Debt, finance and the City of London

Heart of Darkness

g BY LAURA FRIEL

I LEARNT a new word recently. It was a word I’d never needed before. But I need it now. “Peonage – a system by which debtors are bound in involuntary servitude to their creditors until their debt is paid.”
It’s what is currently being advocated for the ordinary people of Ireland. No other word better defines a proposal that condemns the South’s working population of less than two million to paying off a €100billion debt.
In Joseph Conrad’s classic novel, ‘Heart of Darkness’, a group of businessmen are taking a trip along London’s River Thames. It’s night and when the ship is unexpectedly becalmed the passengers pass the time by listening to a sailor recount his colonial adventures in Africa.
Conrad briefly captained a riverboat in the Congo where he met Roger Casement and the story he relates exposes the cruel reality of exploitation and the enslavement of indigenous people.
The title is usually taken as a bitter reference to the Victorians’ notion of bringing Christian enlightenment to ‘darkest’ Africa.
But the true Heart of Darkness in Conrad’s tale is not Africa nor even the raw brutality of colonisation: it’s the City of London, a place that profits and trades in human misery on a global scale.
And if you’re wondering what’s that got to do with Ireland and the 21st century let me point you to Nicholas Shaxson and his book ‘Treasure Islands: Tax Havens and the Men who Stole the World’.
Shaxson is an established financial journalist more often found between the pages of Britain’s Financial Times and The Economist magazine. His study has already been heralded as probably one of the most important written in recent times.
Shaxson estimates that more than half of the world’s trade, over half of all banking assets and a third of foreign direct investment by multinational corporations passes through mechanisms specifically designed to bypass financial regulation and avoid taxation. In doing so, they also thwart national sovereignty and circumvent democratic accountability.
These mechanisms are commonly known as ‘offshore tax havens’ but there is nothing offshore about them.
Shaxson writes:
“The term tax haven is a bit of a misnomer because such places aren’t just about taxes. What they sell is escape, from the laws, rules and taxes of jurisdictions elsewhere, usually with secrecy as their prime offering.”
The avoidance of tax and regulation is now an intrinsic part of the way in which global finance operates. The headed notepaper might refer to Jersey or the Cayman Islands but the desk across which the transaction takes place, more often than not, stands in the City of London.
The City of London may only cover a square mile within the metropolis but it operates virtually as a state within a state. Shaxson describes the corporation that governs it “unlike any other local authority; for a start, Goldman Sachs can vote in its elections”.
In contrast to the rest of Britain, where one person = one vote is the norm, bankers and businessmen in the City of London command bloc votes based on the number of their employees, a total of over 30,000 votes.
Meanwhile, the corporation’s vast but undisclosed financial resources are also deployed to secure its political interests within the institutions of the state. It even has its own special envoy to the House of Commons.
It recently emerged that the corporation was also providing more than half of the funding donated to the British Conservative Party. This revelation provoked Guardian columnist George Monbiot to conclude:
“The Corporation of the City of London effectively dictates to the Government while remaining exempt from democratic control.
“Tony Blair came to power after assuring the City of his benign intentions. He deregulated it and cut its taxes. Cameron didn’t have to assure it of anything; his party exists to turn its demands into public policy.”
But the City’s corruption spreads further than the shores of its host country. Around 85% of international banking and bond insurance takes place in what is known as the Euromarket, a stateless offshore zone at the core of which lies London’s Square Mile.
Yes, you have it. The same ‘heart of darkness’ that once presided over imperialist plunder now presides over plunder by other means, through the manipulation of money, tax piracy and, significantly for Ireland, the operation of debt.
Of course, the City isn’t the only mechanism through which extra-judicial financial dealings take place. America came late into the game but it now facilitates the greatest turnover of unregulated financial transactions in the world.
But Britain with its array of dependent territories and former colonies remains the most significant because it commands the greatest global network.
Shaxson describes the British zone as a web with the City at its centre and each outer ring bearing a specific relationship to the core. The inner rings are Britain’s Crown Dependencies of Jersey, Guernsey and the Isle of Man.
Then there are the Overseas Territories such as the Cayman Islands, and thirdly former colonies which are technically independent but still deeply connected to the City of London. Ireland falls into this last category.
“It is no coincidence,” writes Shaxson, “that London, once the capital of the greatest empire the world has known, is the centre of the most important part of the global offshore system.”
It is estimated that about a quarter of all global wealth is now ‘offshore’. But although the transactions are secret, those involved are familiar high street banks. By moving its accountancy paper trail through a network of subsidiaries, Barclays paid just 1% tax on its global profits of £11.6 billion in 2009.
The tax lost just on the income global wealth generates each year is up to three times larger than the entire global aid budget to tackle poverty. According to Shaxson, the Euromarket is now the largest source of capital in the world.
For ordinary people the history of money has always been the struggle for transparency and regulation. But now we are faced with a vast stockpile of the world’s financial resources controlled by a global elite and operating outside any and all regulation.
Wealth expressed as money is a curious thing. It cannot, by its nature, remain inactive. Money is simply permission to trade. It has no intrinsic value. If it isn’t used it’s just a pile of printed paper or a flickering digit on a computer screen. Money is a signifier of wealth but it isn’t wealth in itself.
Historically, money has been the single most effective medium through which wealth has been transferred. This has often taken place through highly dubious mechanisms, at times by outright trickery.
Traditionally, one of the trickiest forms has been credit – money loaned at interest. As Shaxson pointed out:
“When the ancient Greeks deregulated interest rates, indebted Athenians ended up being sold into slavery.”
In 2007 in the USA, after restrictions were abandoned on the rate of interest lenders could charge on credit card loans, American consumers became indebted to the tune of almost a trillion – a thousand million – dollars.
Whatever the Celtic Tiger was all about, it was always more about debt than development. Some economists are already identifying it as little more than a giant Ponzi scheme in which vast amounts of unregulated credit created hugely inflated land and housing prices.
For a few brief years on paper at least, Ireland was classified as one of the world’s richest countries; with a stroke of a pen it became one of the poorest, moving from First to Third World as fast as it took Brian Lenihan to agree to bail out the banks and bondholders.
We’ve almost forgotten it but at one time, not so very long ago, the dominant discourse around capitalism as an economic system accepted that it was, by its very nature, chaotic and exploitative.
British post-war economist John Maynard Keynes described unregulated capitalism as decadent and inefficient:
“It is not intelligent. It is not beautiful. It is not just. It is not virtuous. And it doesn’t deliver the goods. In short, we dislike it and we are beginning to despise it.”
He was even more fearful of unregulated financial markets, identifying a fundamental tension between the real economy and anarchic capital. During the Bretton Woods conference of 1944, Keynes fought to create international mechanisms of monetary control and regulation.
Ironically, the very institutions he helped to establish, the World Bank and IMF, rather than protect nation states and indigenous development from the ravages of unregulated financial markets, now operate merely to police recovery often to the detriment of the victims.
A character in Robert Tressell’s The Ragged Trousered Philanthrophist’s Frank Owen, is ridiculed by his workmates when he declares money to be a cause of poverty.
“This extraordinary assertion was greeted with a roar of merriment, in the midst of which Philpot was heard to say that to listen to Owen was as good as going to the circus. Money was the cause of poverty! ‘I always thought it was the want of it,’ said the man with patches on the seat of his trousers.”
In what is now a classic scene, reproduced countless times as ‘The Great Money Trick’, Owen explains Marx’s labour theory of value. Money becomes a cause of poverty only in the sense that it’s the medium by which wage earners are tricked out of the true value of their labour.
Marx advocated revolution, overturning and transforming the economic system, but for most people regulation and taxation have been the historic compromise. It’s a compromise which in recent years has been eroded by the New Right.
Tressell, who worked alongside those he wrote about, called his ‘ragged trousered’ workmates ‘philanthropists’ because by accepting starvation wages they were inadvertently bankrolling the rich.
In the wake of the collapse of the Celtic Tiger, we, the ordinary people of Ireland, should be wary of joining the ranks of Tressell’s misguided colleagues.