The Organization for Economic Cooperation and Development has proposed a plan to stop companies from avoiding billions of dollars in taxes. As we know from the scandals surrounding Amazon, Starbucks, Vodafone and others, big companies often hide their profits by pretending to have head offices somewhere with a low tax regime. Putting it mildly, this stinks.
The OECD has pitched its report as if it were a question of responding to the new challenges of a digital economy, but this is to misunderstand the nature of the problem. Corporations are the problem. They are machines built to make money and ensure that someone else picks up the bills, so that is what they do. Some like to think that they are gigantic profit-making monsters that trample on anyone to make a buck, sociopaths that pollute and lie with no conscience.
But the corporate form is also one that has brought wealth, employment and encouraged a huge amount of innovation. It is difficult to imagine our lives without Apple, McDonald’s, Marks & Spencer and many, many others. So what are we to do with them?
The first corporations were organisations, like monasteries and universities, given a special status at the whim of the monarch to ensure that they could continue into the future, independent of any one person. The past 150 years of law has changed all this, and given corporations all sorts of rights whilst allowing them to evade all sorts of responsibilities. In British law, this means “limited liability” for owners, but also appears to mean unlimited profits for shareholders.
So when it comes to scandals about tax evasion, huge levels of executive pay, the off-shoring of jobs, “right-sizing” cuts which raise share prices, environmental damage and so on, we shouldn’t really be that surprised. Corporations are now very powerful indeed, many with revenues that dwarf those of small states – and they have organised the world to their advantage. This means that the OECD has to be careful about what it says and it already looks as if the US is not going to be supporting its proposals.
In a new book, Fighting Corporate Abuse: Beyond Predatory Capitalism, a group of academics from Belfast, Bristol, Cardiff, Essex, London and myself, from Leicester, put forward policy proposals to deal with this state of affairs. We document the abuses, but have also offered a manifesto which suggests what should be done in the UK and elsewhere.
For a start, we need to ensure that there is national action to reform UK company law, particularly in terms of the duty to maximise long-term value to all stakeholders – and not just shareholders. We also propose two-tier supervisory boards, with mandated employee representation, along with legal and enforceable caps on executive bonuses. Just as importantly, we want it to become easier to establish other types of commercial business to compete with the corporates – co-operatives, not-for-profits, partnerships and so on.
Addressing the national financial markets is vital here too, so we want to see a Robin Hood Tax introduced to slow down speculative trading and a ban on recently acquired shares being given voting rights when it comes to takeovers. We must also rigorously enforce new legislation which separates ordinary lending and borrowing from the risky financial instruments that have allowed hedge funds and private equity to destroy so many jobs in order to make profits.
Finally, and as the OECD report suggests, we want to see international action which ends tax avoidance by shutting the gaping holes in the global tax system. Corporations benefit from the roads, hospitals and educated workers that taxpayers fund, so they should contribute to them too. This also means that accounting rules must be simplified in order that corporations are forced to be transparent about who they employ, where, and how much profit they make. Such clarification would also result in owners becoming legally responsible for subsidiaries, and unable to claim that labour or environmental abuse was nothing to do with them.
The modern corporation is made by people, so it should be responsible to them. The frightening truth is that we have made monsters and have given them powers which now far exceed that of ordinary human beings. The OECD report was discussed at the G20 meeting of Finance Ministers over the weekend, but we can guess that implementation will be slow and piecemeal because of the opposition from corporations and some governments. It is a long time since a corporate charter was revoked, but perhaps it is time to get back into the habit.