Science and its Influence: Communication and the Proper Responsibility of Governments

Introduction

[This is also posted at http://desgriffin.com/2016/12/science-and-its-influence/]

Many scientists see the ongoing failure of governments to support science and the recommendations of scientific research as a near inevitable outcome of scientists' failure to communicate effectively, to promote the important significance of science.

The failures of government to adopt the science agenda is not due solely to poor communication. Governments fail to address the findings of high quality research in many areas including health, education, public transport, urban planning. Governments are mostly persuaded by their own ideological agenda and the lobbying of sectional interest groups and their funders. Politicians gain support for their policies from many in the community who privilege their own preconceived views and experience over analysis of available evidence.

Many western governments approaches to public policy are based in neoclassical economic beliefs which regards private enterprise as significant, small government as highly important, as more efficient than government and high taxes as inimical to personal freedom and business success. They are loath to address issues such as inequality, government funded health and education and see the private sector as having a major role in infrastructure development and in carrying out functions once considered part of government’s remit. Business practice is considered to be very valuable. That is hardly a view based on performance? Thus many of the conclusions from scientific research, if adopted, would undermine the agenda and interests of business groups, an agenda. Others are marginalised or opposed through embracing of fundamentalist beliefs.

The ultimate course of public policy is determined by politics and alliance formation, by narratives which address the beliefs of those in power.  Logic and rationality are not central. Therefore support for a stronger role by scientific bodies and by allies is needed. The strong promotion of the achievements and significant public benefits deriving from science must continue at the same time. Above all advancement of any enterprise from small informal group to major corporation and government is significantly influenced by cohesive leadership with a clearly articulated and defensible policy. In many countries that is lacking.

For their part, government ministers need to recognise that they have a greater responsibility than mere satisfaction of their own narrow political agenda. Where governments ignore the considered findings of science the future of the community is at risk. For instance, it is not possible to claim a secure and prosperous future and at the same time continue with burning of fossil fuels unless one dismisses the majority conclusions of scientists engaged in the relevant science and the many other scientists.

There are too many examples of past errors today in respect of climate change, public health, education, infrastructure development and economics. The notion that small government and economic growth will solve everything has to be discarded.

A stronger role for science is essential and governments have to ensure that role is addressed. In the absence of perceived economic gain, usually over the short-term, the private sector will not.

Numerous programs on radio, tv and many publications focus on science. Those opposing the proposition that human agency was the main contributor to carbon emissions and climate change for instance simply didn’t listen, watch or read such material. Even a cursory glance through readers’ responses to articles and programs about subjects ranging from health to education and the arts is sufficient to show that many people consider their own already held views to be a better guide to ‘truth’ than the views of ‘experts’.

There are some who consider the views of experts to be no longer relevant and even that universities are not either. Many such people regard the benefits of education to flow principally to the individual and therefore appropriately charged to the individual rather than the citizenry through government taxes. Similar views pervade the policies of many governments concerning health and social welfare.

Continue to essay below 

[Also posted at The problem is that scientists are poor communicators. Really?]

A related background document addresses some issues relevant to the main theme of this essay as they concern government policy, especially in Australia.

I nearly forgot: one of the main reasons for the disregard of science is that so much of the discussion, especially within academe, is simply an argument amongst the advocates for different branches of science in order to gain more funding or more graduate students or just more. Just like everywhere else.

And the other important point is that many charged with leadership of the scientific enterprise are not sufficiently aware of the characteristics of the most successful scientific enterprises and the features of leadership there. Why was the Cassini-Huygens mission to Saturn and its moons successful? And the Rosetta and Philae mission to the comet 67P. The discovery of Higgs Boson? Gravity waves?

What are the successful scientific laboratories - in terms of Nobel Prizes - and what goes on there?

Australia's CSIRO continues to make very important contributions in many fields, despite ongoing reorganisations of doubtful utility and ongoing reductions in funding. Why is that?

Last, what has corporatisation and "monetisation" - the requirement that CSIRO devote its research to areas of significant economic development - contributed to success?

What are the key features of science leadership? Some other essays on this site deal with some of these issues. Robyn Williams on the Science Show has on several occasions dealt with these very issues!

The role of government seems often to be overlooked. This is a point taken up by Professor Robert Hill, Executive Dean, Faculty of Sciences at the University of Adelaide on the ABC RN Science Show for 3 December 2016. He says this, "“Until Australian politicians understand and properly promote the exceptional quality of our best scientists and the obvious relevance of careers in science, we will continue to underachieve as a nation. University science faculties should also take their share of the responsibility for failing to demonstrate the wide variety of career choices available to graduates.”

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The problem is that scientists are poor communicators. Really?

I was at a conference the other day where some very clever people were talking about complex systems affecting society. The question could have been ‘what conclusions can we validly draw from this wealth of data?’

But what ended up being discussed was why weren’t scientists being listened to by governments and the public. Well to the extent many thought they should. The answer given, not unexpectedly, was that scientists are poor communicators and if they want to be listened to they needed to do a better job of communicating effectively to those whom they wanted to influence.

I am reminded of one of my favourite cartoons, obliquely perhaps. Scientists are attending an Astrophysics convention. As a bearded delegate leaves the meeting, the speaker, also bearded and wearing glasses (and dressed in a striped suit), pronounces, “The Sun should continue to burn for another 5 billion years – assuming the government doesn’t get involved.”

There is a view that to the extent that scientific research is not supported, scientists have not made a good enough case and that if it is that important then the private sector would be pursuing it. Such a view ignores the more short-term focus of business and the much longer time horizons which government should address on behalf of the governed.

It has to be said that simply blaming government, or saying that addressing the problems is up to others, is about as useful as shouting at the summer flies that bother us as we walk along the beach. On the other hand too many are prepared to go along with the accusation of inadequacy, instead of promoting the tremendous achievements of the scientific enterprise. None of this is new. Science policy and Government scientific advisors and chief scientists were supposed to advance the science agenda. It has not been enough.

It is by no means uncommon for problems to be blamed on those who complain they are not getting the results they want. The others, in this case the blamed, don’t really have to do very much: after all they would listen if it made sense wouldn’t they. And they have a lot of important things to do. At least that’s what politicians say.

Effective Communication

Communication is a two way process and a two way responsibility. When you talk to me, I have to make the effort to translate what you are saying into the frames of reference by which I interpret the world and the meaning of everything. I don’t necessarily hear exactly what you are saying, I hear what I think you are saying. How I interpret the world is strongly influenced by how I grew up and what my friends think and what kind of person I think I am. As James March, distinguished Stanford University Professor of Sociology and collaborator with Nobel prizewinner Herbert Simon in the study of organisations, puts it in his paper on Choice Theory[1], we ask what kind of situation is this, what would a person like me do in a situation like this and we do it.

There is a problem with the proposition. If the reason governments don’t take on board the recommendations of scientists is that scientists’ communication skills are poor we should expect to find that in other areas of public policy commonly held views are being acted on. Unless we are all poor communicators.

So is the proposition correct? No, it isn’t. Not entirely anyway. The conclusions of careful research and thinking in education, health, urban planning, housing, indigenous issues, even many aspects of economics aren’t adopted seriously either. The same for agriculture. And more. We can conclude the alternative proposition is valid the communications don’t matter: the recipients – the politicians (and the media) - already have their agenda and our views are not relevant. This is addressed in the related background essay]

Governments are attending to those who deluge them with propaganda, who have persuaded them to an agenda based on their political philosophy. Special interest groups representing sectional interests hire huge numbers of lobbyists and donate vast sums of money to support political parties and politicians in the expectation they will advance their own narrow causes. If necessary to the exclusion of others.

We should note this: in his Andrew Olle Memorial lecture in November 2012, distinguished journalist Mark Colvin referred to a story by Sally Jackson in The Australian showing figures which strongly indicated that the number of public relations professionals in Australia would match the number of working journalists by the end of the that year. Those people have one goal: increasing the credibility and influence of their clients to the exclusion of any contrary influences.

There is a real problem. Many of the conclusions of science, translated to government policy, threaten the agendas of many politicians and their supporters. For the media, the ongoing financial crisis in print media driven by the rise of social media such as Facebook, combined with the move to algorithm- driven news aggregation, not to mention “fake news”, only serves to amplify the already sceptical view of editors that science is too hard for the reader and not of primary interest. It takes too long for harried reporters to do justice to the story. That doesn’t justify uncritical acceptance of the media releases, common in some quarters.

There are unfortunately those in the media who still maintain that their primary offering is entertainment: wrong! And the same media can produce first class science programs in some of its programs but fail to check out the science when it comes to reporting ‘news’.

And there are many in the scientific community, and the STEM community more widely, who consider lobbying government to be a descent into propaganda, and somehow “unclean”.

Education and the Common Understanding

Despite all the considerable gains to society generally in every area of life, gains which mean longer life, greater opportunity and so on for almost infinitely more people than ever, a very substantial number of people have no interest in science, not least because they have become convinced by personal experience or reputation that it is all too difficult. In some cases that leads to rejection. They don’t have to understand it all to benefit from it, do they?

It is fair to say that in the past the teaching of science has often not resonated with students, unless they are already fascinated by it. It has often been a recitation of facts, disembodied from the human struggles by scientists as ordinary humans who just happen to have particular gifts and skills, a process which ignores the conflicts and the triumphs inherent in the enterprise, a process which to those who take the time, as in music or the arts or any other area of knowledge, can generate wonder and amazement and great pleasure.

It would be wrong to consider that the more than unfortunate situation is not being addressed but it would not be wrong to view the changing of that approach within schools to be unreasonably slow. There is plenty of first class research showing that engagement of students through ‘argumentation’, the active participation in discovery and discussion of it, produces significant gains. And there are some wonderful successes. Partnering with scientists boosts school students’ and teachers’ confidence in science. Failures in learning are not confined to science but are found in mathematics and history to mention but two. Such failures cannot simply be dismissed. 

None of that excuses politicians and others whose activities significantly involve science in maintaining that they need not exercise their proper responsibility to inform themselves. Once upon a time some politicians would make a special effort to inform themselves about such disciplines as economics after they left school: not anymore, well almost not.

It is not as if it is difficult: the numbers of books, films, tv and radio programs and magazines dealing with science generally and with specific disciplines is immense and of very high quality!

The Media’s Role & Distortions of Public Policy

The media plays an extraordinarily important role in informing the public and even determining the agenda: when it is all trivialised the consequences are severe. Deaths and starvation, armed conflict and natural disasters, the personal lives of those we respect and hate, are not entertainment. To treat them as such is irresponsible: programs like Media Watch and FactCheck try to ensure they are not. As do respected programs like the ABC Science Show, many other programs on public media such as the BBC and PBS and many reporters, some of whom put their lives on the line. But unfortunately, too much of the media functions, in situations of controversy as no more than a mouthpiece for those in power, even in democracies.

Public Policy Appropriated – Foreign Policy, Health and Education

There are a large number of instances, well documented, where actions taken by government were not in fact supported by the evidence and did not achieve what their advocates said would be achieved. And did not serve the interests of anyone but themselves and poorly at that.

The latest well known example in the international field is the decision by US President George W Bush to invade Iraq, action which British Prime Minister Tony Blair agreed to join as did Australian Prime Minister John Howard. The justification was that Iraq’s President Saddam Hussein had, and planned to deploy, weapons of mass destruction, even access to nuclear material. Large numbers of Iraqi citizens wanted Hussein’s removal and it was said would welcome the invaders with garlands. It was all nonsense and a hideous mistake. Almost a dozen inquiries have demonstrated that conclusively! Poor communication? Bush, Blair and Howard all denied they acted without due care and attention to the evidence. They lied.

Now consider the important policy areas like health and education. And economics. In all three cases the policies of government mostly ignore the best available evidence and bypass the intelligent debate, preferring instead populist approaches which pander to general opinion based on not much more than gossip. Unfortunately the media may play an important role in this. Similarly, business may adopt all kinds of behaviours which belie the message they promote of being essential to a modern democracy and economic advancement, even prosperity. I discuss this in a related essay.

The Principal Issues for Science

So we return to science. The principal science issues before the governments of most countries include climate change and associated issues of energy production, biodiversity and related issues of land care and marine conservation including fishing. Medical advances are extremely significant. Genomics and related fields are ones of rapid development. Understanding brain development challenges everything emerging from the 1953 discovery of the structure of DNA.

Then a raft of issues of emerging technologies including disruptive technologies such as robotics and artificial intelligence. Fields such as astronomy and interplanetary exploration variously capture imagination and the related fields such as quantum mechanics and complex systems including ‘big data’ and cybersecurity are increasingly to the fore. Cybersecurity threatens activities from communication systems to weaponry including submarines and aircraft.

There have been major achievements in science, more every year. Where teams of scientists have been involved in large scale projects such as the Large Hadron Collider run by CERN, interplanetary exploration and studies of quantum physics achievements have been spectacular. Just two examples.

The first detection of gravitational waves by the Laser Interferometer Gravitational-Wave Observatory (LIGO) at two different sites in the US was announced in February 2016. The detection measured to 1/1000th of the radius of a proton the collision and coalescence which took place 1.3 billion years ago of two black holes, thirty-six and twenty-nine times the mass of our sun. That event occurred within a fraction of a second, with event horizons approximately ninety-three miles wide and produced a single black hole sixty-two times the mass of the sun.

A clinical trial held at Stanford University School of Medicine in mid-2016 injected modified human stem cells directly into the brains of several chronic stroke patients. The procedures were all successful with no negative effects described from the injection and only mild headaches as a result of the procedure, which was performed on mildly anesthetized patients. All 18 showed significant healing long after any healing is expected following a stroke (a period of six months). This included increased mobility and actually allowed for patients who were previously limited to wheelchairs to walk again freely.

An example of amazing advance of science is the exploration of the properties of graphene, one-atom thick carbon, technically an allotrope in the form of a two-dimensional, atomic scale, hexagonal lattice in which one atom forms each vertex. (Thank you Wikipedia)

These are indeed complex issues but all of them have huge implications for society. Which means governments must have an understanding of them and their possibilities and impacts on society and individuals. That surely leads to an appreciation of the importance of scientific research and understanding of the relative contribution of goal-directed or applied science and undirected or ‘pure’ research.

The evidence is that much of breakthrough science starts in government funded laboratories and not in private enterprise where the risk is too costly: business promotes the opposite view. That is notwithstanding that the majority of science expenditure occurs in the private sector. Recently though, in the US, there is evidence that science is becoming a private enterprise. Nevertheless, strong endorsement by government is important. Recall President Kennedy’s inauguration speech and the eventual expansion of interplanetary exploration including manned space flights and Barrack Obama’s championing of brain research. Scientific research remains strong in Europe: will it in the UK after Brexit?

Outside of some parts of the US, Europe and some other developed countries, governments are significantly less attuned than they should be. In Australia the support of science at every government level has been abysmal, with a few exceptions. Decades ago it was observed that it was unsurprising that there was no science policy: there was no economic policy! That remains the case today.

This is most obvious in the area of climate change, energy and biodiversity. Government ministers keep insisting that Australia is on target to achieve the reductions in carbon emissions agreed to at the Paris conference. The scientific evidence is that it is not! Is this due to poor communication? The answer is no. The volume of high quality literature concerning climate change is immense and the popular science communication of it is substantial, involving many economists. Supporters of the conclusions include some of the most outstanding minds alive today. Assertions that scientists are still disagreeing and that consensus is not science best practice is both right and wrong. Scientists agree which means it isn’t consensus: that would require some to accept the views even though they are unsure. They are sure.

Many politicians in various countries have made an effort to understand the science and the consequences. Many have not. Because they have allowed themselves to be persuaded to a different view, even that scientists advocating climate change as the major challenge of humanity at this time are simply pursuing self-interest. As if that is a behaviour not found in other areas of endeavour such as business and politics itself.

Scientific Research can threaten Government Agendas

The reason that science and the recommendations of science are not receiving the attention they deserve is in part because politically they are unpalatable, they threaten their world view, the policy positions of those who support them, in respect of climate change and energy futures, not least the business groups in energy production and related fields. It seems not relevant to some governments that coal and oil and gas exploration kill people, damage the environment, are heavily subsidised and could be easily replaced over time with little economic loss. All of which has been demonstrated time and again. Companies find it easier to keep their traditional business instead of adapt to the new business environment. They could after all redefine their business.

So far as politicians are concerned,  the ignorance mostly comes down to intellectual laziness. As persons responsible for the future of humanity they choose to let others decide for them. They abrogate their responsibilities. And they are not held to account. In a world where the word accountability is bandied about as if it is a cure all and the reason why the market works!

As to the media, much of the reason for less reportage than ought to occur can be traced to refusal by editors and proprietors to recognise that there is far greater interest and understanding among the general populace than is often claimed. The ABC TV Catalyst program gained, on average, an audience of half a million. Those determining media coverage are known to have similar biases about current affairs and are far too ready to portray political stories as if they were a sports contest, looking for winners rather than spelling out the content of the issues so understanding would be increased rather than prejudice reinforced.

Some fault does indeed lie with those communicating their science. Much of science is very complex and sometimes shrill voices are raised against those who try to explain it to those untrained in the discipline with accusations of over simplifying and dumbing down. Sometimes those who do lead in public understanding of science, people like Carl Sagan in the US, are isolated from the academy. That is entirely unhelpful.

But to see the complexity of science and assert poor communication of it as the reasons for it being ignored it is to put aside the vast amount of evidence and daily experience. That tells us we should be holding politicians to account for a great deal more than simply making pretty speeches in the parliament and promoting their often hollow triumphs.

And we should be demanding cohesive, focused leadership which articulates policies clearly based on evidence and which supports development of society and provides for each citizen to achieve their maximum potential, the philosophy of people such as economist Amartya Sen and many like him such as John Rawls. To brand that as socialism and reject it is simply narrow-minded.

To embrace narrow sectional interests that ignores issues of significant concern to others simply because they do not accord with the view which once were orthodox and excuse it as too complex is a recipe for conflict. The move from what has been democratic socialism or Keynesian economics to neoclassical economics and a conservative capitalism has had severe impacts on the less advantaged in the community. Addressing that is a responsibility for governments.

Governments have become more concerned about the impact of more activist sections of the community, such as groups concerned with the natural environment, urban development and so on, as well as others from the margins of society such as migrants and Indigenous peoples. Governments which promote themselves as a democratic nevertheless take various actions to minimise the impact, such as removing charity status, drastically reducing or eliminating government funding, extending this even to reducing the provision of legal aid for people seeking no more than the exercise of their rights as citizens in the face of organisations seeking to exploit them.

In the end these behaviours mean exposing the community to danger when it is the responsibility of government, a responsibility for which taxation is levied, to protect people. Governments may be prepared to spend vast sums on armaments and standing armies but do little to protect against disease, ignorance, discrimination and exploitation!

Achieving Influence means Political Action

As Hugh Mackay, writer and sociologist, says in his many books and talks, to achieve the good life means having a concern for others. He also says, on the basis of extensive research that the principal want of people generally is to be listened to. It is here that there is greatest challenge for politicians, those who say they intend to government for everyone but then favour a minority at the expense of the vast majority.

An important issue is for the scientific community to understand that what happens is a consequence of political action, alliance formation, pressure applied to those who make the decisions, to speak truth to power, as some would say. That is not intended to be patronising. It means convincing organisations which recognise and promote science to be visible. It also means forming alliances where necessary with more activist groups and others who subscribe to significant parts of the agenda. Environmental groups sometimes do this well.

It is not necessary to sacrifice integrity or the truth in order to form alliances but it is important to address the concerns of the potential allies. This is hardly rocket science. I am not advocating that individual scientists speak out on every issue they consider important in the name of the organisation for which they work. But through involvement with distinct organisations they can seek to have important issues brought to the fore.

The notion that scientists should not be involved in political action is naïve. At the same time there is every reason to study what groups in other disciplines and countries are doing and what they are achieving. It is unfortunately to recognise that sometimes those with most resources and energy prevail, at least in the short term. Yet there is hope: the campaigns for action on climate change, adoption of renewable energy, for limits to nuclear weapons, for conserving natural areas, all ones in which scientists have been active, have made gains. Important expensive research funded by governments in areas like quantum physics, astrophysics and interplanetary exploration, genomics and epigenetics continues.

Supporting effective communication of the important contribution that science makes is vital. Just as important is calling out for what they are, ie nonsense, such ridiculous assertions as many scientists simply seek government funding to help them become famous, so-called scientific facts are mere theories and the like! Pronouncements by people like former UK Education Secretary Michael Gove that we have had enough of experts are dangerous stupid rubbish. In this universities have a major responsibility: unfortunately their corporatisation in pursuit of the imposed requirement to generate their own funding has led to their unique goals being sacrificed

Preventing large scale political donations would help. So would greater transparency in Minister’s appointments and who are put on boards of government enterprises.

To accept the assertions of others just because it appeals to our preconceived views is irresponsible. At a personal level it doesn’t matter so much. At an official level people die.

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[1] "Theories of Choice and Making Decisions", Society November-December 1982, pp 29-39.

Jobs and Growth are being Undermined by Corporate Behaviour: the Great Tax Hoax

Introduction

[This is posted on http://desgriffin.com/2016/12/jobs-and-growth-the-great-tax-hoax/.]

The Coalition government in Australia and the policy of the incoming President of the US Donald Trump propose substantial decreases in corporate tax rates and assert this will stimulate growth and jobs.

However, consideration of past decreases in tax rates reveals the recent behaviour of corporations and their executives and boards as an increasing trend to devote retained earnings to share buy backs and dividend distribution. Thus additional revenue flowing from further tax breaks is likely to contribute to further enrichment of the already super rich including many at the helm of large corporations, especially in the financial sector. Few companies are paying the marginal tax rate and many are avoiding tax altogether.

The campaigns by business to downsize government, reduce wage growth, limit union influence and reduce regulation have been self-defeating. The behaviour of the super-rich is the principal driver of the significant increase in inequality over the last 40 or so years, especially the Global Financial Crisis. This has led to a stalling of demand. In Australia, substantial investment has been directed to property, now a vehicle for financial enrichment at the expense of those wishing to find somewhere to live.

It is vitally important to recall that rising prosperity benefiting the population generally does not depend simply on economic growth: unending growth is a concept believed in only by the naive and many economists. The United Nations Development Program Report for 2009, Real Wealth of Nations: Pathways to Human Development points out that improvements around the world in education and health have been due principally to cross border transfer of ideas: there is little if any correlation with economic growth! Growth in incomes is not unimportant but it is not the main reason for improved prosperity.

In other words we can learn a great deal from other countries and other domains: seeking out those lessons is vitally important. Most particularly the notion that for any individual country the growth of population is critical is nonsense. Indeed, countries where the birth rate has slowed are generally more prosperous and a significant influence on that is education of women.

Governments have a fundamentally critical role in both encouraging transfer of ideas, in the provision of education for women and in encouraging responsible and sustainable population policy. Many developed economies lack any coherent population policy.

In Australia weakening of institutions, increasing inequality, primitive approaches to debt, especially for infrastructure development and to deficit budgeting, ongoing downsizing of government along with poor investment in education, health and science and a lack of understanding of innovation and what drives it is putting Australia’s future at risk. Isolation from the ideas emerging in other countries is a major feature of public policy!

Related post:

Government Policy and the Economic Environment at the turn of the Year, December 2016: Health, Education and Corporations

A postscript to the associated essay [below] “Managerial Firms and Rentiers” notes the recently published book on Neoliberalism by George Monbiot  and also deals with the behaviour of banks and the involvement of US administration officials in failing to prosecute bank executives for their behaviour which led to the Global Financial Crisis.

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Managerial Firms and Rentiers: How Corporate Behaviour is driving Inequality

One of the main elements of the Federal Government’s economic “plan” is to reduce taxes on corporations. In the Midyear Economic Forecast (MYEFO) delivered mid-December 2016 Treasurer Scott Morrison argued again for the corporate tax rate to be cut to 25 per cent – from the present 30 per cent - saying more needs to be done to encourage businesses to invest and employ more Australians, in order to stimulate economic growth.

Though the Coalition argues that the change would boost GDP by more than 1 per cent in the long-term, the net benefit, according to Grattan Institute economists, would more likely be half that and not appear for many years. The measure, which would cost an estimated $50 billion over 10 years, needs the approval of the Senate where it likely will be blocked.

Labor Opposition Treasury spokesman Chris Bowen, pointing to the long lead time and small impact, has repeatedly opposed the Coalition plan: the ALP advocates a tax cut for companies earning no more than $50 million. (Senator Nick Xenophon favours tax reductions for firms earning up to $10 millions.)

Donald Trump, President-elect of the United States, has also promised to reduce corporate taxes. The proposals include cutting the corporate tax rate from thirty-five per cent to fifteen per cent and allowing firms to pay a rate of just ten per cent if they repatriate profits. On Forbes, recent commentary pointed out, “First, tax cuts would have to be enormous to have any macroeconomic effect on a $16-18 trillion economy… Second, even if enhanced growth were achieved, it would not be evenly distributed. US income taxes are progressive. Spending is not, so the system as a whole is not redistributive. And as the individual discussion shows, it would not put a lot more money in the hands of people with a high marginal propensity to consume.”

In December Prime Minister Turnbull expressed the hope that the decision by President-elect Trump to press ahead with corporate tax cuts would strengthen governments’ hand in achieving the proposed cuts in Australia.

This essay advances the proposition, based on significant economic literature, that tax cuts will not achieve the purposes which are promoted because of tax minimisation and profit alienation or even non-existent. A significant number of large companies are in fact using retained earnings to buy back shares and increase dividends so restricting funds for growth and diversification. Thus the fundamental driver of increased economic activity, increased demand, is not there, very much because ordinary wages have been held back.

The increase in profits flowing from tax breaks to major corporations might give another boost to the stock market but the money won’t be spent on capital spending and growth. It will be spent on share repurchases. It is a consequence of the relatively recent view that the principal purpose of the corporation is to increase the wealth of shareholders.

The proposition that corporate tax cuts will not end up stimulating the economy is not based on economic theory but on experience. High corporate taxes are not holding back investment, short-term strategies and weak demand are.

The weak demand is a consequence of polices adopted by government at the behest of corporations to keep a cap on wages growth. The top one percent of earners take home more than 20 percent of the income, and their share has more than doubled in the last thirty-five years, as so many including Nobel Prizewinner Joseph Stiglitz, have pointed out. The gains for people in the top 0.1 percent, meanwhile, have been even greater. Yet over that same period, average wages and household incomes in the US have risen only slightly, and a number of demographic groups (like men with only a high school education) have actually seen their average wages decline.

Productive Achievement and Tax Cuts for Business

In an incisive article on The New Yorker for 22 December 2016, long-time staff writer John Cassidy observes, “One reason the U.S. economy has grown relatively slowly over the past eight years is that corporations have been sitting on their cash rather than investing it in things like factories, offices, and new equipment—a failure widely attributed to depressed animal spirits.

“It is the sort of Randian analysis [a reference to Russian-American novelist and philosopher Ayn Rand who considered productive achievement the noblest activity of man] long favored by many people on Wall Street, and recently promoted by some of Trump’s closest economic advisers: if you want capitalism to work more effectively, offer greater rewards to the capitalists. Cut taxes, rein in regulation, and create an environment that incentivizes financial risk-taking. The free market … will do the rest.” Indeed the view is that Trump’s proposals would generate  “a tremendous movement, of capital and labor back to the United States, that’s in China and overseas.”

Cassidy quotes Ray Dalio, the founder and chief executive of American Investment Management firm Bridgewater Associates, “This new administration hates weak, unproductive, socialist people and policies, and it admires strong, can-do, profit makers. It wants to, and probably will, shift the environment from one that makes profit makers villains with limited power to one that makes them heroes with significant power.”

“Dalio claimed that the Trump era could be even more significant than the 1978-1982 shift to the right that saw Margaret Thatcher, Ronald Reagan, and Helmut Kohl elected—one of the big questions is whether the new policies being implemented will work. Dalio offered an upbeat prognosis. He argued that Trump’s proposals to slash corporate tax rates and give big businesses like Apple and Microsoft financial incentives to repatriate trillions of dollars in profits that they are holding abroad could “ignite animal spirits and attract productive capital” to the United States.”

Inequality, Shareholder Wealth and Corporate Power

Columbia University economist Jeffrey Sachs, in his 2012 book The Price of Civilisation reviewed by Ross Gittins, says the US economy is caught in a feedback loop: “'Corporate wealth translates into political power through campaign financing, corporate lobbying and the revolving door of jobs between government and industry; and political power translates into further wealth through tax cuts, deregulation and sweetheart contracts between government and industry. Wealth begets power, and power begets wealth.'' The military-industrial, Wall Street-Washington and Big Oil-transport-military complexes and the healthcare industry all play their part.

Gittins’ more recent commentary on bad behaviour of business, stemming from current economic orthodoxy and its obsession with demanding measures of performance – Key Performance Indicators (KPIs) - without any concern for methods or process, is just one of many criticisms. The faddish translation of imagined business practice to government agencies has led to the latter adopting KPIs as a central part of forward planning as if they are the core of strategy, which they are not!

A series of research papers and articles elucidate these issues. Governments have ignored the behaviour of corporations and failed to address the consequences of continual cutbacks in government and slow wages growth.

Professor J. B. Foster of the University of Oregon & M. D. Yates, both researchers on inequality, in a review ‘Piketty and the Crisis of Neoclassical Economics (Monthly Review October 2014) quote a recent paper by Economic Policy Institute economist Elise Gould which points out that between 1979 and 2013, productivity grew 64.9 percent, while hourly compensation of production and nonsupervisory workers, who comprise over 80 percent of the private-sector workforce, grew just 8.0 percent. Productivity thus grew eight times faster than typical worker compensation. Further, over roughly the same period, income and wealth levels, rather than converging, have diverged sharply—a divergence that cannot be attributed to differences in education and skill, nor to the contributions of capital relative to labor (as shown by Lawrence Mishel, “Education is Not the Cure for High Unemployment or for Income Inequality,” January 12, 2011 also quoted by Foster & Yates).

Ian McAuley, Centre for Policy Development Fellow, in a New Matilda article in August 2014, referred to the Australian economy as a Ponzi Scheme, one in which current income is diverted to paying earlier investors and not to new investment. He notes “As the profit reporting season runs its course, it is becoming clear that many companies have chosen to pay out high dividends, while keeping aside a smaller proportion of profits for re-investment. Of course it is quite legal for firms to pay high dividends and to make capital returns, but in many ways the results resemble those of Ponzi schemes. Higher dividends, higher share prices, and capital returns all favour corporate managers, who receive much of their pay in stocks or stock options. It’s not dissimilar to the early stages of a Ponzi scheme, where both the promoters and the investors do well.”

McAuley quotes the statement by then Reserve Bank Governor Glenn Stevens: “if reports are to believed, many businesses remain intent on sustaining a flow of dividends and returning capital to shareholders and are somewhat less focussed on implementing plans for growth”. Stevens was appearing before the House of Representatives Standing Committee on Economics. Giant telecommunications company Telstra was just one of the companies embarking on share buyback to inflate dividends.

Corporate Investment and Executive Risk: No Downside

In a review of changes in corporate investment strategy over the last four decades, J W Mason in ‘Disgorge the Cash’ (Roosevelt Institute, February 25, 2015) distinguishes the managerial firm as one in which managers make the major decisions on investment and stockholders are passive recipients of dividends and the rentier firm as one in which the stockholder are active and pursue management to increase the stock price and return higher dividends and the proceeds of stock buybacks. The thesis tested by Mason in his survey of the history of corporate governance is that up to the late 70s most firms were managerial ones but increasingly since the 1980s more and more firms have become rentiers.

Mason says, “the strong empirical relationship of corporate cash flow and borrowing to productive corporate investment has disappeared in the last 30 years and has been replaced with corporate funds and shareholder payouts. Whereas firms once borrowed to invest and improve their long-term performance, they now borrow to enrich their investors in the short-run. This is the result of legal, managerial, and structural changes that resulted from the shareholder revolution of the 1980s. Under the older, managerial, model, more money coming into a firm – from sales or from borrowing – typically meant more money spent on fixed investment. In the new rentier-dominated model, more money coming in means more money flowing out to shareholders in the form of dividends and stock buybacks.

“These results have important implications for macroeconomic policy. The shareholder revolution – and its implications for corporate financing decisions – may help explain why higher corporate profits in recent business cycles have generally failed to lead to high levels of investment. And under this new system, cheaper money from lower interest rates will fail to stimulate investment, growth, and wages because [as he shows] additional funds are funneled to shareholders through buybacks and dividends.”

Professor William Lazonick (University of Massachusetts’ Centre for Effective Public Management) in “Stock buybacks: From retain-and-reinvest to downsize-and-distribute” (April 2015) observed, “Over the decade 2004-2013, 454 companies in S&P 500 Index in March 2014 that were publicly listed over the ten years did $3.4 trillion in stock buybacks, representing 51 percent of net income. These companies expended an additional 35 percent of net income on dividends.5 And buybacks remain in vogue: According to data compiled by Factset, for the 12-month period ending December 2014, S&P 500 companies spent $565 billion on buybacks, up 18 percent from the previous 12-month period.”

Lazonick continues, “Under retain-and-reinvest, the corporation retains earnings and reinvests them in the productive capabilities embodied in its labor force. Under downsizeand- distribute, the corporation lays off experienced, and often more expensive, workers, and distributes corporate cash to shareholders.”

The pharmaceutical industry is renowned for charging high prices for its products and claiming that the prices reflect the high cost of research and development. However, many drugs developed by companies benefit from basic research conducted by or with funds from government. Lazonick, in Profits Without Prosperity (Harvard Business Review September 2014) says, “In response to complaints that U.S. drug prices are at least twice those in any other country, Pfizer and other U.S. pharmaceutical companies have argued that the profits from these high prices—enabled by a generous intellectual-property regime and lax price regulation—permit more R&D to be done in the United States than elsewhere. Yet from 2003 through 2012, Pfizer funneled an amount equal to 71% of its profits into buybacks, and an amount equal to 75% of its profits into dividends. In other words, it spent more on buybacks and dividends than it earned and tapped its capital reserves to help fund them. The reality is, Americans pay high drug prices so that major pharmaceutical companies can boost their stock prices and pad executive pay.”

In “Economic Hegemony and the Federal Reserve” (Counterpunch Feb 27–Mar 01) Rob Urie observes, “Theory has it that ownership stakes give executives vested interest in corporate well-being. By using company earnings or borrowed money to buy-back stock executives raise the stock price and with it, their own compensation. This comes at the expense of future production and a potentially destabilizing increase in leverage. The combined effect is a rigged stock market and a corporate class that is gutting the broad economy for its own self-enrichment.”

This behaviour is occurring also in Australia. Thus, in an article taken from Australian Economy, March 6, 2015 on the Macrobusiness website under the heading ‘Corporate greed is killing investment’ addresses the statement, “We all know that the RBA [Reserve Bank of Australia] has been pushing a line for years that the missing link in the Australian recovery is business investment owing to poor “confidence”.” The ‘Disgorge the Cash’ paper by Mason, referenced above, is quoted.

The article continues, “We are not immune. Recall this classic quote from Rodney Adler when interviewed by David James at BRW [Business Review Weekly] after the GFC:

“There has been a major change in the upper middle-management layer of most corporations. In the old days, which certainly I believe in, the standard organisation was that equity went into a company, and if you owned that equity after 20 years’ hard work you made a lot of money if you were successful. About 10 or 20 years ago this all changed. All of a sudden these people on good salaries who hadn’t taken the risk, who hadn’t built the corporation, they said to themselves: ‘I’d like to be rich. I’d like to have equity in the company but I don’t want to buy it.’ And a whole new set of instruments evolved out of America, which then infested the rest of the world, certainly the Western world, where executives became owners but with no risk. “[At that point] capitalism as we know it changed. It is not capitalism because the risk has gone. The executives have the upside and no down-side. That is the problem.”

The article concludes, “What does it mean when Rodney Adler makes more sense than the Reserve Bank.” In other words, it is not lack of confidence that is holding back investment but the behaviour of corporate executives and other shareholders in using companies as nothing more than a way to make money without any contribution to productivity!

In Kick the dividend addiction (ABC The Drum 28 August 2014) distinguished economic journalist Alan Kohler wrote, “the nation's investors have become obsessed with harvesting dividends and the companies with supplying them. The share market has become a giant retiree ATM instead of a means of supplying capital for business investment. All of the return from the market since the beginning of 2007 - 35.1 per cent - has come from dividends.”

In ‘Australia’s addiction to dividends is killing us”, (Business Spectator 4 August 2014) Kohler focused on dividend imputation and the decline in non-mining capital stock since 1987. “Dividend imputation lowered the cost of equity for Australian companies and resulted in a structural decline in gearing, but it has also resulted in sustained pressure on companies to increase their dividend payout ratios and not retain earnings. The result is chronic under-investment by companies outside the mining industry, and especially in manufacturing.”

Where has Tax Revenue gone?

There has been a great deal of attention to the taxes actually paid by corporations in recent months especially. Cassidy notes that the complex tax code in the US, riddled as it is with loopholes, means that companies don’t pay anything like the 35 per cent intended. Between 2008 and 2012 it was on average about 14 per cent, from 2006 to 2012 two thirds of incorporated businesses didn’t pay anything.

The situation in Australia is similar, as has been revealed recently. Many large multinational companies are avoiding tax through profit alienation: among those companies are the well-known ones such as Amazon, Apple, Samsung, Google and Microsoft and pharmaceutical companies like Proctor & Gamble and Pfizer. Some 30 per cent of large private companies pay no tax. Then there are the astonishing avoidance of tax by the super-rich revealed by the Panama papers. One commentator asserted, “the Panama Papers confirm that the super-rich have effectively exited the economic system the rest of us have to live in. Thirty years of runaway incomes for those at the top, and the full armoury of expensive financial sophistication, mean they no longer play by the same rules the rest of us have to follow. Tax havens are simply one reflection of that reality.”

And what is the driver of investment anyway? Cassidy notes, “Surveys by the Federal Reserve Board and other organizations indicate that the main factor depressing corporate investment has been weak demand. As Keynes pointed out eighty years ago, when firms don’t see the appetite for their products growing, they have little incentive to build new capacity. He quotes Dominic Konstam, an analyst at Deutsche Bank, as saying “the logic is quite simple”. In the absence of strong (global) final demand there is unlikely to be an increase in investment.

The low level of demand is a major issue. Corporations in pursuit of neoclassical economic theory – private sector good, public sector bad - for decades have urged governments to reduce employment. Further, business has urged governments and statutory bodies charged with determining wage rates to limit wage rises and further, to control union demands for wage increases, the basic wage and remove provisions such as penalty rates for special circumstances.

The consequence in the US and in Australia and many other developed nations has been a plateauing or small increment of rates of increase in wages for the majority of the population. That has meant a decrease in the disposable incomes of that part of the population most likely to spend generally. The rich are much more likely to invest their money in various activities such as property and ones in which financial institutions specialise whereas the bulk of the population spend disposable income in consumer goods, entertainment, travel and similar activities.

In other words, to the extent that economic growth is a function of aggregate expenditure from disposable income, these campaigns of business and the super- rich defeat the push for growth. The influence of the super-rich is not to be discounted. Whilst the divergence has been less in Australia than in the US it is nevertheless significant. Government policies has particularly targeted social welfare spending from payments to general practitioners to pensions.

Who is causing the Great Divergence

In his analysis of the “Great Divergence”, the increase in inequality since the 1980s, Timothy Noah points to the actions of the super-rich as the principal factor, attributing 30% of the Great Divergence to their influence. (Noah attributes 30% of the decline to lack of educational attainment due to rising tuition costs leading to fewer graduates to meet demand, 20% to the downfall of union’s collective lower wages and 10% to trade; gender and race, single parenthood and computerisation were considered by Noah to not have contributed to the rise of inequality and 5% each to immigration and tax policy.)

And the growth of the financial sector has been identified as an important factor contributing to the growth in inequality over the past 30 years. David Rosnick and Dean Baker of the Center for Economic and Policy Research (CEPR) in Washington drew this conclusion in a July 2012 report, “Missing the Story The OECD’s Analysis of Inequality” critical of the OECD’s lengthy volume examining the causes of rising inequality in most wealthy countries over the last three decades. They found inequality to be driven by in large part by increasing income shares at the very top, higher than the 90^th percentile; those earnings come at the expense of those outside the sector so contributing to their relative decline.

Cassidy concludes! “The final, and perhaps most important, point to note is that the Randian theory now being trumpeted was put to the test, not very long ago, and it failed. In 2004, the Bush Administration introduced a “tax holiday” for corporations that repatriated profits they were holding abroad, arguing much as … others are now, that it would spur capital investment and job growth. What actually happened, according to a Senate subcommittee that surveyed twenty leading multinational companies, was that “the 2004 repatriation tax provision was followed by an increase in dollars spent on stock repurchases and executive compensation.

”Of course, things could turn out differently this time, but even some analysts at … Goldman Sachs, doubt that will happen. In a recent research note to clients, Goldman predicted that three-quarters of the money that big corporations bring back to the United States next year under the Trump tax plan will end up being spent on stock buybacks. “We estimate that $150 billion out of $780 billion of S&P 500 buybacks in 2017 will be driven by repatriated overseas cash,” the Goldman research note said. “We forecast that S&P 500 companies will repatriate close to $200 billion of their $1 trillion of total overseas cash in 2017, which will be directed primarily toward share repurchases.”

Then there were the substantial reductions in corporate tax rates in the 1980s by both the Reagan and Thatcher administrations in the US and the UK respectively. Did that generate increased employment and economic activity generally? To what extent has there been increased activity which can be specifically attributable to the changes in the tax regime as opposed to other factors? Comparisons of tax regimes often fail to attend to the complexities in each country, in the case of the US the fact that there substantial state taxes in addition to federal taxes and taxes do not include provision for health insurance. And so on.

Whilst in Australia, the federal the Coalition government proclaims its concern about all Australians and the need for more jobs, business continues its rent-seeking, all the while campaigning for keeping strong control over wages and conditions, reduction of the budget deficit and cutting government expenditure. The impact of the resulting inequality is profound and the cost to government tax revenue significant.

In today’s climate it is also fair to say that curbing excessive corporate executive pay and increasing employment using the money saved would cost companies no more and not negatively affect productivity. There is no reason to believe that paying executives more than a million dollars increases productivity or innovation. Bonuses for performance are not being paid for superior performance but merely for average performance.

In other words the dictum that the board and executive should have as their primary task the encouragement of above average performance is ignored. The likelihood of this occurring is of course nil. Firms with a union presence have lower levels of total executive compensation. Paying lower salaries might well encourage persons to be engaged who genuinely want to advance the organisation rather than just enrich themselves.

Treasurer Morrison’s exhortations just Another Station along the way

The Government’s campaign on budget repair, the scare campaign on the possibility of a reduced credit rating by international agencies and the arguments about unsustainability of social welfare spending based on nonsensical 50 year projections is all of a piece with the rhetoric of tax cuts for business. These economic positions are resulting in a continuation of the risk averse approach to capital expenditure on infrastructure and the argument that future generations should not be saddled with debt as if failure to invest means that future generations would face no liability. The fact is that instead of a financial liability they face unsustainably crowded roads, grossly inadequate communication systems, poor educational and health infrastructure. All these are, on the other hand, hardly faced in the day to day experience of the executives and shareholders in receipt of their dividends. The proposal that tax cuts will assist economic activity is fraudulent.

Governments are not working for all the people but for those who have most influence. Treasurer Morrison’s exhortations are just another station along the way. It's as if Frederick Hayek had been exhumed for the occasion.

POSTSCRIPT:

Those who follow the behaviour of financial institutions and the workings of Neoliberalism will find very little that is new in the above.

Claims that tax cuts will benefit the community at large when in fact they will benefit only some of the super-rich are simply more of the same. There are many articles and books about Neoliberal economics. Last year, as those who follow George Monbiot will already be aware, Monbiot’s “How Did We Get into This Mess?” was published by Verso in April 2015. He summarised his book in The Guardian April 2015. Monbiot had an earlier article on the same theme in early 2013. 

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The following, an extract from Monbiot’s summary of his book, is key economic history:

But in the 1970s, when Keynesian policies began to fall apart and economic crises struck on both sides of the Atlantic, neoliberal ideas began to enter the mainstream. As Friedman remarked, “when the time came that you had to change … there was an alternative ready there to be picked up”. With the help of sympathetic journalists and political advisers, elements of neoliberalism, especially its prescriptions for monetary policy, were adopted by Jimmy Carter’s administration in the US and Jim Callaghan’s government in Britain.

After Margaret Thatcher and Ronald Reagan took power, the rest of the package soon followed: massive tax cuts for the rich, the crushing of trade unions, deregulation, privatisation, outsourcing and competition in public services. Through the IMF, the World Bank, the Maastricht treaty and the World Trade Organisation, neoliberal policies were imposed – often without democratic consent – on much of the world. Most remarkable was its adoption among parties that once belonged to the left: Labour and the Democrats, for example. As Stedman Jones notes, “it is hard to think of another utopia to have been as fully realised.”

It may seem strange that a doctrine promising choice and freedom should have been promoted with the slogan “there is no alternative”. But, as Hayek remarked on a visit to Pinochet’s Chile – one of the first nations in which the programme was comprehensively applied – “my personal preference leans toward a liberal dictatorship rather than toward a democratic government devoid of liberalism”. The freedom that neoliberalism offers, which sounds so beguiling when expressed in general terms, turns out to mean freedom for the pike, not for the minnows.

Numerous articles have appeared since 2008 about the Global Financial Crisis, not least by Michael Lewis: his book The Big Short was made into a film. The film Margin Call deals with the same themes. Both films are extremely high quality!

Many ask why none of the executives of the banks which benefitted from huge bailouts by government using taxpayer funds have ever gone to gaol.

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Goldman Sachs director Greg Smith resigned in March 2012 after publishing an open letter in the New York Times accusing senior staff of being morally bankrupt and bent on extracting maximum fees from clients by offloading unsuitable investment products.

Matt Taibbi at Rolling Stone has been particularly active in covering this and the way government officials all the way to the US Attorney-General Eric Holder have managed to have next to nothing done about it all. Taibbi’s stories show, amongst other things how the SEC (Securities and Exchange Commission) “covered up Wall Street crimes” destroying records and whitewashing files (August 17 2011), how the biggest banks took part in a nationwide bid-rigging conspiracy until caught on tape (June 21 2012) and how HSBC “hooked up with drug traffickers and terrorists and got away with it” (February 14 2013) and much more.

Recent articles in the on line journal The Intercept deal with Holder’s behaviour. When Holder retired as Attorney-General he returned to the law firm for which he had been working when he was appointed to the Obama administration, a firm which actively lobbies on behalf of a number of the big banks.