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Wednesday's Top 10 with NZ Mint: Starbucks, Google, Amazon grilled over 'legally, but immorally' low tax bills; Ayn Rand and the battle between 'makers' and 'takers'; 'How the shareholder value cult failed'; Chocolate shortage?; Dilbert
Here's my Top 10 links from around the Internet at midday in association with NZ Mint.
As always, we welcome your additions in the comments below or via email firstname.lastname@example.org.
My must read is #4 on management theory and the cult of shareholder value.
1. 'Legal but immoral' - Starbucks, Amazon and Google faced up to a grilling by a British parliamentary committee this week over their low tax payments.
This will increasingly become a theme of the next few years.
Cash-strapped governments will pressure multi-nationals using tax havens and 'aggressive' tax management techniques to pay their fair share on their territory.
If they don't, the regulatory harrassment will intensify. Germany is about to force Google to pay newspapers for publishing news snippets in their search results.
At some point consumers and workers in these countries (and companies) will also rebel.
Tax is now firmly on the agenda for corporate responsibility. It's a question every employee should ask any employer: Are you paying your fair share of corporate tax?
Here's the Telegraph with the juiciest exchanges:
The US companies were branded a disgrace by MPs who uncovered information about Starbucks’ “sweetheart deal” with Dutch tax authorities and attacked Amazon in the face of revelations about a $252m (£142m) French tax probe.
The fiery exchange, led by Public Accounts Committee chairman Margaret Hodge, saw all three companies accused of siphoning profits away from Britain by using a complex web of accounting strategies that were cynical and “unjust”. “We are not accusing you of being illegal,” said Mrs Hodge, “we are accusing you of being immoral.”
MPs also expressed shock at revelations that Starbucks had signed a secret deal in the Netherlands – where it has its European headquaters – to pay a discount rate of corporation tax.
2. Meatless Monday - Further to my link on the 'de-growth' idea from yesterday, here's news that Los Angeles is promoting 'Meat Free Monday' as a way to reduce obesity, cut carbon emissions and improve freshwater use.
3. A referendum on Ayn Rand - Bloomberg reports the election result may well have been the Republicans' referendum on their adherence to the (in)famous ideas of arch-libertarian Ayn Rand.
Romney’s running mate, Wisconsin Representative Paul Ryan, has built his political philosophy on Rand’s work; for years, he gave away copies of her novels as Christmas presents and made them required reading for his staffers. His belief that the U.S. is increasingly divided between “makers” and “takers” informs his policy positions on everything from Medicaid to food stamps.
Ryan’s language echoes Rand’s, and it’s worth remembering how her work came to occupy such a vaunted position in modern Republican thought.
In her 1957 novel, “Atlas Shrugged,” Rand advanced a clear distinction between virtuous “producers” and unethical “looters” and “moochers.” In Rand’s view, the stability of American society was threatened by the non-productive, who used altruism to stake a claim on the wealth generated by producers. In the novel, the moochers have become so powerful that the producers are no longer willing to work on their behalf. Facing oppressive regulation and taxation, the producers go “on strike,” retreating to a secret hideaway in Colorado. Without them, society begins to collapse.
As an alternative to this dark future, Rand proposed objectivism, her own philosophy of limited government, rationality and ethical selfishness. Only absolute laissez-faire capitalism, she argued, would give producers the freedom to work to their full potential. Along the way, the economy would thrive, but for Rand that wasn’t the point. What mattered was that individuals could lead lives of independence and integrity, even if they contributed nothing to the common good.
Among the many ironies of Ryan’s attraction to Rand is that “Atlas Shrugged” depicted politicians as among the worst moochers of them all, followed closely by their business allies. Another is that religious readers were once among Rand’s fiercest critics. Not only did they reject her atheism, but they were troubled by the divisive language of her work. It was one thing to celebrate the winners in capitalist society; it was another to attack the losers and blame them for all social ills. Rand claimed that selfishness was a virtue and altruism a vice.
Yet today, even politicians who claim a deep religious faith seem little troubled by these concerns. Rand’s division of Americans into moochers and producers, dependents and independents, is no longer controversial -- it reflects conventional wisdom in the Republican Party. This election may well determine if that philosophy can withstand the scrutiny of American voters.
4. 'Management theory was hijacked in the 1980s' - Here's Simon Caulkin writing at the Guardian about the how the shareholder value movement from the 1980s (quite closely linked to the Rand-ian revolution talked about above) is killing capitalism from within.
We know what makes companies prosper in the long term. They manage themselves as whole systems, look after their people, use targets and incentives with extreme caution, keep pay differentials narrow (we really are in this together) and treat profits as the score rather than the game. And it's a given that in the long term companies can't thrive unless they have society's interests at heart along with their own.
So why do so many boards and managers, supported by politicians, systematically do the opposite – run companies as top-down dictatorships, pursue growth by merger, destroy teamwork with runaway incentives, attack employment rights and conditions, outsource customer service, treat their stakeholders as resources to be exploited, and refuse wider responsibilities to society?
The answer is that management in the 1980s was subject to an ideological hijack by Chicago economics that put at the heart of governance a reductive "economic man" view of human nature needing to be bribed or whipped to do their exclusive job of maximising shareholder returns. Embedded in the codes, these assumptions now have the status of unchallenged truths.
The consequences of the hijack have been momentous. The first was to align managers' interests not with their own organisations but with financial outsiders – shareholders. That triggered a senior management pay explosion that continues to this day. The second was that managers abandoned their previous policy of retaining and reinvesting profits in favour of large dividend and share buyback payouts to shareholders.
5. Chocolate shortage? - This would worry me. How would we all exist without Whittakers' Dark Ghana chocolate to get through the day?
Here's Bloomberg with good look at the supply/demand outlook for the magic beans.
Cocoa demand will exceed production by 101,000 tons this season, Macquarie Group Ltd. estimated in September. Rabobank International predicts a 122,000-ton shortfall. Global output will drop 2.9 percent to 3.85 million tons, led by smaller harvests in Ivory Coast, Ghana, Indonesia and Nigeria, Macquarie says. The four nations produce 74 percent of the world’s beans.
The shortages will be among the topics analyzed by the International Cocoa Organization at its first-ever summit in Abidjan, Ivory Coast, on Nov. 19.
6. How Economists got inequality wrong - Harvard's Jonathan Schlefer writes about the assumptions many economists have about wage equality and the 'market''s ability to set wages and avoid unemployment.
Since in the real world managers rarely have any sure idea how to use more capital and less labor, or vice versa, markets cannot determine how much workers earn. An old union joke (or anyway, union organizer's joke) underlines this point. Question: "What's the value of an assembly-line worker?" Answer: "It's the steering wheel." Everyone from the executive suite to the shop floor contributes as a team to production. Markets may determine what cars sell for but cannot tell how much of that value each team member contributes. Somehow, minimum wages, personnel departments, union bargaining — social custom, in other words — decide earnings.
As long as economists stick to their assumption about production, it will imply that markets determine wages, and do so most efficiently. Progressive economists will recognize that income inequality can harm economies — in their efforts to overcome it, clueless Americans borrowed extravagantly against supposed home values and helped cause the financial crisis. But given their fanciful assumption, these economists will continue to balk at direct and practical remedies for inequality such as negotiating more equitable wage structures. This assumption will continue to tie economic thinking in knots.
7. Controlling NZ's brand in China - Andrea Fox at Stuff follows up in this report on problems with Chinese importers of apparently New Zealand-made baby formula.
Dairy processors are calling for urgent industry-government combined action to stop the New Zealand dairy brand being damaged by pretenders blending and packaging infant formula and dairy products claiming to be Kiwi-made.
Canterbury dairy manufacturer and exporter Synlait said it is aware of at least 35 "front company" brands that have been created claiming to be New Zealand manufactured.
Open Country Dairy chairman Laurie Margrain said his export company has been becoming increasingly concerned over the past year with the "proliferation" of companies blending, packaging and claiming to be New Zealand product for export.
The catch-up boom in China, India, Brazil is largely over and will be followed by a drastic slowdown over the next decade, according to a grim report by America’s top forecasting body.
Europe's prognosis is even worse, with France trapped in depression with near zero growth as far as 2025 and Britain struggling to raise its speed limit to 1pc over the next three Parliaments.
The US Conference Board’s global economic outlook calls into question the "BRICs" miracle (Brazil, Russia, India, China), arguing that the low-hanging fruit from cheap labour and imported technology has already been picked.
China’s double-digit expansion rates will soon be a romantic memory. Growth will fall to 6.9pc next year, then to 5.5pc from 2014-2018, and 3.7pc from 2019-2025 as the aging crisis hits and investment returns go into "rapid decline".
9. Too Big To Fail bank lobbyists win again -America has delayed introducing the higher capital requirements (which means less leverage and bank profits) set under Basel III.
And now Reuters reports the Europeans are reluctant to impose higher capital requirements on their shaky juggernauts.