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Changes in Society: US or European Capitalism

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Like most parties of the reformist left, Labour long ago abandoned the idea of socialism as a distinct mode of production in which private property and markets would be abolished, and settled for the task of pursuing social justice within broadly capitalist parameters. The decision to rewrite Clause 4 can be seen as the moment when theory belatedly caught up with practice. The significance of Brown's latest attack on Europe as "inward-looking, inflexible and sclerotic" is that it shows how close Labour now is to repudiating social democracy and with it the idea that a different kind of capitalism is possible.

In Brown's view, the "varieties of capitalism" debate has been conclusively resolved in favour of the US business model, with its low levels of employment protection, minimal regulation and fixation with shareholder value. Brown's hostility to Brussels reflects the refusal of most continental Europeans to accept what he holds to be self-evident: that the social market economy has had its day.

Yet there is no real basis for arguing that the US model is superior. Many of the differences are a matter of choice, such as the willingness of European workers to trade wage growth for more leisure time by working fewer hours. It is notable that French and German productivity levels per hour worked remain comparable to America's and significantly higher than Britain's.

Performance also reflects differences in demographic circumstance, such as migration flows, fertility rates and population density, which have nothing to do with levels of market regulation or taxation. The biggest single contribution to America's recent productivity growth has been in the retail and wholesale sector, where an abundance of space has allowed a shift to more efficient out-of-town developments. This is not something our relatively crowded continent can match, however much its apes America's flexible labour markets.

Rarely acknowledged is the huge comparative advantage America gains from having a single currency that allows trade across a vast market with continental economies of scale. Even less so, the fact that the dollar's global status allows it to run large external deficits that other countries finance by holding US treasury securities at favourable rates of interest. Tellingly, this is one sense in which Europe's detractors do not want it to emulate America.

The attempt to pin Europe's recent underperformance on the supposed failure of its social model has a clear ideological purpose: to shift public policy to the right. Of course, some continental countries have a very real problem with high levels of structural unemployment, but this is not a general or inevitable feature of the European model.

Brown is as guilty of peddling the myth of US superiority as any Conservative politician, but it would be wrong to dismiss his motives as straightforwardly rightwing. He hopes that by importing US-style capitalism, Britain can maximise efficiency and growth and generate the revenues needed to raise long-term investment in public services. He seeks, in other words, to marry a neo-liberal economy to the social democratic state.

The problem with this approach is that the economy does not form a discrete and separable sphere of human activity. Economic structures generate values and outcomes that help to shape political culture. If they result in ever-widening disparities of wealth, as they are continuing to do in Britain, the ethic of social solidarity from which public services draw their legitimacy will weaken.

There are also resource and other limits on the capacity of the state to compensate for the failure of the market to provide security and a decent income when standards are constantly being driven down. We can already see this in our looming pensions crisis. High levels of taxation and public spending are only part of the reason why the countries of northern Europe produce more egalitarian outcomes. Just as important is an economic framework that facilitates social partnership and shares the benefits of growth more fairly. New Labour's unwillingness to grapple with this elementary truth is the main reason why the Third Way has proved to be such a cul-de-sac for progressive politics.

The European social model remains the only viable counterpoint to the economic brutalism of the American way. The question for the left should be how best to strengthen it. The answer is for Europeans to work in concert and pool their collective resources more effectively. The European constitution does this by deepening political union, strengthening Europe's capacity to act and declaring in favour of fundamental social rights. It may not go far enough, but it would be foolish to expect that its rejection would lead to something better.

The debate on Europe is about much more than constitutions and currencies. It is fundamentally a question of whether an alternative to the Washington consensus remains possible. The left should be in no doubt about what is at stake.


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Behind every great fortune there are two crimes: the crime required to obtain it, and the crime required to maintain it. Well, that isn't quite true. There may be no moral difference between evading tax and avoiding it, but there is a legal one. If a rich man is well advised, he can lawfully keep every penny to himself.

Until this has been sorted out, there is precious little point in proposing, as both the Liberal Democrats and a group of rebel Labour MPs did last week, that income tax be increased to 50% for people earning more than £100,000 a year. It is just, it is necessary, but it simply raises the incentive for the very rich to find new means of staying that way.

Tax avoidance in the United Kingdom deprives the exchequer of between £25bn and £85bn a year, according to the Tax Justice Network. It's hard to get your head round these figures, until you see that the low figure more or less equates to the projected public-sector deficit for this financial year. The high figure represents 74% of the income tax the exchequer receives. It is more than we spend on the national health service. The super-rich are fleecing us.

Gordon Brown keeps promising to deal with them, and keeps ensuring that he does no such thing. In his budget speech this year, he made bold claims about closing existing loopholes, before rejecting the only measure which could guarantee that new ones don't open up a "general anti-avoidance rule". This rule would have made all tax-avoidance measures illegal, whether they were devised before or after it was introduced.

A few minutes after his brave assault on tax cheats, Brown announced "an overall reduction of 40,500 staff" at the Inland Revenue and Customs and Excise. No one made the connection. Two years ago, Nick Davies completed an exhaustive investigation of the Revenue for the Guardian. He discovered that the government's efforts to catch tax avoiders had already "collapsed in a heap of mismanagement and staff cuts". "All the specialist offices are struggling with too few experienced staff" as a result of massive cuts during the 1990s.

In his speech in Brighton yesterday, Brown mentioned tax policy just once, when he scoffed at one of the means - European tax harmonisation - that would have made it harder for the rich to shift their money overseas.

The problem is that there is almost no public pressure for a real war on tax avoidance. Last week, the Tax Justice Network opened an office in London to try to focus attention on the issue. But it's not likely to feature much in the corporate press. Patience Wheatcroft, the business editor of the Times, attacks the Treasury for regarding tax avoidance as "tantamount to extreme wickedness". Coincidentally, her employer, Rupert Murdoch, is the most successful tax avoider of all. When the Daily Telegraph was owned by Lord Black, it argued that people had "a legal and moral right to work out how to pay as little tax as possible, a right which it is in the interest of all citizens to uphold". It's not very likely to change its position: its new owners, the Barclay brothers, live in tax exile. The tabloids slaughter the welfare cheats, and spare the tax cheats.

Understaffed, underfunded, detested, the Inland Revenue has found that the easiest way of dealing with its crisis is to appease the avoiders. In 2002, Davies reported that it was covering for the corporations and the super-rich by refusing to release its figures on enforcement.

My own, more limited, experience suggests that nothing has changed. I sent the Inland Revenue a list of questions last week. Is it true, I asked, that (as the Liberal Democrats have claimed) "the poorest fifth of the population pay a higher percentage of their income in tax than the richest fifth"? Has the contribution from the richest fifth been rising or declining? Is it true that there has been a shift of income tax receipts from the rich to the poor and middling over the past 10 years? What proportion of total public revenue does income tax provide? Has this been rising or falling?

The Revenue's press officer rang me back. "These questions," he told me, "are blatantly political." Eventually, he promised to send me an email. When it came through, the answer to all of them was: "No such analysis is published by the Inland Revenue." I asked him whether the Revenue had produced an estimate of the amount of money lost through tax avoidance. It hadn't.

This is mind-blowing. The Inland Revenue claims that it has made no attempt to discover whether or not its policies are working, and whether or not the results are fair.

So, if the super-rich won't pay because no one's interested in making them pay, what on earth can be done? How can the public's interest in fair taxation be revived? How could the government find the courage to stop the tax cheats?

I have a cruel and unusual proposal: everyone's tax returns should be published. If the teachers and dustmen of this country could see that certain multi-millionaires are paying less tax than they are, they'd be so angry that the government would surely be obliged to act. We had a taste of this four years ago, when the Sunday Times obtained a copy of the tax returns submitted by Lord Levy, the multi-millionaire Labour fundraiser. In the year 1998-99, he paid only £5,000. Every lowly taxpayer in the country was scandalised. Levy denounced the newspaper for using details that had been obtained illegally. He claimed that he had been working for charity, and had started a new business which wasn't yet paying for itself. This might be true, but unless someone steals his subsequent tax returns, we have no way of knowing. Why shouldn't public funds be a matter of public record?

I put this to the Inland Revenue. "Taxpayer confidentiality is of paramount importance," it told me. I tried out the same proposal with the human rights group Liberty, and this time I was surprised. "I think our position would be that we're in favour of transparency, so we wouldn't object to it," their spokesman told me."There would be privacy implications, but we wouldn't be desperately hostile."

Of course, this public information is also private information. But we already have access to a far more private set of data: wages. By looking through the job adverts, we can work out more or less what every employee in the country is paid. The trade unions bargain collectively and publicly over every term and condition. The salaries of the directors of public companies are not only made public, they are splashed all over the papers. Does anyone complain that their civil liberties are being infringed? If we can see how much people earn, it is hard to understand why we shouldn't see how much they pay.

The rich, of course, would go berserk. But as their newspapers are always reminding us, if people have nothing to hide, they have nothing to fear. We know where our money goes. Why can't we see where it comes from?


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