http://www.ft.com/intl/cms/s/0/89d242b0-4687-11e1-89a8-00144feabdc0.html
January 25, 2012 7:47 pm
How Hayek helped us to find capitalism’s flaws

By Occupy London

Fans of Friedrich von Hayek may be surprised to learn that the Austrian economist is the talk of Occupy London. Hayek’s observation that distributed intelligence in a voluntary co-operative is a hallmark of real economy rings true beneath the bells of St Paul’s. Occupy is often criticised for not having a single message but that misses the point: we are committed to incorporating different preferences before coming up with policies. In this sense, it could be said we work more like a market than the corporate boardroom or lobbyist-loaded politics – our ideas are radical but also just and democratically decided.

Occupy London is now over three months old. Our encampments have lasted much longer than those at Zuccotti Park in New York, but there is a clear continuity of thought between us and Occupy Wall Street, as there is with Spanish indignados and the other grassroots movements that spread throughout 2011.

The world faces an economic crisis and problems in our political system have prevented it from being tackled in ways that protect the interests of the majority of its population.

Across the developed world, higher levels of inequality are associated with social ills such as crime and mental illness. Ultimately, we believe that all of us fare better when wealth and income are more equal. We reject austerity as a route to economic recovery and call for genuinely transparent and effective regulation of the banking system so that its structural problems can be tackled once and for all.

This month we’ve had figures from across the political spectrum attest to the positive contribution Occupy London is making to the national discussion. Yet still we are accused of lacking substance. In fact, we can point to specific breaches of the social contract and how to fix them. Here are three examples.

First, tax avoidance is endemic in the UK. Companies use complicated structures to hide their earnings from HM Revenue & Customs. Individuals stash money abroad while enjoying all the benefits of living in this country. Tax havens are used by 98 of the FTSE 100 companies, according to Action Aid. Sir Philip Green was reported to have avoided about £285m in tax and still he became a government adviser. In calling for Jersey, Guernsey and the Isle of Man to disclose those with financial affairs on the islands, Ed Miliband, the Labour party leader, is moving towards our position.

Adopting a system of “formulary apportionment” could stop corporations avoiding tax. It would create a tax base for UK companies aligned with a level of activity that actually occurs in this country rather than relative tax advantages. If applied alongside a system of unitary taxation, whereby all a company’s subsidiaries are added together to produce a single whole, we could prevent companies shifting profits between different countries.

Second, housing is increasingly unaffordable and the social costs of homelessness are enormous. The Bank of England should use quantitative easing, not to buy gilts in the forlorn hope it will stimulate the economy but to fund housebuilding. This could serve the triple purpose of easing the housing problem, boosting construction and raising confidence in the economy.

Third, income inequality in the UK is growing faster than in any other rich country, according to the Organisation for Economic Co-operation and Development. Unfairness at the top was highlighted this week by the business secretary Vince Cable’s proposals on executive pay. While we welcome the government’s focus on this issue, these proposals will not work. The metrics by which bonuses are calculated must be changed, not just in banking but across the corporate sector. As Andrew Haldane of the Bank of England has pointed out, if bankers’ pay were linked to return on assets it would be much closer to median household incomes than if based on return on equity. We are also looking at the feasibility of directly linking executive pay with average or minimum wages in the company, or even in the country as a whole.

A substantial critique of government policy will become an ever more important task for Occupy London as the political debate moves in our direction. Our movement started in a group of tents in St Paul’s churchyard, but it will not end there – the issues that brought us together are still far from resolved. This year we will show that we cannot only pose questions but also have them answered.

The writers, David Dewhurst, Peter Dombi and Naomi Colvin, are members of the economics working group at Occupy London