Tel. +44 (0)20 7287 4414
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The Bruges Group spearheaded the intellectual battle to win a vote to leave the European Union and, above all, against the emergence of a centralised EU state.
The Bruges Group spearheaded the intellectual battle to win a vote to leave the European Union and, above all, against the emergence of a centralised EU state.

Bruges Group Blog

Spearheading the intellectual battle against the EU. And for new thinking in international affairs.

Keynesian Inspired Nightmare

businesswoman-617134_128_20240629-171625_1 We are all Waiting

Some years ago, at a Cambridge University event, I talked to a young lady PhD student. She explained that she was hoping for a career in HMRC or the Treasury. To boost her opportunity she was preparing her thesis on the subject 'Flat tax inefficiency and economic damage'. It was a social event and I did not engage her starry eyed subservience to orthodoxy.

Much of my business career has been abroad. Belgium, Germany and Luxembourg, Nigeria, Kazakhstan and Ukraine. The real eye opener in terms of economic orthodoxy was the Central Asian country of Kyrgyzstan. In the late 1990s it seemed to have a wonderful future. The few western businessmen were invited to events hosted by World Bank, IFS, IMF, EBRD, ADP, OECD, UNDP. There were consultants, of course, and aid money that had negative results which I wrote about. That was bad enough and simply confirmed what I'd observed in Africa. An increase in consultants and aid agencies leads to a decline in civil liberty and community values. The countries elite are empowered and get rich on aid. It is they and those who depend on working for aid and grant distributing agencies who benefit.

The attitude of the economic advisors added to the problem. Along with others I attended a meeting called by the IMF to discuss proposed economic legislation for the post USSR state. The head of station was a young man who had probably graduated from a US university a few years before. It was soon apparent that he had never worked in industry or commerce. He had no understanding of the conditions companies and individuals faced working in the country.

Like all the ex USSR countries, corruption was endemic in Kyrgyzstan. The question that evening was a tax code. Those of us running businesses said it should be simple. A flat tax that could be explained to individuals in a paragraph and for businesses in two or three. Quite simply, corruption exists when rules are complicated. When rules are clear and simple the tax authorities cannot demand bribes to waive them. Our suggestion was dismissed out of hand. It was necessary, the IMF man told us, to build a modern country and that meant modern laws and legislation.

The result was a tax code written by those who knew what they had to write to get paid by the supranational sponsor. They were happy, the International agencies were happy so too were corrupt officials. Compounding the problem they also introduced VAT, an even easier and potentially more lucrative route for corrupt officials to enrich themselves. Many businesses closed and left the country. From those early days of a bright democratic future the country is now little more than a Mafia state where business people surrender their shares or go to jail. All courtesy of western aid and World Bank/IMF Orthodoxy.

The damage inflicted by the supranational economic consensus is easy to see in the case of a small Asian country. It is all pervasive and just as debilitating elsewhere. Flat tax regimes work. The one introduced by the British administration in Hong Kong is an example. Singapore has a hybrid version that has seen that tiny country outperform its larger neighbours.

The world's economic oligarchy hate flat tax, hate fiscal simplification. It does not matter that low tax and simplification have consistently proven to be efficient. To have produced real growth and higher tax takes for less actual burden. Thatcher and Reagan proved the point, but both their legacies were subsequently trashed.

When Liz Truss tried to return to Thatcherism, the oligarchy, represented in the U K by the Bank of England, moved to bring her down. Their actions, not those of Truss, cost the country money. Damage cheerfully accepted and supported by those who view responsible fiscal policy leading to real growth and wellbeing as heresy.

It seems perverse that a cadre of economists refuse to behave in a way that would benefit those who pay their wages. The reason they and their supporting cast of Politicians, Civil Servants, Government Employees and their private contractors resist is actually simple. The unintended (perhaps) consequence of the Keynesian doctrine of government intervention and creating debt has been to create a new dependent layer within society.

The livelihoods of millions of state and supranational employees depends on low wage, high tax and spend economies. Efficiency along Singapore lines is an existential threat. The volumes of tax rules that bedevil the UK are a necessary comfort blanket protecting them. The Treasury mantra that squeezing stones produces blood is vital for their well being. The criticism of Conservative economic plans is exceeded only by the near hysteria reserved for those of Reform. Their plan includes a five percent reduction in government spending. A modest target but terrifying for state employees.

When we returned to England in 2002 my first job was running a manufacturing company in east London. Absenteeism and larking about instead of working were common as were other more serious issues. I could have spent money on lawyers, H R specialist and consultants. Instead I did what any normal business man would have done. I forbade any staff hiring or leave permission without my authority. I reformed the bonus system. It had been used by middle managers to reward 'friends'. I made it simple and fair to all, dependent on attendance and productivity. I also instituted a system of job switching, so that employees could try a different job to see if they had aptitude and would prefer it. Then I waited. Within a month there was a request to employ a replacement for someone who had left. I refused. It was obvious that many of the problems stemmed from overstaffing. I continued this and consented only when a specialist was needed. It took almost a year, but I reduced the work force by twenty percent and increased productivity by fifteen percent. Employees were busy, knew they would be properly rewarded and had a way to improve their position if they wished. It is not difficult and does not need commissions of enquiry.

It is obvious to all who do not depend on the world economic consensus that the 'experts' have failed. The economy is not growing, people are not progressing and despite vast sums the NHS is failing. Those without 'skin in the game' know the answer is radical reform, a drastic reduction in state employees and a reduction in tax to empower and motivate people. Truss believed this, but depended on the establishment which stabbed her in the back rather than forego their privileges. It will require a new force, not beholden to the consensus to sort this out. Let us hope that new force rises quickly. We need a government with the courage to take action against the vested interests that hold us back. If, on Thursday, a Labour government is elected it will be because Conservatives have failed to take the bold action needed. Indeed this election is extraordinary for the fact that neither of the two main parties inspire faith or trust.

We find ourselves in a desperate situation. A Labour government will increase state dependency because dependents can be expected to vote for more. But we can take heart from history. In 1945 Clement Attlee led the Labour party to a landslide victory. Their 145 seat majority empowered them to implement their Manifesto. It was as near to communism as one could get without abolishing democracy. Fortunately, that was a step too far even for the red fire brands. In the 1950 General Election Labour's majority fell to five seats. The turnout in 1945 had been 72.8%, in 1950 it rose by 11% to 83.9%. In 1951 the Conservatives came to power with a majority of 17 seats. Labour were out of power for thirteen years. The failure of the new government was that it left much of Labour's radical changes untouched. Indeed it was not until Margaret Thatcher that any real attempt was made to role back socialism. The same criticism can be laid at Cameron's door when he finally had the chanced, post Blair - Brown, offered by a conservative majority.

If Labour is elected they will not be in power for ever. Although difficult, it will be the duty of the next non socialist government to prove Otto von Bismark wrong. He stated "What we learn from history is that no one learns from history". Failure next time will really land us in a doom-loop of destruction. A doom-loop from which there might be no escape.

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