts alongside some of his previous comments about nuclear energy.

Here's what Ed Davey said in a press release he sent out in July 2006:

"In addition to posing safety and environmental risks, nuclear power will only be possible with vast taxpayer subsidies or a rigged market"

Davey was also behind the production of a Document called "Where will Tony Blair hide his nuclear tax bombshell" which made several assertions about nuclear energy:

"Recent international experience of the cost of nuclear power shows it remains highly uncompetitive"

"nuclear power is unaffordable and unnecessary."

It is quite remarkable that a man that invested so much energy in opposing nuclear power and criticising it as environmentally risky and highly uncompetitive is now the energy minister responsible for pushing through this rip-off deal, and talking it up with statements like this:

"This is an excellent deal for Britain and British consumers ... It will increase energy security and resilience from a safe, reliable, home-grown source of electricity"

It is almost as if the man has absolutely no principles at all that can't be bought off with a six figure ministerial salary isn't it?

Ed Davey's lie

Aside from singing the praises of a scheme that he would have been bitterly criticising had Tony Blair announced it in 2006, Ed Davey is also guily of outright lying to the public. Here's what he said:

"For the first time, a nuclear station in this country will not have been built with money from the British taxpayer"

Even if we ignore the fact that EdF only agreed to build the plant on the condition that the UK government use money from the British taxpayer to subsidise the plant by paying over the odds for electricity, this statement is still factually inaccurate.

If we look at the policy announcement in which this statement is made, we see in point five that "Hinkley Point C had been pre-qualified for consideration for a UK Guarantee. EdF and HM Treasury are in discussions regarding the terms of a potential UK Guarantee".

What this means is that EdF will borrow the money to build the plant from the UK government. The government claim that these loans are designed to fund infrastructure projects that have stalled because the commercial banks won't fund them. 

However if the market isn't lending, then government claims that these loans are being made "at the market rate" are utterly fallacious because these if the UK Guarantee loans were being made with the same conditions as the private banks, they wouldn't be made at all. If the market won't lend the money at a reasonable rate of interest, but the government will, then no matter what they claim, the government is clearly lending at below the market rate.
 
Not only will the UK taxpayer subsidise the Hinkley Point C project by paying over-the-odds for electricity for decades to come, they also look set provide EdF with a cheap supply of cash for them to build it in the first place. This means that Ed Davey is either lying through his teeth when he says that the British taxpayer won't be funding this project, or he is so incompetent that he doesn't even understand the details of the deal that has just been agreed, nor the UK guarantee negotiations that are ongoing.

Subsidising the French government

EDF is 85% owned by the French state. This means that the French state will be the main beneficiary of this price fixing deal to pay way over the odds for electricity. Perhaps the French state will use the profits from this energy price rigging scheme to reduce the cost of energy for French businesses and French households?

The Chinese are coming
 
The fact that the state owned China General Nuclear Power Group is set to have a 30% - 40% stake in the Hinkley Point C consortium means that French state won't be the only foreign government to benefit from this energy price rigging scheme.

The UK is already dangerously over-reliant upon the Chinese manufacturing sector (after decades of industrial decline in the UK, imagine how badly the economy would be hit if the flow of Chinese imports was slowed down or stopped), so handing the Chinese government control over our energy infrastructure too seems like an insane move, unless the objective is to deliberately weaken the standing of the UK on the world stage.

The Inefficient state hypothesis

The fact that the Tory led government are so delighted with the "deal" they've signed up to illustrates one thing absolutely clearly, that their privatisation agenda is a sham. It is an article of right-wing faith that the private sector is always more efficient than the state sector, however this stance is completely undermined by the fact that the UK is now reliant upon the French and Chinese states to build our energy infrastructure for them. If privatisation is necessary because the UK state is too "inefficient" to run its own energy infrastructure, then how on earth are the state sectors of other countries not riddled with the same kinds of inherent inefficiencies?

If the private sector is so efficient, why are there no private sector players lining up to out-compete the French and Chinese states? The answer is obvious. The whole idea that the private sector is inherently more efficient than the public sector is an obvious hoax.

The absurd right-wing free-market mantra that the private sector is inherently more efficient than the state, which was introduced by Margaret Thatcher and endlessly repeated by all of her successors, has left the UK in the ludicrous position where it is now reliant upon a country with a left-wing government and a communist regime to build its energy infrastructure for it, because the private sector has mismanaged the UK energy sector so appallingly over the last couple of decades.

Instead of signing deals with the French and Chinese governments to build our energy infrastructure for us, surely it would make more sense if the UK government built it themselves. If it was done that way, then at least there would be a veneer of democratic accountability to the project.

Privatised energy infrastructure

The problem with the idea that the UK should fund and build its own energy infrastructure is that so much of it has been sold off that we no longer actually have the means to do it. Take the existing nuclear infrastructure; John Major's Tory government sold off 8 nuclear power plants in 1996 for the astonishingly small fee of £2.1 billion. These facilities were run by a consortium called British Energy for a few years before they were taken over by EDF in 2009.

When these plants were sold off on the cheap, the UK state gave away its nuclear expertise to the private sector at a bargain basement price, then a few years down the line this expertise was handed over to the French state. Is it not amazing that eight fully functional nuclear plants were virtually given away for £2.1 billion, and now the UK is using price fixing measures to subsidise the French and Chinese states to the tune of £28 - £35 billion to build us a new one, and stumping up the cash for them to build it as well?

David Cameron has been bragging on about how many British jobs this price fixing scheme will create, but this is starkly contrasted by EdF themselves, who claim that most of the work can't be done by British companies because the UK energy market has been so badly neglected over the last few decades.

Here's what Ken Owen, the commercial director for nuclear new build at EdF said:

"There are a lot of critical components where quite frankly the UK has lost its capability. We don't mind that because we know there is capability from a global perspective"

The only parts of the contract that British companies are any good for according to EdF themselves, are the "muck shifting" elements. 

Had the UK invested in its energy infrastructure instead of flogging it all off on the cheap, perhaps Britain wouldn't be languishing so far behind high-tech economies?

Swimming against the tide

By commissioning new nuclear facilities the UK government is swimming against the tide. With the Fukushima disaster still ongoing, the Japanese are understandably keen to end their reliance upon nuclear power, but the French and Germans are also turning against nuclear power too. Germany has committed to ridding itself of nuclear power altogether, and even the nuclear fixated French are determined to reduce their reliance on nuclear power from 75% to 50% of their national capacity after a series of expensive cock-ups and nuclear shutdowns.

Perhaps such a massive investment in the nuclear industry might make some kind of economic sense if the UK still had a nuclear industry of their own and they were pioneering some kind of new nuclear technology, with a view to building up their national expertise and exporting nuclear technology to other countries, but using rigged energy prices to bribe the French and Chinese into building a nuclear power station for them makes no economic sense whatever.
  
Dirty technology 

The nuclear lobby loves to pretend that nuclear waste is
safely stored in high-tech underground facilities, but the
reality is that hundreds of thousands of tons are stored
in the form of Uranium Hexaflouride in open air facilities
like this.

As much as the nuclear lobby love to dress their industry up as clean and modern, the evidence is absolutely clear that it is a dirty and dangerous technology.

We only need to look at the ongoing catastrophe at Fukushima in Japan, which is still leaking radioactive waste into the ground and the sea two and a half years after the tsunami that crippled three of its reactors.

Even if we tell ourselves that tsunamis, earthquakes, other natuaral disasters or terrorist attacks are impossible in Somerset and look beyond the Fukushima disater, there's still the problem of nuclear waste.
Plutonium has a half-life of around 24,000 years meaning that it takes 120,000 years to become 3% as radioactive as it is today (still too dangerous to handle). Considering the fact there have been several major radiation leaks in the last few decades alone, the idea that the nuclear industry is capable of safely storing highly radioactive waste for over 100,000 years would be laughable if it were not so scary.
 
It is estimated that there are hundreds of thousands of tonnes of highly radioactive nuclear waste in temporary storage facilities all over the world. The only country in the world that is taking their responsibility to safely dispose of this waste with any degree of seriousness is Finland*. The rest of the world are happy to continue producing tens of thousands of tons of radioactive waste every year, without even bothering to plan for its permanent disposal.

For more detail on the nuclear waste problem see this article.

 Who will pay the clean-up costs?

One of the big issues that remains completely unanswered is who will be bearing the enormous cost of decommissioning the site at the end of its productive life, and who will be paying for the storage of the radioactive waste? The official government policy document makes absolutely no mention of either of these issues, so it is fairly safe to assume that under the Tory economic ideology of "Privatise the profits and nationalise the losses", the taxpayer will end up paying for the decommissioning and waste storage on top of the tens of billions in low interest loans and price-fixing subsidies that the government are so desperately obfuscating about.

Conclusion

The slightest amount of scrutiny shows us that this is an appalling deal for the UK taxpayer, which has tied them into paying over the odds for electricity for decades. The total cost of these energy price fixing subsidies looks set to dwarf the actual cost of the project.

The fact that the UK is now reliant upon the French and Chinese governments to construct its energy infrastructure is a damning indictment of the neoliberalisation process that saw our energy infrastructure transferred into the private ownership (mainly foreign interests) that neglected to invest in the infrastructure in pursuit of shareholder profits and lucrative executive salaries, safe in the knowledge that eventually the UK taxpayer would be forced to pay for the construction of the infrastructure that they couldn't be bothered to.

Now that the UK government's hand has been forced after two decades of private sector neglect, the fact that they have turned to the French government, and to communist China to build it is a crystal clear demonstration that the beloved "private sector efficiency" mantra of the Tories is nonsensical and economically toxic gibberish.

The fact that this vast 35 year energy price fixing deal has come just weeks after the Tories bitterly slagged off Ed Miliband for proposing a 20 month energy price freeze must surely be one of the most brazen displays of Tory hypocrisy in history.

 Another Angry Voice  is a not-for-profit page which generates absolutely no revenue from advertising and accepts no money from corporate or political interests. The only sources of income for  Another Angry Voice  are small donations from people who see some value in my work. If you appreciate my efforts and you could afford to make a donation, it would be massively appreciated.

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Neoliberalism and Communism

One of the most annoying aspects of running a popular Facebook page about politics and economic is the sheer number of politically and economically illiterate comments that people leave. I believe that the standard of debate on my page is often quite high bearing in mind the usual standard of debate on Facebook, however many comments bear the hallmarks of lazy political tribalism and brazen economic illiteracy.

Wading through the rubbish to find the more thoughtful, intelligent and inspirational comments is a mind-numbing chore, made all the more difficult by my unwillingness to simply let lies and misrepresentations pass without rebuttal. I waste far too much of my time replying to idiotic comments; time that could obviously be better spent writing articles, designing images, spending time with my family or just watering the plants. Every so often though, a comment appears that is so utterly wrong-headed that it it is genuinely enlightening. A comment that serves to illustrate exactly how completely wrong it is possible to be: An exemplar of idiocy.

Here's one such comment about Margaret Thatcher from a post on the Another Angry Voice Facebook Page:

"Her economic policy [was] based on the evil ideas of Freedman economics by the Jewish communist Milton Freedman of Chicago."

Now, a normal person, with the slightest clue about who Milton Friedman actually was, and a reasonably accurate definition of communism would probably have a laugh about the sheer scale of ignorance and perhaps leave a short comment to point out how exactly how utterly wrong it is. However, I'm not a normal person by any stretch of the imagination and I find myself almost duty bound to conduct further analysis in order to marvel at the exceptional stupidity of such a comment.

Firstly I'll consider how it was even possible that such a remarkably stupid comment could have been devised in the first place before going on to examine what makes it so remarkably wrong.

The author was clearly using the word "communist" as an insult, without any consideration for the actual meaning, the way that Teabaggers in the United States describe Obama as a communist, demonstrating both the fact that they don't even know the definition of the word (see this video) and their shocking ignorance of who Obama actually is. That Obama is the most right-wing leader of the Democrats in living memory, with a steadfast commitment to capitalism is unquestionable. To people that have actually paid attention to Obama's political appointments it is remarkably clear that Obama should actually be known to all as "The Wall Street President". You only need to look at the source of his political donations to realise that anything but a Presidency with an absolute dedication towards serving the interests of Wall Street and of American corporate power is actually an impossibility.

But I digress. It is clear that our contributor is using "communist" as a derogatory term in the same way that he is using "Jew" as an insult. The two are often seen in combination in far right politics. The extreme right recognise communism as the enemy economic philosophy, so it is natural for them to work it into "the Jewish conspiracy" that they are always so fanatically preoccupied with. It doesn't matter that the Jewish state of Israel has been part of the anti-communist alliance since the foundation of the state, nor that there are countless examples of Jewish anti-communists..

The idea that the concept of communism is Jewish is as simple minded and wrong headed as the idea that the concept of Television is Scottish. Yes some Jews have engaged with and promoted the communist ideology, however there are countless examples of other Jews that haven't. Probably the most famous example of a non-communist Jewish person is the aforementioned Milton Friedman. In fact Milton Friedman is almost synonymous with the ideology he spent his lifetime promoting, the ideology of neoliberalism. Friedman was the ideologue at the heart of the University of Chicago school of economics that was at the very epicentre of American neoliberalism. Just as Vienna is the Mecca of Austrian school of economics, Chicago is the spiritual capital of neoliberalism.

Now onto analysis of just how wrong the conflation of Milton Friedman's ideology of neoliberalism and the communist philosophy actually is. Apologies if you are familiar with the definitions of these two socio-economic theories, but for clarification I'm going to describe these ideologies in terms of economic power, property rights and freedoms. I'll try to keep it as brief and informative as possible, since I'm sure a hefty proportion of my audience are already familiar with meaning of both communism and neoliberalism.

Communism
Under communism, all economic power is in theory, supposed to be controlled by the state, which in turn is controlled by the people. Ownership of property and the means of productivity are transferred to the state, which means individual property rights must be curtailed. The state then exploits the means of productivity to provide for the populace, which means that the populace loses the freedom to economically exploit one another in return for the freedom from exploitation.

The problem with communist theory is that it's never really been tried in practice because the power of the communist state is simply usurped by totalitarians like Stalin, Mao or the Kim dynasty in order to erect absurd totalitarian personality cults.

Not only is the model of absolute state power over the economy prone to usurpation it is also often prone to inefficiency (because individuals are often capable of making more efficient decisions that the secondary party of "the state" making those decisions on their behalf). Purely applied communist theory is an impossibility, because like all economic systems it is prone to subversion (all economic regimes are subject to black markets, corruption and fraud). "Pure communism" has never existed, and will never exist.

The main practical problem with the communism based economies that have existed hasn't actually arisen out of the huge potential for inefficiency within vast state bureaucracies, it has arisen out from the revocation of individual freedoms.

Take the Soviet space programme for example. Even the most hard line critic of communism would struggle to take the stance that the Soviet Space programme never produced monumental achievements. Just think of the launch of the first communications satellite in 1957 (only 12 years after the concept of the communications satellite was actually devised by the Englishman Arthur C. Clarke) and then only a few years later the first manned space flights.

Another undeniable example of impressive communist efficiency is the Cuban health system. Not only do they have a health system with outcomes to rival any capitalist country, they've achieved it despite the continuous exodus of thousands of medical professionals a year in search of better pay and greater economic freedoms in capitalist countries. This exodus is illustrative of both the potential efficiency of communist economies (because the Cuban health system continues to function incredibly well despite this constant loss of skilled labour) but also the practical problem of the individual desire for economic freedom.

It is my view that the Soviet Union fell not because of economic inefficiency, but because of the social demand for greater social and economic freedoms. The denial of freedoms to the citizens of the Soviet Block caused the massive uprisings against the Soviet regime. The people of the Soviet block wanted the freedom to read what they choose, to associate with whomever they like, to buy luxury items, to watch MTV and to eat at Pizza Hut. In my view it was the denial of these social and economic freedoms that led to the eventual fall of Soviet style communism.

Neoliberalism
Neoliberalism is a form of militant capitalist anarchism where the state is to have no function but to dismantle itself and assume the minimal executive power of protecting property rights. The two core principles of neoliberal economic theory are deregulation and privatisation.

Under neoliberalism theory, in order to improve economic efficiency to the maximum level possible, virtually all economic power must be removed from the state and distributed to the populace. Essentially a government that embraces the concept of neoliberalism must strive to reduce the interventions of the state. A hard line neoliberal government is duty bound to dismantle itself from within.

Once this process of privatisation and market deregulation sets in, the theory tells us that a mystical force which is often referred to as the "invisible hand of the market" or as "market forces" supposedly guides the economy towards maximum efficiency. This existence of this self-regulatory effect is believed with such fervour that the idea that "the invisible hand" creates economic efficiency seems self evident to neoliberal adherents. It is believed so strongly that "market forces" lead to "economic efficiency" that the two concepts actually become inextricably merged to create the fallacy of capitalist efficiency.

One of the most fundamental problems with neoliberalism of course is that God-like phenomena of the "invisible hand" doesn't exist. It is clear from analysis of any complex system (human society being perhaps the most complex system known to mankind himself), that the arbitrary removal of rules (deregulation) invariably leads to chaos.

The reason that market chaos is inevitable if ideologically driven neoliberals are given free rein to tear up the economic rule book, is that many of the rules exist to prevent economic inefficiency by outlawing anti-competitive practices. If market competition creates efficiency, then the ideological destruction of rules that have been designed to prevent anti-competitive practices will inevitably result in an increase in anti-competitive practices.

It is undeniable that activities (such as monopoly formation, oligopoly formation, corruption, insider trading, taxation asymmetry, fraud, price-fixing, dumping, frontrunning, refusal to trade, tying, punitive intellectual property laws, cartel formation, information asymmetry, bribery and political patronage) reduce genuine competition and create market inefficiency. If the rules that prevent such anti-competitive practices are scrapped, it is inevitable that self-interested individuals will take advantage of their new found freedoms to engage in anti-competitive practices and in so doing, undermine market efficiency.

Privatisation, the other ideological foundation of neoliberalism, is no less prone to poor outcomes than deregulation. The great problem with privatisation of state assets and infrastructure is that those with the most capital to invest get the lion's share of the assets being disbursed by the self-dismantling state. In effect this means that economic power to exploit productivity of the populace is distributed to the capital rich (corporations and the super-rich) rather than to the population as a whole.

What makes this process so much worse is that like all economic processes, privatisation is open to corruption. Those with closest links to the neoliberalising government end up with huge swathes of formerly state owned infrastructure at bargain basement prices.

Another major problem with privatisation is that many services simply don't generate profit, necessitating vast subsidies and lucrative outsourcing contracts in order to entice private interests into providing these economically necessary services. These enticements often become a bigger burden on the taxpayer than the entire cost of running the services as a state monopoly! The privatisation of British Rail is one of the classic examples of runaway subsidisation, where the cost of current subsidies is significantly more than twice the cost of running the entire network back in 1994 (adjusted for inflation). Not only has the burden on the taxpayer risen, the burden on the passenger has too, with inflation busting price rises every single year in return for usage of an ever more overcrowded network.

Privatisation allows private interests to exploit infrastructure and services that are simply too-important-to-fail. This puts them in the position where they can demand ever greater taxpayer funded subsidies and charge ever increasing prices, safe in the knowledge that the state or the individual consumer will tolerate this rent seeking behavior and cough up incrementally greater amounts, rather than suffer the much greater economic shock of having their rail network or health service declare bankruptcy and shut itself down, or the greater personal shock of having their water or electricity supply shut off due to non payment of bills.

One of the indicators of capitalist inefficiency is the phenomena of market bubbles. Bubbles represent phases of economic inefficiency, of wasted productivity. Instead of capital being put to the most efficient use possible, vast amounts flow into the inflation of asset values until a loss in market confidence is triggered, causing massive asset depreciation and capital losses.

The more deregulated markets have become, the larger the bubbles of inefficient investment. At the time the 1987-88 Savings and Loans crisis in the United States caused by the Reagan deregulations was seemingly enormous, but in hindsight it dwindles in comparison with the devastating consequences of subsequent neoliberal crises such as the Asian contagion, the Argentine neoliberal meltdown and default, the dotcom bubble, and the 2007-08 global neoliberal meltdown.

The ongoing financial crisis is a result of market deregulation. (anyone that denies this fact in favour of facile tribalist "blame Labour" narratives is such a fact averse revisionist that the cognitive dissonance will probably have prevented them from even managing to read this far). Wave after wave of neoliberal  financial sector deregulations led to reckless speculation on all kinds of junk. Unimaginable flows of capital was invested in hopeless stuff like AAA rated Collateralised Debt Obligations, Credit Default Swaps, Greek government bonds, Irish bank bonds, Spanish property investments and all kinds of tangible but massively overvalued assets, worthless paper and mindbogglingly stupid derivative contracts.

What happened after the market lost confidence in so many of these hopeless investments at once was the absolute refutation of neoliberal economic theory. Financial institutions and investors ran to the governments of the world demanding the largest state interventions in history in order to stave off bankruptcy.

Countless institutions have exploited their "too-big-to-fail" status to demand unprecedented taxpayer funded bailouts in order to stave off systemic collapse. In essence, the players in the neoliberal market gambled themselves into such a predicament that their only salvation was recourse to the state, which under their own beloved theories, should never, ever intervene in the market.

Without these vast state interventions, the neoliberal market would have collapsed into insolvency and chaos. To put the scale of the bailouts into perspective. The UK financial sector interventions and Quantitative Easing injections (new money invention schemes) amount to more than an entire year worth of national output.

Imagine the productive potential of dividing up this massive investment and injecting that much capital directly into several areas of the economy. Imagine the increases in employment, skills, personal wealth, disposable income, aggregate demand and national productivity had such sums been found to invest tranches of £250 billion into five areas of the economy:

• National infrastructure improvements
• Schools, universities and technical training schemes
• Scientific and technological research
• Health research and service provision
• Business development loans.

Instead of this kind of targeted investment, what the UK public witnessed was more than £1 trillion worth of state investment simply poured into the black holes of financial sector debt in order to stave off the systemic collapse of the failed neoliberal ideology.

The principal selling point of the neoliberal ideology is that it legitimises, and in fact glorifies self-interest, the pursuit of profit and personal greed. I'm not original in saying this, the French philosopher and economist Frédéric Bastiat wrote in 1848 that:

"When plunder becomes a way of life for a group of men living together in society, they create for themselves in the course of time a legal system that authorizes it and a moral code that glorifies it"

It is absolutely clear that neoliberal economists have managed to find support for their ideology amongst the wealthy and powerful precisely because neoliberalism tells these people exactly what they want to hear. It tells them that greed and self-interest are not actually socially and economically destructive vices that must be counteracted, but actually virtues to be promoted and lauded!

Given the fact that neoliberalism provides a wonderful pseuco-economic justification for rapacious greed and self-interest, is is absolutely no surprise that neoliberal economists have found no problem in attracting financial support from the wealthy and powerful for their university departments and pseudo-economic research projects.

The problem with neoliberalism is of course that it doesn't matter how many billionaires pour funding into the promotion of the neoliberal ideology, it is, and will always remain economically illiterate stuff that relies on the deliberate ignorance of the inefficiencies created by anti-competitive practices. If the rules that prevent anti-competitive practices are deregulated out of existence, the whole narrative of capitalist market efficiency is destroyed. Efficiency can't be achieved by the complete abandonment of the rule book just as it can't be enforced by a billion rules and regulations enforced by a vast totalitarian state bureaucracy.

Real market efficiency is achieved through optimisation of market regualtions, rather than through ideologically driven attacks on the whole concept of market regulation. It seems stunningly obvious to me that the idea of maximised efficiency through free market capitalism is dependent on effective regulation to prevent anti-competitive practices and outright fraud. Essentially, in order to create a competitive "free market", it is first necessary to create a "fair market". What neoliberalism achieves through ideological attacks on the concept of market regulation is the entrenchment of crony capitalism. The establishment of a corrupt and inefficient system where the capital rich minority are free to put their vast wealth to hopelessly inefficient uses, whilst the majority suffer ever greater encroachments on their economic freedoms through impoverishment, debt, unemployment and low wages. Neoliberalism is a recipe for economic inefficiency and systemic collapse.

Comparison
If we consider the three main themes I've covered (the economic power of the state, property rights and individual freedoms) it turns out that communism and neoliberalism are exact opposites. The communist believes that the state must command total power over the economy, the neoliberal believes in the complete revocation of state control over the economy. The communist believes that it is the role of the state to revoke property rights in order to communalise property, the neoliberal believes that the only role of the state should be to protect property rights. The communist believes in the revocation of freedoms in order to protect the populace from exploitation, whilst the neoliberal believes in protection of the freedom of the wealthy to to exploit others in the pursuit of profit.

In my view communism is a militant ideology of practical impossibility. The state cannot possibly regulate every aspect of the economy, and attempts to establish communism to date have descended into totalitarian regimes and often into the development of absurd personality cultism.

In my view neoliberalism is even worse. It seems to be built on the absurd foundation that because communism is, lets say, undesirable or anti-American, the exact opposite must therefore be desirable. Noeliberalism is in fact a reactionary position born of the anti-communist mindset. It is based on the ridiculous assumption that the opposite of what is undesirable, must therefore be desirable.


Conclusion
I've demonstrated that communism and neoliberalism are not just completely different ideologies, but that neoliberalism actually seems to be a reactionary reworking of free-market capitalist theory, born of the post-war anti-communist fervour in the United States, to make it the intentional opposite of communism. Where communists believe in the power of the state, neoliberals believe in the abolition of the state. Where communists believe in the abolition of private property rights, neoliberals place the protection of property rights at the pinnacle of their ideology: And where communists believe that rights must be revoked in order to provide freedom from exploitation, neoliberals believe in protection of the right to exploit.

Anyone that could conclude that communism and neoliberalism are the same thing must be so fanatical in their hatred of Jews and Judaism that they'd willingly conflate two opposite economic ideologies on the basis that the most famous proponents of both ideologies (Karl Marx and Milton Friedman) both happened to come from Jewish families.

Whatever the motivation behind such a ridiculous conflation, the fact is that it led me to write this comparison between these two ideologies, serves as a demonstration of the fact that, given the right kind of circumstances, the consequence of even the most grotesquely ignorant statement can be the exploration of interesting themes: That even the most idiotic statement can lead to something interesting.

Given that I've subjected both ideologies to severe criticism, I believe that you'd be entitled to ask what my favoured economic ideology actually is.

My view is that neither of these extreme ideologies are capable of maximising efficiency. Efficiency can't be enforced through the creation of millions of ruthlessly enforced rules and regulations, just as it can't be stimulated through complete abandonment of the rule book either. As I mentioned in my critique of ideological neoliberalism, the neoliberal dream of a "free market" becomes impossible once the rules preventing the development of anti-competitive practices come under ideological attack.

My view is that the rules of the market should be designed and rigorously applied with the principal aim of promoting economic efficiency, through the exclusion of anti-competitive and economically inefficient practices. Communists would criticise me because I believe in individual property rights and the efficiency of capitalist production, but neoliberals would criticise me because I believe in a strong democratic state with the power to intervene in the market to prevent anti-competitive practices, which means seizing the control of natural monopolies and economically vital infrastructure.

A truly productive economic system must not allow a minority of individuals and institutions to gamble vast amounts of capital on a shadow derivatives casino that is more than 15 times the size of the real productive economy of the entire world or into the inflation of vast bubbles of economically inefficient investment. A truly productive economy must ensure that the greatest number of individuals have the ability to improve their productive capabilities, through education, training, innovation, access to healthcare and finance.

I believe that the toxic effects of capitalistic parasitism (rent seeking behavior, capital hoarding, taxation, anti-competitive practices...) can be mitigated through the development of  robust legislation to promote competition and economic efficiency, and through democratic control over natural monopolies and vital infrastructure. I don't like to label myself as an adherent of one formal ideology or another, but for the sake of clarity I'll say that the two of commonly recognised ideologies that most closely match my own views are Social Democracy and Left-Libertarianism.

More articles from
ANOTHER ANGRY VOICE

What is ... Neoliberalism?

The Great Neoliberal Lie

The "unpatriotic left" fallacy
 
The Argentine neoliberal meltdown

What is ... A Credit Default Swap?

Derivatives and economic parasitism
   
What is ... Quantitative Easing?

Why I blame the left for the economic crisis
  

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The economic case against tax dodging

The case against tax-dodging is more often made by those on the left than it is by those on the right, hence the tendency for tax-dodger apologists to deride the fair tax movement as a bunch of 'loonie lefties'. In this article I will attempt to explain that tax-dodging should be considered a major problem by economically literate people on either side of the political spectrum. The best way to make this point is to describe what tax-dodging actually is, and to explain the effects in economic terms. I'll try to provide explanatory links whenever I use complex sounding economic terms.

I'll start off with a brief explanation of my political position so that you know exactly who is explaining this stuff to you. To crudely oversimplify my stance, I'm a liberal social democrat. This means that I try to occupy the genuine middle ground. I try to see the value in diverse political and economic theories and pick the best aspects. I am sympathetic to elements of socialist theory, but I'm not a socialist. I'm sympathetic to elements of libertarian theory but I'm not a libertarian. I am however, a liberal and I oppose totalitarianism wherever I see it. I also believe that the best way to make a political argument is to base it on research and critical analysis and to back it up with evidence, something that makes me rather old fashioned since the current trend is to make political arguments based on Thinktank conclusions and the results of opinion polls and to back them up with simplistic justification narratives.

Right then, on with the article:

Tax-dodging can be split into two distinct types, tax evasion which is an illegal avoidance of due taxation and tax avoidance, which is a method of avoiding due taxation through the creation and use of elaborate tax-loopholes. They are distinct in that one is punishable by law and the other isn't, but they are basically the same thing, because they result in the same economic outcomes, in fact there is a case to be made that legalised tax avoidance via offshore tax havens is actually significantly more damaging at the national scale than tax evasion (but I'll have to cover that at a later date, this article is plenty long enough already).

The primary concern with tax-dodging is that the practice denies revenue to the government, which leaves the government with three options. They must either borrow more in order to meet their obligations (increase the deficit), they must cut back on spending and investment (by closing hospitals, by sacking police officers, by cancelling infrastructure investment, by releasing prisoners early, by cancelling flood defence schemes, by slashing legal aid...) or they must raise taxes on everyone else to make up the shortfall. In reality the modern state usually uses a combination of the three to cover the cost of tax-dodging.

The UK Prime Minister David Cameron is extremely unlikely to
 do anything  meaningful to reduce tax-dodging, given that the
Tory party accept political donations from tax-dodgers and
Cameron's own father was a tax-dodging Tory party donor.

The scale of tax-dodging in the UK is absolutely enormous. It is difficult to put a precise figure on the amount of tax that is dodged each year because of the inherently secretive nature of tax avoidance and evasion schemes. The total tax gap between what is owed and what is collected has been estimated by Richard Murphy of Tax Research UK at £120bn a year, which would be more than enough to wipe out the entire UK budget deficit. 

Another indicator of the scale of tax-dodging is research that has concluded that 98 of the 100 companies listed on the FTSE100 have subsidiary companies based in tax havens. The current Conservative led government have a very relaxed attitude towards tax-dodging, which is hardly surprising given that a number of their biggest donors are tax-dodgers, and because the Prime Minister David Cameron's family fortune was built upon his father's tax-dodging empire. The last Labour government were not much better, in fact they even signed off on a ludicrous deal to privatise the HMRC property portfolio (mainly tax collection offices) into the ownership of a company based in a tax-haven!

I don't want to base my criticism of tax-dodging on the moral case, because I know that appealing to the 'unfairness' argument simply doesn't wash with a lot of right-wing people, however it would be remiss of me not to even mention it. Many people, myself included, believe that it is simply immoral for one company or individual to dodge their social responsibilities and create the situation where others must pay more through increases in their tax burden or cuts to their services.

I want to focus my criticism on the economic case against tax dodging, but first I must address a right-wing concern that is often used as part of the tax-dodging justification narrative; the concern that the state is 'too big'. This is the idea that by dodging their taxes, people are actually 'helping' the country by incentivising the state to shrink. 

Well, even the most right-wing libertarians still perceive a role for the state, admittedly there isn't much for the 'libertarian state' to do but to protect property rights, but this would still necessitate taxation of some kind. Another form of state spending that very few right-wing people would argue for the abolition of, simply in order to reduce their own tax burden, is military spending. Whatever economic system is envisaged (other than anarchism, proto-economic barter systems or nihilist dystopias) there will always be a necessity for taxation. 

If one company or individual dodges their tax contribution, they either transfer the burden of taxation to others, they cause the elimination of state services or they cause an increase in the national debt. Given that the state can only ever be 'rolled back' so far, there will always be some kind of tax expectation, and because the kind of right-wing people that believe in the 'small-state' (minarchists), are the kind of people currently engaged in the sovereign debt fear-mongering campaign, this means that borrowing more is simply out of the question. The only remaining option for the economically literate right-winger is to transfer the tax burden to others, which, under libertarian theory is an infringement of other people's economic freedoms and an act aggression.

Even though many tax-dodgers employ the simplistic justification narrative that they don't use the NHS or receive any welfare benefits from the state, the fact is, that if they are engaged in any kind of economic activity within the state they are beneficiaries of government spending. By refusing to pay their share, they are expecting others to subsidise them through the direct and indirect economic benefits of state spending. I'll list just a few examples:

If the tax-dodger is a corporation or an employer, it is almost certain that some of their employees benefited from a taxpayer funded education (93% of Brits attended state funded schools), and continue to benefit from access to taxpayer funded universal healthcare (only a minority of jobs come with private health insurance). Without these provisions, the tax-dodger would have to select their employees from amongst the diseased and illiterate, or invest fortunes in educating their employees and providing private health insurance. By dodging tax, these employers are demonstrating that they are happy for others to keep their workers healthy and reasonably educated, but they won't contribute themselves.

If the tax-dodger runs a business, their customers benefit from taxpayer funded infrastructure (public roads and footpaths, the taxpayer subsidised rail network, the London Underground) to even get there, or for the services to be delivered to them. By dodging tax, these enterprises are demonstrating that they are happy for others to fund the infrastructure that contributes to their profit margins, but they won't contribute themselves.

Whenever a crime is committed and a tax-dodger calls the taxpayer funded police or makes recourse to the publicly funded courts, the tax-dodger is demonstrating that they are happy to benefit from the taxpayer funded justice system, whilst expecting others to fund it for them.

Now we begin to get to the crux of the economic argument against tax-dodging, which is based on this transference of the burden of taxation. In business, the most prolific tax-dodgers are the multinational corporations. They have the financial means to employ expensive tax lawyers and to establish subsidiaries in tax havens for the express purpose of avoiding taxation. The majority of small and medium enterprises in the UK do not have the financial means to hire tax lawyers, to establish complex tax loopholes or to set up subsidiary shell companies in tax havens, so they are left carrying the greater burden of taxation. We'll call this difference taxation asymmetry. 

One of the strongest and most regularly cited arguments in favour of the capitalist system is that 'the market' creates efficiency through competition. Used as a general rule of thumb, this argument is OK, however there are plenty of examples of state systems outperforming the market (the "socialised" universal healthcare systems of Europe vastly outperform the private sector dominated US healthcare system, both in terms of lower economic burdens and superior health outcomes) and also plenty of examples of grotesque inefficiency in the private sector (the G4S Olympic shambles, where the company had months to prepare and train security staff for the London 2012 Olympics, but ended up failing badly, leaving the state sector to efficiently pick up the pieces at extremely short notice through the deployment of thousands of police and military personnel). These counterexamples clearly demonstrate that private sector efficiency is more of a rule of thumb than a hard and fast economic law. I'll modify the private sector efficiency premise with the word 'potentially', so as to account for counterexamples of the aforementioned type. Leaving us with the (more-or-less acceptable to everyone) capitalist theory that through competition the capitalist market can potentially create greater efficiency than bureaucratic central state planning.

This brings us to the subject of what 'competition' actually is. It is a generally accepted economic principle that in order for competition to actually work, there needs to be a 'level playing field'. There are many clearly defined examples of anti-competitive practices that are used to create unfair market advantages, which include; monopoly formation, corruption, information asymmetry, cartel formation, price fixing, financial doping, dumping, tying, fraud, refusing to deal, political patronage and dividing territories. 

Taxation asymmetry is another form of anti-competitive practice, which is related to political patronage. It is easy to see how taxation asymmetry leads to unfair competition. If a government allows a large corporation to use explicit tax avoidance vehicles, whilst smaller competitors are left paying the standard tax rates because the establishment of tax avoidance schemes is beyond their means, this is essentially a form of political patronage to allow large corporations to develop a large cost advantage over their smaller, tax paying competitors.

If the ruling establishment allow taxation asymmetry to continue over the course of decades (as is the case in the UK), many of the smaller tax-paying competitors are driven out of business, leaving the large tax-avoiders to hoover up greater shares of the market for themselves. As the smaller competitors are eliminated or bought out, the large tax-dodgers begin to form oligopolies and monopolies, which reduce the need for efficiency. They can simply raise their prices to cover any inefficiency costs because they can get away with it in a market denuded of competition.

Taxation asymmetry is obviously bad for the small and medium sized enterprises that find themselves at a competitive cost disadvantage, but it is also bad for the economy as a whole. There are several reasons, including the fact that the aforementioned small and medium enterprises (SMEs) are the real drivers of innovation, demand and economic growth and because as the tax-dodgers hoover up ever greater proportion of the market, tax revenues will obviously fall. The elimination of SME demand and falling tax revenues drive the state back to the choice of deficit spending, destruction of services and investment or loading the tax paying elements of the economy with an even greater tax burden, thus further intensifying the downward spiral of taxation asymmetry.

In the current economic climate, it is absolutely clear that the act of dodging taxes is both against the national interest and an infringement on the economic freedoms of others, the ones that must make up the shortfall. The basis of the argument against tax-dodging is that in order to have a free market, you must first have a fair market because without a fair market, the driving forces of capitalist efficiency are diminished, and that taxation asymmetry is clearly anti-competitive and incompatible with the fair market.

I believe I have clearly established that if you believe in the competitive free market, you must see taxation asymmetry as a barrier to competitivity and efficiency. Whether you believe in a low-tax economy or a high-tax economy, you have to accept that the burden of taxation must fall equitably, otherwise unfair and inefficient market conditions are created.

If taxation asymmetry is as anti-competitive and economically damaging as I have described, the question must be asked; what should we do about it? Here are two proposals to reduce taxation asymmetry

1. A Ban on taxpayer funding of tax avoiding companies. There is absolutely no justification for allowing taxpayer generated funds to be provided to tax-dodging companies (in the form of subsidies, outsourcing contracts, R&D loans, procurement contracts, health contracts, IT contracts, training schemes, PFI deals...). If an enterprise won't demonstrate that they are a British based company (or registered subsidiary) that pay their fair share of taxes, they mustn't get a penny from the government. They should also have to demonstrate that all employees are paid in a tax transparent way, with no personal service companies, offshore dividends and the like.

2. A blanket ban on all tax avoidance schemes. After the government spending regulations have been brought into effect, a simple change to the tax code should be made to legislate that if a scheme is designed for the explicit purpose of avoiding tax, then it is by definition a criminal activity.

These relatively simple rules should be acceptable to left-wing and right-wing thinkers alike. After all, they would establish both a fairer and a simpler tax system. The creation of a simpler tax system is basically a form of deregulation, to be applauded by the right-wing. These policies should also be popular across the political spectrum because they would help to reduce the deficit, which could significantly reduce the scale of service and investment cuts (popular with the left) and reduce the deficit without resorting to tax rises (popular with the right).

Under the current economic circumstances, a clampdown on tax-dodging is the best possible approach to closing the budget deficit. Increased taxation at a time of economic stagnation would only worsen the economic situation by reducing demand, the extremely right-wing IMF announced in October that austerity is a self-defeating policy because "in today’s environment of substantial economic slack, monetary policy constrained by the zero lower bound, and synchronized fiscal adjustment across numerous economies" government spending creates much higher returns than previously expected, meaning that government cuts end up destroying much more economic activity than previously estimated. This leaves a clampdown on tax-dodging as the only viable option.

The right-wing really have to decide whether they are more interested in protecting the UK economy and reducing the fiscal deficit by attempting to reduce taxation asymmetry, or whether they are more interested in serving the interests of tax-dodgers and the wealthy elite.

The revelations about Starbucks tax-dodging exploits and the
boycott Starbucks campaign have seriously
damaged their brand reputation.

You may have noticed that the two proposals I mentioned are both political proposals. You may be thinking "but what can I, as an individual, do about it?" The answer is firstly to put pressure on your MP or your political party to implement 'fair tax' reforms, but you can also take direct action against tax-dodging companies.

Direct action works, you only need to look at the spectacular success of the Olympic Tax Dodge campaign, or at the rapidly declining Starbucks brand identity reputation after their scandalous tax-dodging activities were exposed by Reuters, to see that direct action like boycotts and social media campaigns can work.

The problem with direct action is that there is actually no way to boycott certain tax-dodging enterprises. Imagine that every single provider in a market is engaged in tax-dodging (not difficult to imagine given that 98% of FTSE100 companies are tax-dodgers). If you require a service or commodity in that market, you have no choice but to deal with tax-dodgers. 

Another example can be seen in government services: If the government are buying products or services from tax-dodgers on your behalf, you have no direct capacity to intervene. Take the tax-dodging Mapeley Steps deal on HMRC properties as an example. You can hardly boycott HMRC. I mean you can't boycott paying your taxes, especially if your boycott is inspired by your opposition to tax-dodging!

These problems with direct action bring us back to my 'fair tax' proposals. Our political parties must be implored to end taxation asymmetry and create a fair, 'level playing field' so that the capitalist market can function efficiently. If the government refuses to do this, it is essentially an admission that they are simply abusing libertarian free-market theories as empty rhetoric to justify the corporatisation of the state and the serving of wealthy establishment interests.

In conclusion: The only people that could continue making excuses for tax-dodgers are the tax-dodgers themselves or the half-witted Ayn Rand inspired anarcho-capitalist neoliberal pseudo-economic brigade; the kind of people that are so economically illiterate that they believe that stable economic systems can be built upon the foundations of a bunch of simplistic and loosely related adages like "private good, public bad", "all regulation hinders productivity" and "taxation is theft".

If you believe that the capitalist system creates prosperity through competition and efficiency, you must accept the case that taxation asymmetry is a barrier to competition as much as any "red tape" regulation, and that the tax code must be dramatically simplified and reformed to criminalise explicit tax avoidance schemes, and that the government must introduce a fair tax requirement to prevent taxpayers' money being used to boost the profitability of companies and the personal wealth of individuals, that refuse to pay their fair share of tax.

See Also

Tory tax scandals

Jimmy Carr vs David Cameron in the Tax Hypocrisy Stakes
  

A letter to George Osborne
  

The Minimum Alcohol Pricing farce

What is... a justification narrative?
  

George Osborne's Philanthropy Tax
 
 Why we should boycott Starbucks
 

Don't let the orthodox neoliberal bullies win

Here's what to do when you come across someone trying to bully their way through a debate with their "expertise" on neoliberal pseudo-economic dogma.

After a lengthy debate in which an Hayek fixated, austerity loving, Tory apologist who likes to smear anyone that disagrees with orthodox neoliberalism as a communist (see the Mensch fallacy), in which he repeatedly tried to lecture me about the neoliberal pseudo-economic orthodoxy to which he subscribes, whilst completely ignoring all of the specific points I had been making, he came out with this little gem:

"As I suspected you don't understand economics, the market or basic human drives." - John Greenshaw

Here's my reply:

"John, your confirmation bias is the only thing supporting your assertion that I don't understand economics, markets or human drives. It seems I actually understand them a lot better than you.

Of course human drives are essential to economics and "the market", but trying to parse human drives down to rational self-interest to create trendy economic Darwinianism models has failed spectacularly, because human drives are (obviously) not as simple as pure rational self-interest.

Even if it were that simple, rational self interest is completely nullified by anti-competitive practices (cartels, monopolies, oligopolies, price fixing, subsidisation of failure, corruption) and rational self-interest can be truly catastrophic when information asymmetry comes into play.

If you don't regulate to prevent anti-competitive practices, human motivations can just go and screw.

The lessons we should learn from the catastrophic meltdown of neoliberalism are that:

1. When your models don't fit, change the models to fit the world, don't try to change the whole world to fit the models.

2. Mindless deregulation causes economic chaos, not the glorious free-market utopia the neoliberal pseudo-economists have convinced so many fools into believing.

3.When your neoliberal deregulation experiment comes crashing down, bringing the entire global economy down with it, governments (yes, the "evil state sector") are there to bail you out with £trillions in taxpayers' cash to keep your whole reckless, corruption riddled casino open for business.

Finally, don't accuse me of not understanding markets and then demonstrate your own seemingly very limited understanding, you're just embarrassing yourself."

The lesson from this is that you mustn't let orthodox neoliberals bully you in debate with their so-called economic "expertise". Remember that the neoliberal economic experts who demanded the financial sector be deregulated were the ones that enabled the financial sector recklessness that resulted in the neoliberal economic meltdown. What is worse, is that their beloved, rational self-interest based economic models abjectly failed to predict either the rise in financial sector greed and corruption due to self-interest, lack of deterrent  and moral hazard (exactly the kind of "human drives" that John finds so important) or the spectacular financial sector meltdown. 

When the experts these neoliberal apologists are citing are the very people that caused the largest financial sector meltdown in human history, you must take their pretense at "expertise" with a lorryload of salt.

It is important to remember that after the neoliberal economic meltdown, only the taxpayer, via the "evil" state sector remained standing to pump in enough cash to prevent systemic collapse. Anyone left still holding onto the "private good, state bad" idiom after that must either be wilfully blind or selfishly insincere. 

Neoliberal economics should have been utterly discredited by the financial sector meltdown, however there are so damn many orthodox neoliberals, with so much wealth riding on the neoliberalised system, that they will carry on promoting their neoliberal theories, even though they were completely and utterly invalidated when the state sector had to rescue them from the consequences of the reckless, over-leveraged, corruption riddled gambling spree that had enabled with their mantra of deregulation and absurd self-regulating market fallacies.

The orthodox neoliberals caused the economic crisis, yet the only solution they offer is more of the same, this time dressed up as austerity. They are a dangerous ideologically driven bunch and their destructive theories and assumptions must be countered. Hopefully this article has provided you with some ammunition to do it. 

See also

What is... Neoliberalism?

The Great Neoliberal Lie

  
The Golden Hammer of Neoliberalism

 
  The inefficient state fallacy

The state vs private false duality

What is... Confirmation bias?