Timmy, you just made my day

A big thanks to Tim Worstall for saying it so very well:

"You see, because if companies don’t pay their taxes then the money just disappears. There’s no such thing as an opportunity cost in lefty world.

Now then, out in the real world what does happen when the capitalist bastards manage to dodge taxes? One of two things.

1) The company has a higher retained profit which it then uses to reinvest in the business. More jobs, higher wages, economic growth, Hurrah!

2) The company pays it out to their fat cat shareholders who simply engorge themselves on the lucre extracted from the sweat and blood of the poor. And investments in companies working in poor countries are seen to be paying higher returns. Which leads to more capital being invested in companies working in poor countries so more jobs, higher wages and economic growth, Hurrah!

It is of course possible to argue that direct spending by governments will do more for the chances of the poor than more foreign direct investment. But to argue that if the money is not paid in taxes then it simply disappears as far as the poor are concerned is simply nonsense."

The reason capitalism works is because it is about generating wealth, and to generate wealth one invests the wealth one has made into making more, which means more jobs, profits, better pay, economic growth and happiness all around for those who endeavour to sieze the opportunity. Hand up, not a hand out - but then we can't even deal with that culture at home, can we?

When the mind wanders to tax and economics

Having a curious little thought about tax and the economy, so bear with me.

This little thought comes from a very important question: given all the waste in the public sector, where is all this money going?

Here’s a hypothetical. I’m directing a big IT project at the HMRC. Let’s say a nice, civil liberty infringing database, something perhaps to do with ID cards. These things seem to be all the rage these days anyway. I appoint some Programme Managers and Project Managers, but since we have very little in-house experience, we’re going to need contractors. So we tender the project and appoint a consultancy. Let’s call them Capcenture, for arguments sake.

Capcenture come in, look at our hastily drawn requirements and make some suggestions, the requirements are changed and we then go out to hire a load more contractors to help us develop it – coincidentally, most of these people are one-man-band ‘consultancy’ companies going through an Agency, taking advantage (barely legally) of IR35 to pay as little tax as possible (and who can blame them?). Already the bill is looking pretty swollen, but the project is underway.

Then, someone goes back to the original specifications and decides that there’s more functionality they need out of it. Development has already started, so this means more modifications, and the timetable slips. The budget doesn’t cover for that kind of slippage, so they revaluate the project and go back to the purse holders talking about sunk costs and the importance of this government approved initiative.

More contractors are hired at £500 per day to help with the development. The Consultancy is called back in with their specialists each at £1500 per day. The bill goes ever higher, and the project will run for ever longer. All this money gushing from the purse of the public; but where is it going to?

The Government is giving it to private sector companies, whose tax receipts will funnel some of it back to the Government. The rest they will invest in staff, or save, or spend as is their wont. The shareholders off all these companies will reap the dividends. The consultancies all know this. That’s why there are armies of ‘Public Sector Account Managers’ and specialists. An entire business stream has built up on selling to the public sector, because it is the ultimate cash cow – and they always pay their bills. If it sounds a lot like stealing from Peter to pay Paul, you’d be right.

Where has the money gone? Into the private sector; waste or not, you can’t deny that people have profited from it, even if it is the few rather than the many. Hold up a second there. Did we just say the few rather than the many? Isn’t the point of socialism and social democracy the many rather than the few? Isn’t it about redistribution of wealth and all that stuff? Our taxes have gone to pay for a project that lines the pockets of the evil capitalist piggy things! By extension, the Government has stolen from the many to give to the rich few.

Yikes. Who’d have seen that flaw in their logic?

Anyway, it seems to be something of a merry-go-round of money. I think of it as being that there is ultimately a finite source of cash in the economy. This can occasionally be increased in terms of numerical amounts, but the ultimate value of the cash pool cannot change. In my very simple understanding, this is why we get inflation – you can print as much of the stuff as you want, but that only devalues what you have. 100% split into thousandths is still 100% when you add it all up. Growth, and an increase in the base value of the money pool, can only occur when new products are created or resources made/discovered.

The only difference is who determines where that money goes. Is it me, or is it the Government?

The Devil’s Kitchen has for a while now been hunting down, naming and shaming what he identifies as Fake Charities. These are pressure groups and lobbyists that receive significant funding (more than 10% or at least £1m, I understand) from HM Gov. Notwithstanding that I find the principle of the Government choosing to pay my taxes to a ‘charitable’ pressure or lobby group with whom I disagree to be a total affront, the funding for these groups should come from those who support them, not the body politic.

I do not agree with what the Anti-Drinking/Alcohol lobby say, therefore I am appalled that my taxes are going to fund them. I may sympathise with the Anti-Tobacco lobby insofar as I like not having smoke in my face, but the fact they push to actively remove the rights of others to do to their bodies as they please means that I would never willingly give them money. As you can imagine, I’m not best pleased that the Government does on my behalf. Even for charities of which I approve, such as Stonewall, I do not agree with the Government funding them, or indeed any public sector body. Public money should not fund a pressure or lobby group, however admirable their aim.

The Government has decided that it knows best where to spend our money and to whom to donate, therefore these ‘charities’ receive money to advance their arguments to the Government. Right or wrong their arguments may be, the decision of who to support should be mine. On no grounds, be it health, social welfare or civil liberty, should taxpayers cash go towards a pressure group. Unfortunately, it does.

Charity should be private and personal. Charities and political lobbying groups can lobby me for my cash all they like. They certainly should receive none from the treasury.

The State colossus, Big Government, our massive and bloated Public Sector, are the manifestation of that denial of choice. They are testament to a belief that our leaders know best how to spend our money. Which, given the way they throw it around, shows a complete lack of respect for the people from whom they take it on threat of imprisonment. I apologise if that all seems melodramatic, but New Labour scare me and I don’t trust them with my money. Imagine if the Government let failing industries fall. What do you think would happen? My belief is that if there is no market for goods, the companies are on borrowed time anyway. If their departure creates an opportunity, someone with savvy will fill it.

At the heart of all this is one basic difference. One approach assumes that the populace is too selfish or too stupid to spend its money, the other believes in the intelligence and natural altruism of the human spirit. If you like, socialism is the ultimate form of political pessimism. Libertarianism, and to a degree, Conservatism, believes in the ultimate good of humanity and in our ability to decide for ourselves.

I want to emmigrate.

I just caught the Wall Street Journal's interview with New Zealand's PM, John Key.

New Zealand has great wine, good skiing, amazing scenery, temperate weather, and apparently a free-market focused leader who favours small government. And they have Hobbits. What's not to like?

At least ONE Prime Minister in the world seems to know the right way to deal with the recession...

Pour la France, les emplois

As a comedian and acquaintance of mine once flourished: “...the people who hate the French government most, are the French!”

Given the emotional story he had been telling about his voyage across the English Channel in a Thomas Crapper bathtub, rowing, no less, this punchline was the end to a running theme of obstructions he had faced from the French Coastguard and government, who had even changed the law in order to prevent his brave/insane/ridiculous/British venture.

If anyone doubted the veracity of this statement, I could point you to the French propensity for striking. Rightly or wrongly, they are not afraid of creating merry havoc if they don’t like what is happening. Even if their actions are misinformed or counterproductive. In Tim’s case, the locals had broken in to a French coastal installation to cheer him on as he rowed those painful last strokes to arrive on French soil. Authority? Ça ne fait rien! Hurrah.

Personally, I rather like France. It is a beautiful country, produces some marvellous wines (and Brandy, Cognac, Calvados, Armagnac...), and like anywhere, has some fantastic people. Some less fantastic people too, but you will find that anywhere in the world.

On the other hand, they have a worrying propensity for protectionism, and Nicolas Sarkozy, who should know better, is not helping. As outgoing President of the EU, he should be conversant with the single market, and ought to at least pretend to represent it. In deciding to prop up Renault and Peugeot-Citroen with a €6bn loan, he’s jumping aboard a bandwagon whose engine should never have been started, but in that there’s nothing particularly unique. What is very disappointing is that he has brazenly instructed the companies that they must make no redundancies at their French plants – instead calling for them to close their Czech and Slovenian plants.

Bald, blatant, naked protectionism doesn’t even begin to cut it. The bailout packages for the automotive industry are bad enough, with governments terrified of allowing a proud national institution to fail, but history or not, no industry should become subsidised, and propping these companies up does not solve the underlying problem; demand for cars has fallen, and these companies were trading on a false economic boom.

Mind you, given how the French benefit from the deplorable CAP, should we be surprised?

That kind of growth is not going to come back before the bailouts run dry, and jobs will still be lost. Rather than bail these businesses out with taxpayer money, why not give that money back in the form of lower taxes? That’s the kind of stimulus we need.

Sarkozy, like Brown, is proposing a vote winner, cheating at the expense of the taxpayer. While I was amused by the way the French President savaged Brown over his handling of the economy, I think he was way off the mark. The VAT cut was a ridiculous waste of time and money, but cutting taxes is the answer, not spending more as Sarkozy intends. It is time for lean government and smart thinking. On that count, neither Brown nor Sarkozy show any proclivity for either.

Protecting your own

Barely did his feet settle under the table of the Oval Office than Barack Obama has had the EU hounding at his door. As much as I may despair at the bureaucracy in Brussels, when it comes to making statements about free markets and trade, the EU is usually on the money.

The ‘Buy American’ policy the USA is proposing in their massive recovery package seems to be attracting a lot of fire, and echoes with our current ‘British Jobs for British Workers’ palaver. It’s not just the EU - the Canadians are antsy about it too, along with the best part of the participants at Davos. America In the World have suggested that 70% of Britons will be less favourable to Obama if he implements a protectionist policy; we Brits have good reason for feeling that way. America is a world leader, promoter of capitalism and up ‘til now, a shining example of the free market (at least on the surface). If anything, America needs to be defending those principles and seeking to restore our faith.

The critics are dead right. A protectionist policy would do more to harm the US and slow the global recovery than it would protect American jobs. Sure, in the short term it might sound like a great idea, but free trade works on the principle of swings and roundabouts – you may lose on one thing but you gain on the other. It forces companies and entrepreneurs to be better than their competitors if they want to succeed. Protectionist leads to ‘jobs for the boys’ and suffocates competition, which in turn stifles innovation, so on and so forth.

It’s a crowd pleasing idea that makes it sound like you’re standing up for the masses, when the reality is that in the long-run, you’re going to make things worse for them.

Sourcing from local suppliers isn’t necessarily a bad thing, and you may have ample justification for doing so, but it needs to be on sound economic terms and you need to encourage competition for that business.

I’m pretty sure I heard rumblings about this even before the ballot boxes in the US had closed. Obama is playing a populist card with his stimulus package, and I wonder if he’s getting a bit too caught up in playing to his electorate rather than doing what is best for them in the long run. The global effect is likely to be marked as well, and it sets an awful example for other nations. Tit will inevitably follow tat, and governments would end up subsidising local businesses and products produced nationally. This would be an utter disaster for the global economy.

The US has a massive budget deficit inherited from the previous administration and it has to deal with this. Any incoming government in the UK is going to have the same problem, but the US has an advantage we lack – it is a major exporter. Protectionism isn’t the answer – John Redwood nails it when he says that borrowing less and exporting more is.

Of course, given that about the only thing we export these days is Whisky, I’m not sure how we’re going to solve that particular problem any time soon.

Maybe we can just get the rest of the world drunk?

Sunday Indy Echoes of the Revolution

Just recalled the headline on yesterday's Independent on Sunday - "You can go and work in Europe, Mandelson tells strikers."

Anyone else think that sounds a lot like "Then let them eat cake"?

For the record, I actually agree with him. The whole point of a free market - and indeed the single market - is to ensure that provided you have the skills for the jobs, you can work anywhere there is an opportunity. In this case, the strikers may have a point - it seems very unusual in a project for all the labour to be sourced abroad, at least unskilled elements are usually sourced locally. While I don't think they're right to strike, I do think they deserve an answer. That Total have remained silent on this concerns me.

That aside, you can't say "British jobs for British workers", because that's discriminatory. What would be better said is "British jobs for the best skills". Now if the best skills aren't British, we really need to ask why. Maybe something to do with all those people who were sat on benefits instead of the Government spending the time and effort training them over the last ten years. Not that they're blameless, but the Government has helped to create this welfare culture, and in that they are culpable. For all their 'Education, education, education' spiel, New Labour have utterly failed to deliver.

EU Procurement law Vs. My taxes.

I received today an e-mail inviting me to attend a seminar on EU Procurement law. There have been rather a lot of seminars on this subject lately, but this one was going for an attention-grabber:

“The EU procurement rules are fraught with difficulty.

You are required to navigate between the black letter of the law and the commercial reality of putting together a procurement.

To manage the risk effectively you need rock-solid advice on what you can and can't do.”

It went on to list a number of the hurdles and complicated rules that can make a public sector contracting exercise something of a minefield, from when you can and cannot speak to suppliers during the process, when a framework is anti-competitive and thus non-compliant, and so on and so forth.

Normally these things get the ‘delete’ treatment without any further ado; however this framed the problem faced by contracts teams within the Public Sector very succinctly. Basically, there are so many pitfalls, red tape and ridiculous levels of bureaucracy designed at making the process as ‘fair’, ‘open’, ‘transparent’, ‘non-discriminatory’, etc, etc. as possible that it becomes an uphill struggle before you even get started.

I’m not saying that any of these goals are a bad thing. On the contrary, they are wonderful principles of a free market. Public money should be accountable, and we should not be awarding the contract to someone who isn’t going to offer the best value for money.

It’s also fucking difficult to argue against the rules. They make irritating sense to a free-marketeer. If followed, they stop protectionist policies and are intended to prevent sharp practice, all good things. In fact, you can’t even say that a public body should be able to spend its money in the local economy, because the whole point of the rules is that the best response to your tender will win the business.

In other words, if local suppliers want to win the business, then they need to up their game and improve. It also means that there should be no barrier to those local suppliers winning business elsewhere in Europe, if they decide to do so. Great, in theory.

So, does that mean I’m happy that my tax money is going to line a German, or Spanish company’s offers? Well the flipside is that their tax money could well be lining those of a British company, so you could argue that it will all come out in the wash.

What I’m trying to make clear here is that the spirit of the EU Procurement rules is something I agree with. My issue is more whether or not the sheer cost of implementing the laws, enforcing them, and even writing the damned things is actually delivering us any value for money, or if in fact is costing governments – and therefore you and me as the taxpayer – a huge amount of money that could be better off back in my pocket.

It also means that the UK Government can’t say to contracting authorities (basically a body spending public cash) that they should source locally and support the British economy. It has no say over where that public money will end up. Of course I should be happy that the most economically advantageous tender will win, therefore saving the taxpayer money. It’s very easy to end up in a circular argument on this.

When the House of Commons commissioned the construction of new offices for MPs, what was to become Portcullis House, the contract for the windows went to a British firm. The problem was that a French-owned firm, Harmon, had submitted the most economically advantageous bid. Someone at the House had decided we should buy British. Harmon challenged this under a breach of the EU Procurement rules and were awarded damages in court for £1.85m. There were other aspects they could also sue for, however the House of Commons settled out of court for an unspecified fee. So the taxpayer paid for the windows twice over, maybe more. Now, can you spell colossal waste of my fucking money?

Fine, you say, live within the rules. I question not the spirit of the rules, let me re-iterate that. What I do believe in is choice. The same choice afforded to the private sector, which has far more freedom to make decisions on where it spends its money. What I question is why that accountability seems to lie with Europe, and not with the UK taxpayer. Why the fuck are some overpaid bunch of bureaucrats allowed to tell our public sector that it can’t support local businesses if it chooses to do so? It may not be the right choice, but the point is that the public sector in the UK should be responsible to the UK taxpayer, not to fucking eurocrats.

I fail to see why we need another layer of bureaucracy on top of our own, trying to tell us what we can and can’t do – private or public sector. Big government is not a good thing. More big government above a big government is worse. We have enough crap from our own politicians, we really don’t need to be subsidising eurocrats as well, and we really don’t need more layers of red tape, processes and procedures that cost the taxpayer even more money.