Thesis Number: #2 (Page 4 of 8)

Corporate Cheating

How cheating affects the destinies of nations is illustrated by Paul Collier, a professor of economics at the University of Oxford. Rent-seeking, he notes, is the technical term “for ways, including violence, to acquire ownership. Basic economics predicts that the value of natural assets, which technically are unearned ‘rents’, will be matched by the efforts to ‘seek’ those rents” (Collier 2010:18). He cites two examples.

• The government of gold-rich Mongolia was informed by a mining company that, because of the high investment costs of extraction, the investors needed a tax holiday of eight years. This was granted. The company exhausted the gold seam in seven years.

• Chile went for years without receiving a single cent in rents from its copper mines. The mining corporations declared large revenues which they offset with large expenses.

But why blame the corporations? They are free to capture resource rents because sovereign governments are derelict in their duty of care towards their people and their common wealth. Botswana forestalled a rip-off, but only thanks to the 11th hour intervention of a lawyer. Just in time, he realised that the government was about to lose a large part of its diamond rents under the terms of a contract that favoured the mining company (Harrison 2008).

The systemic scale of the rent rip-off is illuminated by policies powerfully advocated by the European Union.

Structural funds These tax-funded transfers are supposed to endow marginalised communities with infrastructure (like highways) that alleviate poverty. But through the cut-and-thrust of competition, the net benefits are captured by land owners (or those who are able to intercede in the political process to pocket the financial transfers). Most of the cases of political corruption in the EU “South” – Greece, Italy, Spain, Ireland – can be traced back to deals in land.

Agricultural subsidies About 40% of the EU budget go to the farm sector. Intention: raise living standards of farmers. Most of the money does not end up in wages. In the UK, for example, the average salary of a full-time hill farmer is £12,600 – half the national average income. Meanwhile, the price of farmland has risen to record heights. Land owners capture the subsidies transferred from taxpayers. To conceal the financial reality, major beneficiaries, like the Prince of Wales, use tenant farmers as sob stories to jack up the subsidies even further (Box 1).