Amid all the current uncertainty, one thing we know is that government finances both here and abroad will remain under strain for years to come. The crisis is bigger than the state of public finances and governments are not the only ones in debt, but they are the ones who can act.
Large government deficits are common to many countries in the OECD, which still makes up two-thirds of the world economy. Many people have seen their standard of living fall, and voters are already feeling squeezed by high consumption and labour taxes. The only place left to look for additional revenues is capital.
Taxing profits and assets is not a cost-free option. Lower dividends would reduce the income of pension funds and insurance firms, pushing up premiums. Individual shareholders would lose, too, and the rate of technological progress would probably slow as research and development budgets come under pressure. There may also be a rise in unemployment, though this could be more than offset by using the revenue to cut income tax or national insurance.
But what if we could raise more from companies without increasing corporation tax rates? A simple but far-reaching accounting change could potentially net huge amounts of money: require all companies to publish all their bank accounts. This would make tax evasion more difficult and tax avoidance more obvious.
Why should the financial affairs of PLCs be private? The public limits a company’s liability, exposing us all to risks as suppliers and consumers, so we are entitled to see the books. What should companies be permitted be hold back from their shareholders, workers and customers, or hide from governments and tax authorities? The presumption should be in favour transparency, with the same principle used to make public agencies more accountable as well.
If companies are worried about commercial confidentiality, a similar argument could be made about requiring them to publish their accounts at all. There would need to be safeguards for employee confidentiality, and a time-lag for commercially sensitive information. But provided the same degree of transparency is imposed on their competitors, the level playing field is preserved and better information should help rather than hinder competition.
Transparency is greatly undermined by the corporate use of tax havens. They are essentially parasites on the productive economy, and their secrecy facilitates money laundering and corruption as well as tax avoidance and evasion. Companies that avoid taxes gain an unfair trading advantage over companies that don’t, so action against tax havens is wholly justified. We could tax all transfers to and from offshore banks, or ban them altogether, recognising their secrecy as corrupting, and corrosive to civil society and fair competition.
The economy exists for people, not for companies. Their development was opposed by no lesser personage than Adam Smith, who was against any separation of management from ownership. To address the fear that managers would pursue their own interests rather than those of shareholders, company law imposes a fiduciary duty on managers to set aside any and all of their concerns in favour of maximising profits.
In The Corporation, Joel Bakan argues that fiduciary duty turns companies into externalising machines. If a company can displace any costs onto the wider community without too much reputational damage, managers have a legal duty to do it. Greater transparency will enhance corporate citizenship and responsibility.
Modern transport, information and communication technologies have globalised the economy, but politics is mostly national and sub-national. We human citizens remain governed by countries and subject to immigration controls; the legal personality we afford to companies combined with the dramatic increase in capital mobility means corporations are now citizens of the world. Allegedly this makes stuff cheaper, so we benefit as consumers. But mobility is power, and it favours the corporate pursuit of profit over people’s concerns as citizens and as workers.
Corporations may flee any jurisdiction that acts against their interests, so concerted action by national governments is essential. But governments’ shared need for money makes this a real possibility. Europe faces huge fiscal strain, and the US could clearly use a new income stream. Even before the current crisis, successive US administrations spent more than they taxed, the current account adds to the stack of IOUs in Beijing every year, and unfunded pension and medicare obligations will balloon as the population ages.
Corporate banking transparency would mark a fundamental redistribution of power, from corporations back to people. The exponential rise in capital mobility has seen power flow in the other direction, and democratic governments have a duty to ensure that democracy is not side-lined completely. As well as helping the weak fiscal outlook and strengthening democracy, transparency offers clear benefits regarding organised crime, corruption and terrorism.
There are no guarantees that transparency will net significant tax revenues, if corporate tax evasion is very low, and the tax authorities deem their avoidance measures to be acceptable. Even so, greater transparency is warranted: we should keep an eye on what companies are up to. Why assume they are run morally when we insist that managers put morality aside?