Davos

Davos

“Motto:  Committed to improving the state of the world.”

By J.M. Hamilton (1-15-2017)

Happy New Year!

It’s that time of year again.  Time for the elites of banking, multinationals, & the billionaire class to all come together at Davos, Switzerland, for its annual World Economic Forum confab.  This is where the globalist, Robber Barons, Ayn Rand devotees – and assorted hanger-ons & wannabees – come to offer up self-congratulatory praise, sound assurances, and more praise for the economic system they have developed around the globe, crony capitalism.  

Why it's a regular Superpredator's Ball.

One senses that this year the neoliberal fanfare, that is Davos, may be a little different.  Perhaps the elite haven’t been so shrewd after all?

A populist backlash - against laissez faire economics, multinationals, the international banking cartel, and the Western governments the billionaire class own and operate for their sole benefit – has grown beyond festering, but has metastasized into open revolt.

Seems that the billionaires have created a system that rewards: rent seekers; monopolist; crony capitalist; looters of countries & their economies, who then swoop in and buy private and public assets at fire sale prices; and assorted financial engineering practitioners.  This is as opposed to the global elite’s professed values (the standards they want everyone else to live by) of: innovation; industry & efficiency; competitiveness; entrepreneurial spirit; and recognition of capitalism’s moral supremacy, as the primary economic engine for the world’s economy.

To use a colloquial phrase: The chickens appear to be coming home to roost, at Davos 2017. 

To be sure, the multinationals & banksters not only own Western governments, but they play nation states off one another in a race to the bottom.  In short, many of the globe’s citizens are waking up to the fact that their true masters are not the democratic governments, they thought they elected, but rather, the billionaires & multinationals, who own the political parties, the vetting process, and the politicians.  If a local or national government dares get out of line, said plutocrat merely goes global, seeking to arbitrage: labor, rules & regulations, taxes, and free government lucre. 

Hell, why earn money the old fashioned way, when governments will give it to plutocrats for free?  The aforementioned arbitrage is also referred to as free trade.

And therein lies the problem.  Multinationals & billionaires have one overriding goal, stockholder and their personal enrichment (not necessarily in that order).  Having gone global in that pursuit - there is no planetary governmental authority to hold these behemoths in check.  And given that governments are easily corrupted by humans, who in their right mind would want to surrender national sovereignty to an international body? 

For further clarification see the European Union, and the European Central Bank.

Hence, the populist avalanche that is beginning to crash down upon the Davos’ playground, and is killing the plutocracy’s buzz.

Perhaps the most illustrative company, w/in the present world order, is Apple or Apple Inc.  Apple manufactures very fine products, possesses the world's largest market cap, and I’d be a liar & a hypocrite if I did not acknowledge up front my use of these products.   There are far worse multinationals out there, but the fact that Apple is held in such high regard by many acolytes & fans, makes the following example all the more revealing.

Apple is a notorious tax dodger, and uses legal loopholes in Europe & the US to avoid taxation.  As noted in a recent Bloomberg piece: 

In one of the more notable examples that’s drawn particular scrutiny, companies will book a disproportionate amount of revenue as “offshore” by claiming the underlying technologies are owned by their Irish units—even if the intellectual property originated in the U.S.

JMH has written extensively about how corporations, like Apple, leave a heavier tax burden on what remains of the American middle class, who cannot dodge taxes.  And what Americans cannot fund through taxation is a paid for with an ever growing debt & debt service load, and the diminution of government services.   In fact, the debt and debt service load has grown so large, that the Federal Reserve has engaged in all sorts of machinations – not the least of which is interest rate suppression and debt monetization, arguably both at the expense of the American public – so that Apple and other US multinationals can continue to avoid taxation.

Even in Europe, the E.U. recently called out Apple for its special tax arrangement with the Irish government: 

The company (Apple) is already in hot water with the European Union. Regulators ordered Apple to pay $14.5 billion in back taxes in August after concluding it paid an effective tax rate of 0.005 percent in 2014 because of preferential Irish treatment. Last week, Apple called the EU decision “seriously flawed.”

Adding insult to egregious behavior, Apple’s and other multinational’s “offshore earnings” really aren’t sitting offshore after all, but rather, are located w/in Wall Street banks in Manhattan, earning interest income courtesy of the U.S. Treasury and the American taxpayer. 

Dodging taxes is one thing, but instead of employing Americans and expanding the US tax base, Apple exploits Chinese labor, outsourced to a notorious company called Foxconn.  Foxconn, a Taiwanese company, and the largest private employer in China, is known for highly abusive labor practices.  Let’s let Forbes take it from here:

These deaths once again shine a light on Foxconn's harsh working conditions, in which poor factory workers are paid measly wages and forced to work overtime -- sometimes 14 hours a day, seven days a week -- to build Apple products that are then sold at high prices to consumers (like I've written before, the bargain value of Xiaomis and OnePluses makes it very hard to justify paying US$800 plus for Apple or Samsung phones).

Working conditions are so poor at Foxconn facilities that suicides and unexplained worker deaths are not uncommon.  Apple could never get away with these labor practices in the U.S., so Foxconn provides a convenient barrier between Apple’s squeaky clean image, and poorly paid/ill abused Chinese labor.

Sadly, a study done by an economist a few years back, and published in VOXEU.org, showed that Apple’s profit margins are extraordinary, due in part to Chinese labor exploitation (Apple’s profit margins are also a testament to how well their products are engineered, and to the inelasticity of demand for same); this same write up also pointed out that Apple assembly line jobs could return to the U.S. with little diminishment to Apple’s profits or bottom line.  My guess is that Apple's profit margins have only grown.

Due to lack of time, it is important that we bring up one more salient point about Apple and multinational behavior: Apple, and others, are in bed with - and do business with - some of the most repugnant/totalitarian/authoritarian regimes on the planet. 

China’s human rights record is abysmal, democracy is nonexistent, and China crushes free speech and communications from the outside world, daily.  On the heals of the NY Times writing a piece on how Apple, via Foxconn, receives billions in Chinese state aid, the NY Times app was pulled in China.

Both Salon and the NY Times, unless I missed something, assumed China’s government was behind Apple being forced to remove the NY Times app from their China app store.  But another thought crossed my mind…. Apple was not exactly portrayed in a favorable light in the NY Times story either.  Could have Apple approached their partner, The People’s Republic of China, and asked the government to order Apple to remove the NY Times app from their China app store (in an act of retaliation against the Times)?

Mr. Cook & Apple have become high-handed in recent years: in their dealings with the E.U. – and the United States – in regards Apple’s tax avoidance; in the exploitation of the developing world’s labor force, at the expense of the American workforce & the U.S. tax base; and in toadying up to one of the nastiest dictatorships on the planet, Communist China.

As such, Apple is not exceptional.  It’s just another member in the soulless pantheon of multinationals, who know no allegiance to anyone but to themselves.  Apple’s business practices are very much in sync w/ private equity, hedge funds, the very same business practices advocated by McKinsey, and the free trade practices lobbied for by the U.S. Chamber of Commerce.  That is to say, Apple’s business practices are employed by the Davos elite, daily.

Put another way, free trade, arbitrage, and crony capitalism advocated by the Davos elite - w/ a myopic view limited to the next quarter’s financial statements - has led to a growing populist revolt in many Western democracies.  Which raises the question: if billionaires and multinationals are running the planet, could CEOs and corporations - ultimately - be held accountable for crimes against humanity?  

If the almighty multinationals, and the billionaire class, want this degree of control over Western governments, and the lives of the 99%, they are going to have to begin to advocate and push for the very people that, up until now, have been an afterthought, if not outright collateral damage.

Ironically, the motto of the World Economic Forum is, “Committed to improving the state of the world.”   The Davos elite have a long ways to go before they can even come close to achieving their stated aim.  In fact, presently, the elite and billionaire class have only improved upon their own lot in life.

The Davos elite like to say that free trade has made products and services inexpensive and ubiquitous; but that’s hardly true given the number of cartels and monopolies that dominate Western economies, and the human misery surrounding a great deal of the emerging market's, and first world's, labor force.  

Moreover, when one is unemployed, one cannot dine upon iPhones - manufactured within China’s slave labor colonies.

P.S.  China is in deep.  They have a debt to GDP ratio, including the private sector (remember China’s private sector often consists of state owned enterprises), that is out of control.  They suffer massive capital outflows.  The per capita income of the average Chinese worker is less than $13,000.  China has failed to create a consumer economy, because to do so would require a state funded social safety next, and social services, such as Social Security and Medicare equivalents.  Instead, the Communist Party kills off its citizens/workers with heavily contaminated air, from coal burning power plants, and by the Sino government being one of the largest tobacco purveyors on the planet.

If Mr. Trump, and some European business/government leaders, are successful in bringing back a substantial number of jobs to the U.S. and Europe (or raise taxes/tariffs on China’s manufacturing exports), the affect and social upheaval w/in China could be very real.  Wars have been started for a lot less. 

Copyright JM Hamilton Publishing 2017