Steve Royston

The State is the Beast: An Angell on Economics

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An Angell visited Bahrain the other day. Not one with feathery white wings and a halo, but a stocky Welshman with a biting tongue, the rhetorical skills of David Lloyd George and the optimism of Cassandra.

The occasion was the 4th Arindon International Investor’s Conference in Bahrain. Arindon are an investor relations consultancy. Every January they bring the great and the good from the Middle East’s investor community to share their views on the outlook for investment in the region.

The excellent conference programme was full of sober assessments of economic prospects for the Arab world. The consensus seemed to be Saudi Arabia and Qatar good, the UAE OK, and Egypt one to watch for the future.

Stimulating as the panel discussions were, the star turn was the Welshman in question, Ian Angell, Emeritus Professor of Information Systems at the London School of Economics. The professor is a man with opinions about almost everything. So tying him down to a subject relevant to investment in the Middle East must have been a challenge to the organisers.

I first heard him speak twenty years ago. In those days I went to a fair number of conferences. Most of the speakers were deeply forgettable, and thus forgotten. But the Ian Angell experience is not one that slips easily from the memory. What he was talking about I haven’t a clue, but he stuck in my mind as a man who loves to trash conventional wisdom, and upset as many people as possible in the process.

You could say that Angell is an academic shock-jock. But to compare him with the likes of Rush Limbaugh and Glenn Beck is a little unfair, because unlike those reactionary windbags he is quite happy to subject his views to forensic debate, which I guess is the hallmark of an academic.

These days Angell is retired from the LSE, and makes his living through public speaking, hence his visit to Bahrain. His subject at the conference was “The High Net Worth Individual and the Future of Money”.

The gist of his talk was that the economies of the United States and Western Europe are in terminal decline because over-taxation is stifling innovation and driving the very wealthy away from punitive tax regimes. He argues that taxing the super-rich – above a certain level – is counter-productive, because they have the means to take their wealth to any country that will let them hold on totheir assets.

Many wealthy individuals in the US , he says, are giving up their nationality and seeking other shores in order to escape the rapacious clutches of the Internal Revenue Service. Tax evasion – a criminal offence that can land you in jail – is no longer an option, because you can no longer hide your wealth behind secrecy laws in foreign tax havens such as Switzerland and Liechtenstein. The computer database, eminently hackable, has seen to that.

So legal avoidance tactics are apparently the order of the day. And when a high net worth individual moves away from a tax regime, the secondary benefit of his or her presence goes too. Employees lose their jobs, no more investment in new businesses in that country and no other collateral benefit from the individual’s wealth. Angell points out that in the US 40% of tax revenues come from 1% of the population, so if significant members of the privileged few take their cash and nationalities elsewhere, the economic impact on the old country is serious.

He went on to say that in the US, in 1960 2 million people worked for the government, and 15 million in manufacturing. Today those numbers are 8.7 million in government and 11.5 million in manufacturing. Economies in the West, he argues, are collapsing under the weight of paying for government employees who do nothing to create wealth and foster innovation, and much to prevent them through taxation and over-regulation.

I agree with him when he says that there is a super elite who treat a passport as a travel document rather than as evidence of loyalty to a specific country – I wrote about this 18 months ago in Ruthless and Rootless, which was a piece about the Russian spies expelled from the US at that time – but I think his argument on the secondary benefit of wealth is overstated. High net worth individuals tend to employ people around the world regardless of nationality.

And I also think that he undervalues the philanthropic activities of people like Warren Buffett and Bill Gates. Gates was recently in London on his way to Davos, and argued in favour of higher taxes for the wealthy. But I suspect that those who jump nationalities to avoid tax are not those inclined to give their fortunes away. Why, if you are worth a few billion dollars, you would have a problem with parting with a proportion of your wealth to the taxman or for the wider common good is beyond me. But then I also don’t understand why sharks never sleep.

Speaking about money, Angell reminded us that the entire financial system depends upon a “promise to pay” that you see on bank notes. So effectively money is debt. Governments, he observed, have an interest in controlling money, which is why they have always disapproved of alternative currencies. Yet in the past, private corporations issued tokens that were widely used for currency, and today the internet is spawning virtual currencies that have a real value – ie they are negotiable instruments.

So money of the future – be it cowrie shells, local exchange trading systems or Linden Dollars – is increasingly likely to be beyond the control of governments. But governments always strike back. It is fast becoming affordable for them to insert electronic tags into bank notes, which will enable them to cancel your cash of they think you’re a money launderer or tax evader!

He delights in throwing out provocative sound bites. To an audience of bankers for example, “we don’t need bankers, we need banking”, and “money is a gigantic confidence trick, but don’t tell that to the ignorant”!

To give you an idea of his style, here is a quotation from a talk he gave in 2006 at the London Stock Exchange:

The state is the beast, and its number is 666, the symbol of everything evil. Society will be turned into a Panopticon prison, where the Revenue can, not only calculate every tax bill, but also seize payment. “The complete delivery of the individual to the tyranny of the state, the final suppression of all means of escape not merely for the rich, but for everybody”?

Then we can expect ‘differential rights’ for ‘differentiated citizens’, identified in a data-base and policed by smart ID cards. Party members, will use the card to gorge on benefits – euphemistically called entitlements, while opponents, trapped by their Ahnenpass, are harassed, suppressed, and worse. How long before ‘Human Rights’ becomes as outdated as the “Divine Right of Kings’?

Rome used the threat of the Visigoths to extort penal taxes from its citizens. Today terrorism and organized crime are the equivalent justification. If parliament defines terrorism as ‘a threat to the financial viability of the state’, then tax collectors will have the right to sweat a suspected tax evader for 28 days without charge. You have been warned.

The US government may claim it is chasing narco-dollars, but it is using money-laundering laws to track down tax-flight dollars in Switzerland and Grand Cayman. Every global corporation is now at the regulatory sharp end of US extraterritorial muscle. Failure to comply will lead to the seizure of their dollar assets. Compliance with the demands of government: both in US and UK! That’s the next big issue for business; Sarbanes Oxley was just the start. Forget about computer hackers; government regulations are the ultimate denial of service attack on the corporate sector. It’s going to find itself knee-deep in compliance officers.

Dark words spoken in an age of innocence two years before the 2008 financial crisis….

That evening Arindon hosted a dinner at which Ian Angell spoke again. This time he moved beyond money and the rich and had some interesting things to say on other subjects. Intellectual property law is a nonsense, he said, because it encourages an all-or-nothing approach. Either you steal other people’s images, content and ideas, or you pay a fortune for them. He was once quoted a fee of $750 for using a 30 second clip of and Ella Fitzgerald song at a talk because the copyright conditions did not distinguish between a person wanting to use a piece of property for a one-off gathering and someone wanting to use it for a movie that might be watched by a few million people.

So you have a world in which intellectual property is protected to the hilt in the major Western jurisdictions such as the US and Europe, and third world countries pirate away with impunity to their heart’s content – fake Rolexes, illegally copied DVDs and images of David Beckham on cheap teeshirts.

In China, the prevailing view is “we won’t pay”. And they don’t. Instead they brazenly steal ideas and technology wherever they can find them. Little wonder that they descended on Abbotabad to bargain with the Pakistanis for a little piece of the stealth helicopter that went down in the Bin Laden raid.

Angell points out that in many cases cracking down on piracy can be counter-productive. If you deny people the right to use an image, you lose the opportunity to increase awareness of the very product you might be wanting to promote. And if you are a film maker concerned that free copies of your work are being illegally downloaded, then you should remember previous disruptions to intellectual property such as the videotape, which viewers could use to record TV programmes at no cost.

His advice to the entertainment industry is to find other ways to make money from the content – through product placement, for example.

In the area of intellectual property he is not just an observer. As chairman of the Creative Commons organisation in the UK, he works to bring about sensible copyright rules for the use of content in such a way as not to discourage innovation. In an era when scientists are queuing up to patent human cells, that’s no bad thing.

In answer to a question on the future of mobile phones, he suggested that in the future most banking transactions are likely to be through mobile devices, and that phone companies might end up becoming the new banks. An intriguing thought. They couldn’t be any worse than the ones we have right now, and they certainly beat them hands down when it comes to customer service.

Politically, the good professor describes himself as a conservative, in case you had any doubts on that front. More of a libertarian, I would say. His talk was full of references to wishy-washy liberals. He clearly has no time for bleeding hearts. The world he describes seems ruthless, self-centred, dog-eat-dog. In some respects he is the Tea Party on steroids, but he has more intelligence than a stadium full of Palins and Bachmanns.

And yet the man who painted this bleak picture of decline and degradation is warm, engaging and funny. He spoke for an hour in the conference, and for two hours over dinner. His record for non-stop speaking, he said, was over seven hours. I would wager that he kept those people more engaged than Fidel Castro, also noted for his staying power.

Whatever you think of his views (here’s an interesting interview in which he talks about science), he is not a buffoon. He has consulted with a large number of companies and governments during his long career, and his published works have won widespread respect.
I disagree with him on many things. I can’t buy into his politics, and I’m not sure that turning countries like Bahrain and Malta into havens for flinty-eyed robber barons and a slew of Russian oligarchs would bring much benefit to their new hosts. The prospect of yet more Apple products adorning my favourite movies is a grim one. And would I trust my money with Vodafone? I don’t think so.

I suspect that Angell’s tongue occasionally strays into his cheek. Serious as his views are, he never misses an opportunity to take a far-out position if he thinks it will lead to a reaction. And that’s a pretty good formula for a career in public speaking. I guarantee that most of his audience won’t forget this turbulent academic in a hurry.

The world needs more Angells.

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