It seems that the rumbling story about HSBC’s Swiss branch has achieved what political pollsters know as “cut through” – meaning that it’s of interest to voters as well as to those reporters who are sentenced to watch Prime Minister’s Questions each week.
The story reminded me of a passage in Wolfgang Streeck’s 2014 article ‘How Will Capitalism End?’ in which he explores the drivers of change that could bring about, well, the end of capitalism. The article deserves more space here on another occasion, but for the moment I just wanted to quote what he writes about his fifth driver, corruption:
Finance is an ‘industry’ where innovation is hard to distinguish from rule-bending or rule-breaking; where the payoffs from semi-legal and illegal activities are particularly high; where the gradient in expertise and pay between firms and regulatory authorities is extreme; where revolving doors between the two offer unending possibilities for subtle and not-so-subtle corruption; where the largest firms are not just too big to fail, but also too big to jail, given their importance for national economic policy and tax revenue; and where the borderline between private companies and the state is more blurred than anywhere else, as indicated by the 2008 bailout or by the huge number of former and future employees of financial firms in the American government.
So far, fairly familiar, if admirably concise. The more important element here is that what this has done is broken the moral story about capitalism – work and the Protestant ethic and all that – that writers such as Max Weber spent so long trying to assemble at the end of the 19th century and the beginning of the 20th.
Capitalism’s moral decline may have to do with its economic decline, the struggle for the last remaining profit opportunities becoming uglier by the day and turning into asset-stripping on a truly gigantic scale. However that may be, public perceptions of capitalism are now deeply cynical, the whole system commonly perceived as a world of dirty tricks for ensuring the further enrichment of the already rich. Nobody believes any more in a moral revival of capitalism. The Weberian attempt to prevent it from being confounded with greed has finally failed, as it has more than ever become synonymous with corruption.
Of course, the idea that capitalism has a moral purpose still floats around in political discourse such as “wealth creators,” a lost signifier loking for something to signify.
Flavours of vanilla
This issue – about how we understand the “story” of capitalism – is why scandals such as HSBC are so damaging. In particular, they remind us that the rich do live in a different world from the rest of us. And Lord Fink’s entertaining spat with Ed Miliband on the precise level of his tax avoidance demonstrates precisely this (and is actually more damaging, not less, because it was only – as the good Lord put it – “vanilla” tax avoidance).
Because what Lord Fink said, when he got round to explaining himself to the Evening Standard, was that he’d “set up some simple family trusts” while on a posting in Switzerland between 1996 and 2000.
Really what I was trying to do was, not like a living will, but to allocate a very small shareholdings to each of my children so they could pay deposits on houses in London one day after we returned,” he told the paper. “There was nothing complex, and they weren’t aggressive tax planning.
My family and I paid tax on all the dividends, both in Switzerland and the UK. They were done because my children were under 18 and I wanted them to have something to help them make their way in the wider world.
A whole lot of things jump out of that. Most people in the UK wouldn’t know about a “simple family trust” if it fell on their head. And Lord Fink’s idea of “very small shareholdings” is probably askew if they’re also substantial enough to pay deposits on houses in London. (The average London house price went past £500,000 last year.)
And just to put all of this in perspective, half of UK households – households, not individuals – had “gross financial wealth” of less than £8,400 in 2010/12, accoridng to the Office of National Statistics. Now there’s a number that Lord Fink would probably think was “very small.” It would barely cover the accountant’s fees.
Indeed, the cartoonist Martin Shovel summed up this gap in comprehension on Twitter:
Back in 1926, just before the The Great Crash, F. Scott Fitzgerald wrote in his story ‘The Rich Boy‘:
Let me tell you about the very rich. They are different from you and me. … They think, deep in their hearts, that they are better than we are because we had to discover the compensations and refuges of life for ourselves. Even when they enter deep into our world or sink below us, they still think that they are better than we are. They are different.
And banks, clearly, like the money of the rich better than they like ours because (as in Hemingway’s literary riposte) they have more of it. Oddly, the Swiss tax avoidance story has resonated more than, for example, HSBC’s money-laundering of funds belonging to Mexican drugs cartels, which led to a fine of almost $2 billion by the US authorities.
And I think the reason is in that line of Fitzgerald’s: that when the rich appear and explain that it is normal to avoid doing something that the rest of us do as a matter of course, they’re also telling us – on 24-hour news – that they still think that they are better than we are. But once the idea that capitalism has a moral order is broken, they’re just a huckster in expensive clothes.
The image at the top of the post is from Channel 4 News, and is used with thanks.