Nicholas Wapshott http://blogs.reuters.com/nicholas-wapshott Wed, 13 Aug 2014 16:07:07 +0000 en-US hourly 1 http://wordpress.org/?v=4.2.5 Can I invert myself and not pay taxes? http://blogs.reuters.com/nicholas-wapshott/2014/08/13/can-i-invert-myself-and-not-pay-taxes/ http://blogs.reuters.com/nicholas-wapshott/2014/08/13/can-i-invert-myself-and-not-pay-taxes/#comments Wed, 13 Aug 2014 16:05:40 +0000 http://blogs.reuters.com/nicholas-wapshott/?p=1614 The Pfizer logo is seen at their world headquarters in New York

The hot tax-dodging business trend of the summer is inversion. A U.S. company buys a company in a country with a lower corporate tax rate, relocates its headquarters there and funnels its income through the new head office. As long as it does not repatriate profits, the self-exiled company can avoid paying U.S. corporate taxes.

The United States is the only country that taxes its citizens on their worldwide income.  Wherever you earn money, the Internal Revenue Service wants a slice of it. But if, as the 2012 Republican presidential nominee Mitt Romney said and U.S. Supreme Court justices ruled in Burwell v Hobby Lobby and Citizens United v Federal Elections Commission, corporations are people, shouldn’t the converse be true? Why can’t all Americans relocate their places of domicile abroad and dodge taxes just like a company?

If only it were that easy.

Let’s take it one step at a time. There has been considerable alarm at U.S. companies’ rush to the exits. Under a fiduciary duty to maximize dividends and share prices for stockholders, businesses are seeking to avoid the 35 percent federal corporate income tax they are liable for here. Many American business leaders believe high corporate tax rates put their companies at a competitive disadvantage with the rest of the world. As do many business-leaning, tax-hating and federal government-loathing politicians.

A general view of the Internal Revenue Service Building in WashingtonIf you add local and state taxes, U.S. corporations pay tax on their income at a nominal rate of 40 percent, far more than many other countries. Britain, for example, has a similar economy but its top corporate tax rate is just 21 percent. Germany, which also has a successful, mature economy, levies its companies at nearly 30 percent. While few U.S. companies end up paying this nominal rate, since they offset various expenses, exemptions are much the same in comparable economies. This disparity tends to beggar American businesses and discourage domestic investment, which means fewer U.S. jobs.

Hence the clamor to relocate. Eight major companies are planning to nominally move — though not actually transfer their bricks-and-mortar businesses — to low-tax countries in the next 12 months, joining about 41 U.S. companies who have already done so since 1982. All they have to do is buy a foreign company at least 25 percent their size and, on paper at least, they become a foreign entity — and avoid the U.S. corporate tax.

This trick makes particular sense to pharmaceutical and medical-equipment companies and the like that earn most of their income from licensing products abroad. The drug company AbbVie, for example, hopes to relocate to Britain, and the medical- device firm Medtronic is heading for Ireland, where the corporate tax rate is just 12.5 percent.

A screen displays the share price for pharmaceutical maker AbbVie on the floor of the New York Stock ExchangeBy far the biggest of these proposed mergers of convenience is Pfizer’s attempt to relocate to London by swallowing the British drugs company AstraZeneca. The Brits have so far played hard to get but the transatlantic wooing continues.

Unfortunately, there is no individual equivalent to corporations merging with another company abroad. Even if an American marries a foreigner, they remain liable to file a tax return and pay federal income tax. And it is not so easy to give up American citizenship, though an increasing number are doing so. Last year saw a record high number shred their passports. Even so, only 2,999 citizens out of a total 318.6 million slipped the tax net in 2013 — and many were already living permanently abroad and could simply be tired of the expense and irritation of filing tax-return and other disclosure-of-assets forms.

Nor is abandoning America cheap. Malta sells citizenships for $900,000 — hardly a steal unless you have an enormous income on which to avoid taxes. Portugal offers residency if you have $675,000 to invest locally, but that sum does not include citizenship. For the same sum, Ireland will let you live in the Emerald Isle and promises citizenship in five years. The bargain basement for buying residency is Latvia, which costs just $96,000 for a five-year stay.

There is a lengthy procedure if you buy your way out of America. Legal paperwork and an awkward interview with the federal authorities to sign an “oath of renunciation” can be costly. There are also exit taxes to pay. And the law may be changing to make it even more expensive. Senators Chuck Schumer (D-N.Y.) and Bob Casey (D-Penn.) were so angry when Facebook co-founder Eduardo Saverin abandoned the United States — following on the heels of Tina Turner, Monty Python animator and director Terry Gilliam, the late chess master Bobby Fischer and a host of other celebs — they promised to introduce an “exit tax” of 30 percent on all the worldly goods of those who choose to kiss Uncle Sam goodbye. Even without that levy, the IRS made Saverin pay “hundreds of millions” in taxes before he was allowed to leave for Singapore.

Facebook co-founder Saverin speaks at Wall Street Journal event in SingaporeBut what about the notion that “corporations are people,” and perhaps the other way round? Alas, for my dreams of mounting a Supreme Court challenge to insist on being treated like a corporation, the idea that corporations and individuals are interchangeable is not even a legal fiction. When Romney told voters at the Iowa State Fair, “Corporations are people, my friend,” he was pointing out the obvious truth that corporations are owned by stockholders.

Nor did the Supreme Court’s Hobby Lobby verdict equate people with corporations. It fastened instead on to the IRS’s definition  of “closely held corporations,” which means companies in which more than half the stock is held by five or fewer people.

Nor did the Citizens United verdict suggest that corporations were individuals in all meanings of that word. In their ruling the justices explained that they considered the meaning of the First Amendment “that prohibits Congress from fining or jailing citizens, or associations of citizens, for engaging in political speech” and concluded that as corporations were “associations of citizens,” they were entitled to exercise free speech. Alas, they only equated corporations with individuals in  regard to free speech.

While there is a long established precedent for corporations under contract law to be treated as people, there is still a way to go before corporations are treated as people in all respects. And if a change is made in the short run, it is likely to be to tax companies on the foreign earnings they leave abroad, not liberate people from their federal tax liabilities.

Moves are already afoot to clamp down on U.S. corporations’ abilities to dodge domestic taxes. While some Democrats (including President Barack Obama) accused companies of being unpatriotic, the president also fired a shot across the bows of companies dreaming of a tax-lite existence abroad. “Are there elements to how existing statutes are interpreted by rule, or regulation, or tradition, or practice,” he asked, “that can at least discourage some of the folks who may be trying to take advantage of this loophole?”

That suggests Obama will not wait for Congress to tighten the rules, as they did under President George W. Bush in 2002. He seems likely to tell the IRS to clamp down on the increasing number of companies that are exploiting the loopholes.

So my dream of my day in the Supreme Court with Grover Norquist and attorneys from Americans for Tax Reform at my side will remain a dream. And my plans for a virtual offshore existence for tax purposes while I remain living in Manhattan must be put on hold.

I must say I am rather disappointed.

 

PHOTO (TOP): The Pfizer logo is seen at their world headquarters in New York, April 28, 2014. REUTERS/Andrew Kelly

PHOTO (INSERT 1): A general view of the Internal Revenue Service Building in Washington, May 14, 2013. REUTERS/Jonathan Ernst

PHOTO (INSERT 2): A screen displays the share price for pharmaceutical maker AbbVie on the floor of the New York Stock Exchange, July 18, 2014.  REUTERS/Brendan McDermid

PHOTO (INSERT 3): Facebook co-founder Eduardo Saverin speaks at the Wall Street Journal Unleashing Innovation executive conference in Singapore, February 21, 2013. REUTERS/Edgar Su

 

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The analogue titans’ last gasp against the digital giants http://blogs.reuters.com/nicholas-wapshott/2014/08/04/the-analogue-titans-last-gasp-against-the-digital-giants/ http://blogs.reuters.com/nicholas-wapshott/2014/08/04/the-analogue-titans-last-gasp-against-the-digital-giants/#comments Mon, 04 Aug 2014 18:46:42 +0000 http://blogs.reuters.com/nicholas-wapshott/?p=1600 amazon-hachette

Amazon’s bullying of the book publisher Hachette and the uninvited bid by Rupert Murdoch’s 21st Century Fox to swallow rival TimeWarner has caused some economists and commentators to ask, why are such aggressive moves not attracting the attention of the Justice Department’s trust-busters? Both moves are textbook examples of how monopoly power can abuse — or so they would have seemed not long ago.

At stake are the benefits that consumers and employees alike enjoy from the proliferation of competing companies operating in a free market. For markets to work freely and fairly, there must be enough companies competing; when the critical mass of businesses sinks below a certain number, monopolies occur, which is bad for consumers. When that happens, governments in mature societies intervene to prevent over-consolidation and protect people from exploitation.

This isn’t socialism; it is how the free market is meant to work. It is the ordered way of doing business advocated by free-market gurus like Friedrich Hayek, who believed the integrity of free enterprise was paramount to ensure that prices are arrived at fairly.

Amazon CEO and Chairman Bezos receives the Citation of Merit on behalf of the Apollo F-1 Search and Recovery Team during the 110th Explorers Club Annual Dinner, at the Waldorf Astoria in New YorkBut after more than a century of intervening to keep markets honest, U.S. antitrust legislation is proving inadequate to the task. When industries and markets were clearly defined, it was easy to see what needed doing. When John D. Rockefeller’s Standard Oil snaffled the gasoline market, the Supreme Court, in 1910, declared it an illegal monopoly — and demanded it be broken up.

There is no such clarity now. The digital revolution has so upset every aspect of business that the old certainties appear no longer to apply. The Justice Department is left on the sidelines, anxious not to impose an inappropriate remedy on the market.

Take books. Half of all hardcover books are now sold by a single retailer, Amazon, which is also responsible, through its Kindle e-reader, for as many as four out of five digital books sold in the United States. Globally, seven out of 10 digital books are sold by Amazon.

Amazon’s total annual revenue from books is $5.25 billion, which makes it by far the biggest single outlet for authors and publishers. Amazon’s dominance of the book market allows it to extract some extraordinarily lucrative deals for itself. For example, it has wrested from Random House a whopping 53 percent discount on its wholesale book purchases.

Some publishers, such as Hachette, have refused to buckle to Amazon’s demands. So acting like any good monopolist might, Amazon is punishing them, making their books on the Amazon website hard to order, out of stock or slow to deliver. Yet the Justice Department, which is responsible for regulating near-monopolies like Amazon and applying U.S. antitrust legislation, is ignoring Amazon’s harrying of Hachette. As Steve Coll wrote recently in the New York Review of Books, “Amazon and the attorneys that advise it do not fear antitrust enforcement.”

Now let’s take movies, TV and filmed entertainment. 21st Century Fox, the amalgam of movie studio and TV outlets owned by Rupert Murdoch and his family, with a market capitalization $27.7 billion, is in the process of bidding for its principal rival, Time Warner, worth $62.6 billion — or at least it was until Murdoch bid $80 billion for it. Together the two companies could equal the size of Comcast, valued at $142.7 billion.

Rupert Murdoch, CEO of News Corp. and 21st Century Fox, arrives with sons Lachlan and James for the first session of annual Allen and Co. conference at the Sun ValleyBut the proposed deal would sharply reduce consumer and employee choice. It could bring under a single owner: Fox News and CNN; Warner Brothers and the Fox movie studios; and the Fox cable channels and pay networks like HBO. This mega-merger could sharply reduce the competitive nature of the movie business, which would affect everyone from movie stars and directors to moviegoers and TV watchers. There likely would be less choice and higher prices. The same applies to the other monster merger on the horizon, Comcast’s proposed purchase of the cable TV carrier interests of Time-Warner. An industry that already treats its customers with disdain could offer consumers even fewer options.

Not long ago, an amalgamation of such large companies would have prompted the Justice Department to act. Yet amid all the discussion of the merger, few have raised the antitrust issue and — if Murdoch gets his way, as he has before – the Justice Department would likely wave the deal through.

The complicating factor is the rise of immense new technology companies like Apple, Google, Microsoft, Amazon, Netflix and Facebook, all of which offer alternatives to the traditional ways of distributing moving pictures. Old industries like broadcast television and hardcover books, newspapers and magazines are under threat from a new wave of digital businesses that can deliver content quickly, cheaply and on demand.

Little wonder, then, that the Justice Department is reluctant to become involved in judging the consolidation in an old-school industry like moviemaking or bookselling. The market is in a convulsion as profound and far-reaching as any since the Industrial Revolution introduced machinery to the workplace, making a great deal of manual labor redundant. A tacit decision appears to have been taken by the federal government to watch from the sidelines until the dust has settled and it can consider whether it needs to intervene to protect the consumer.

The antitrust debate over media properties is further complicated by digital companies moving into content production. Netflix and Amazon are now making shows themselves.

Meanwhile, Jeff Bezos, Amazon’s chief executive officer, has bought the once mighty Washington Post, and most of the media is looking on with a mixture of admiration and anxiety to see what he is going to do with it.

When the battle between the old-school analogue barons and the digital kings has run its course, will consumers be better off? In many respects, they already are. Curated TV programming is in its last throes as viewers choose the content they like delivered at a time that suits them on the platform they prefer.

When it comes to journalism, there have never been more competing voices than today, nor have the top-down messages of the old bombastic press barons been listened to less. The entry price of starting even a new hard-copy publication has never been cheaper, for the power of proprietors, distributors, printers and trade unions that conspired to keep costs up and newcomers out has collapsed.

There will come a time when the Justice Department will have to take stock to see whether consumers are being well served by the digital revolution. Then new legislation may have to be concocted to protect the diversity of choice and cheapness of price the old antitrust laws were designed to protect. Until then, Justice must pick its battles carefully, for the old certainties about the threat of monopolies no longer apply.

 

ILLUSTRATION: Reuters

PHOTO (INSERT 1): Amazon CEO and Chairman Jeff Bezos receives the Citation of Merit on behalf of the Apollo F-1 Search and Recovery Team during the 110th Explorers Club Annual Dinner, at the Waldorf Astoria in New York, March 15, 2014. REUTERS/Andrew Kelly

PHOTO (INSERT 2): Rupert Murdoch, CEO of News Corp. and 21st Century Fox, arrives with sons Lachlan (L) and James (R) for the first session of annual Allen and Co. conference at the Sun Valley, Idaho, Resort, July 10, 2013. REUTERS/Rick Wilking

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I’m Ronald Reagan! No, I’m Reagan! No, over here, I’m the real Reagan! http://blogs.reuters.com/nicholas-wapshott/2014/07/22/im-ronald-reagan-no-im-reagan-no-over-here-im-the-real-reagan/ http://blogs.reuters.com/nicholas-wapshott/2014/07/22/im-ronald-reagan-no-im-reagan-no-over-here-im-the-real-reagan/#comments Tue, 22 Jul 2014 06:00:45 +0000 http://blogs.reuters.com/nicholas-wapshott/?p=1586  Rand Paul introduces U.S. Senate Republican Leader Sen. McConnell to crowd of campaign supporters after McConnell defeated Tea Party challenger Bevin in state Republican primary elections in Louisville

Did anyone hear the crack of a starting pistol? Nor me. But the race to become the Republican presidential nominee in 2016 is on.

Of course Reince Priebus, the GOP chairman, has been trying to keep the contest under close control since the party’s 2012 presidential primaries became a cable comedy sensation.

Perhaps he should have told the prospective candidates. The most eager wannabes, keen to take an early lead, have jumped the gun. Though it is too early to tell how the race will unfold, let alone who will win, we are already getting a taste of the themes, the policies and, above all, the complexion of the primaries to come. If the vituperative mood of the opening salvoes is anything to go by, we are in for fireworks.

Once again the ghost of Ronald Reagan looms large. Though his record in raising taxes and adding to the deficit, and his involvement in redrawing the map of the world, would make him ineligible to become the nominee were he still alive, the contestants are already comparing themselves with the only Republican president whose conservative credentials are made of the same material as earned him his nickname, the “Teflon president.”

FILE PHOTO OF FORMER U.S PRESIDENT RONALD REAGAN.As always, the frontrunner is taking the most flak. Senator Rand Paul (R-Ky.) now enjoys support from 11 percent of Republican voters, a point or two ahead of scandal-ridden New Jersey Governor Chris Christie, and former governors Jeb Bush of Florida, and Mike Huckabee of Arkansas. Paul is three points ahead of Senator Ted Cruz (R-Tex.), former vice presidential candidate and House Budget Committee Chairman Paul Ryan (R-Wis.), and Wisconsin Governor Scott Walker. This crowded field also includes Senator Marco Rubio of Florida with 6 points and Texas Governor Rick Perry with 3.

The closeness of the race cannot explain the testiness of the candidates — and those who speak on their behalf. This is former Vice President Dick Cheney tilting at Paul’s view that the United States should play a diminished role in the world. “Isolationism is crazy,” Cheney said. “Anybody who went through 9/11 who thinks we can retreat behind our oceans and we’ll be safe and secure is — I’m sorry, but they’re out to lunch.”

If anyone doubted Cheney was talking about Paul, his daughter Liz Cheney piled on. “Obviously Senator Paul leaves something to be desired in terms of national security policy,” she said.

Paul struck back. “Questions could be asked of those [like Cheney] who supported the Iraq war,” Paul said. He asked: “Were the weapons of mass destruction there? That’s what the war was sold on. Was democracy easily achievable? Was the war won in 2005 — when many of these people said it was won?” A liberal peacenik could not have been more pointed.

But Cruz, who is chasing the same Tea Party supporters as Paul, was also prepared to pick a fight with him over whether the GOP should retain an interventionist foreign policy. Borrowing from Marc Antony’s eulogy of the title character in Shakespeare’s Julius Caesar, Cruz insisted, “I’m a big fan of Rand Paul. He and I are good friends,” but, “I don’t agree with him on foreign policy. … I agree with him that we should be very reluctant to deploy military force aboard. But I think there is a vital role, just as Ronald Reagan did.”

Invoking the conservative saint Reagan sharply upped the stakes. “Every Republican likes to think he or she is the next Ronald Reagan,” Paul wrote in an op-ed, poking fun at Cruz’s impertinence in comparing himself to the great man. “Some who say this do so for lack of their own ideas and agenda,” he wrote. “…But too often people make him into something he wasn’t in order to serve their own political purposes.”

Paul took to the high ground, appealing for Republican unity. “I don’t claim to be the next Ronald Reagan nor do I attempt to disparage fellow Republicans as not being sufficiently Reaganesque,” he wrote. “But I will remind anyone who thinks we will win elections by trashing previous Republican nominees, or holding oneself out as some paragon in the mold of Reagan, that splintering the party is not the route to victory.”

Then Paul and Perry fell out. The Texas governor, whose rambling 2012 presidential bid has not deterred him from considering another shot, wrote an op-ed saying, “as a governor who has supported Texas National Guard deployments to Iraq and Afghanistan, I can understand the emotions behind isolationism.” But he said it was “disheartening to hear fellow Republicans, such as Sen. Rand Paul” suggesting that the resurgence of violence in Iraq was none of America’s business.

Texas Gov Rick Perry attends Conservative Political Action Conference second day of events  in Oxon HillHe described Paul as “curiously blind” to the threat Islamist terrorists posed to U.S. national security and expressed surprise that Paul should invoke the name of Reagan in his defense.

In an extraordinary insult, Perry compared Paul to President Barack Obama and his famous drawing of “red lines.” “Paul is drawing his own red line along the water’s edge,” wrote Perry, “creating a giant moat where superpowers can retire from the world.”

So what is going on? These are preliminary skirmishes in what might prove to be the final battle in a civil war waged by the Republican Party on and off since 1964 — when Senator Barry M. Goldwater, with the help of Reagan, stormed the GOP establishment and offered Americans a small government, low taxes, libertarian-minded campaign to win the White House. The rise of the Tea Party in the wake of the 2008 financial crisis and through 2010 protests against the Affordable Care Act has again provided a groundswell of grass-roots support for someone more radical than the latest establishment candidate waiting in line.

Mainstream Republicans are aghast that Paul has already made progress in arguing that U.S. foreign policy should pull in its horns. Senator John McCain (R-Ariz.) calls Paul “part of a wing of the [GOP] that’s been there ever since prior to World War I,” isolationists who advocate “a withdrawal to fortress America.”

For many Tea Party voters, GOP neo-isolationists like Paul have a good reason to press for U.S. withdrawal from the world’s trouble spots: the national debt. The sequester’s automatic spending cuts have exposed the deep fissure in Republican thinking between military-hawks like Cheney and fiscal-doves like Paul. Fiscal doves now enjoy a double whammy: a reduction in expensive military spending coupled with Washington doing less to police the world.

But isolationism is only one of many issues pitting old-school Republicans against libertarians who have entered the GOP in larger numbers than ever through the Tea Party. The size of the federal government, the role of the Federal Reserve, the devolution of decision-making to the states, particularly on social issues, and the scope of federal snooping on individuals are all up for grabs.

In the coming months, Reagan’s ghost will likely be constantly summoned by both sides. Though the candidates’ willingness to bang heads so painfully shows that their nod to The Gipper is merely notional.

For if the hopefuls genuinely want to follow their mythical leader’s example, they would not have so conspicuously abandoned his 11th Commandment: Thou Shalt Not Speak Ill of Any Fellow Republican.

 

PHOTO (TOP): Senator Rand Paul (R-Ky.) seen on a screen as he introduces Senate Republican Leader Mitch McConnell (R-Ky) to a crowd of campaign supporters after McConnell defeated Tea Party challenger Matt Bevin in the state GOP primary elections in Louisville, Kentucky, May 20, 2014. REUTERS/John Sommers II

PHOTO (INSERT 1): President Ronald Reagan addressing a news conference in Washington, October 19, 1983. REUTERS/Mal Langsdon

PHOTO (INSERT 2): Texas Governor Rick Perry makes remarks at the Conservative Political Action Conference opens in Oxon Hill, Maryland, March 7, 2014. REUTERS/Mike Theiler

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Nothing pacific about it: Japan pushes back on China http://blogs.reuters.com/nicholas-wapshott/2014/07/15/nothing-pacific-about-it-japan-pushes-back-on-china/ http://blogs.reuters.com/nicholas-wapshott/2014/07/15/nothing-pacific-about-it-japan-pushes-back-on-china/#comments Tue, 15 Jul 2014 06:00:26 +0000 http://blogs.reuters.com/nicholas-wapshott/?p=1568 Members of Japan's Self-Defence Forces' airborne troops stand at attention during the annual SDF troop review ceremony at Asaka Base in Asaka

China is on the march. Or, to be precise, China has made a strong push, militarily and otherwise, into seas nearby, setting off alarms among its neighbors. Now Japan has pushed back, announcing it will “reinterpret” its pacifist constitution so it can be more militarily aggressive in responding to China’s persistent territorial expansionism.

Japan’s actions, however, have also raised alarms. A century ago, Japan set out on a destructive path of conquest, and many still remember firsthand the brutality with which Japanese troops occupied the region — from Korea and the Philippines, through Manchuria and China, Vietnam and Thailand, all the way to Singapore. Though China is now threatening peace, the memory of Japan’s savage adventurism adds to the general unease.

If Japan’s prime minister, Shinzo Abe, is to persuade countries nearby that his intentions are honorable, there are actions he can take to show that Tokyo has learned the lessons of the past and truly reformed. If he does not, his latest political maneuver is likely to set his neighbors’ nerves on edge, adding to the prospect of warfare between two or more of the nations on the East and South China Seas.

Japan's PM Abe looks at a prompter as he speaks during a news conference to wrap up the ASEAN-Japan Commemorative Summit Meeting at his official residence in TokyoYou may have seen the photo of Chinese vessels pouring thousands of tons of sand onto a reef in the Scarborough Shoal in the South China Sea. It is perhaps the most startling evidence of how aggressively China is pursuing the resources it needs to maintain its extraordinary rate of economic growth. The creation of a new island out of a coral reef, on which it can build a strategically important air strip, shows how determined Beijing is to grab the land and raw materials it feels entitled to, whatever international law may say.

It is no surprise that the Philippines, which disputes ownership of the Scarborough Shoal, welcomes Abe’s abandonment of 60 years of pacifism. But other neighbors view Tokyo’s change of heart as more sinister. The South and North Koreans, at loggerheads since the end of the Korean War in 1953, share bitter memories of the Japanese occupation. They are less convinced that Abe’s first step toward a return to militarism is necessary.

For anyone with a sense of history, the Chinese encroachment into waters traditionally administered by the Vietnamese is revealing. In this dispute over marine drilling rights, the Vietnamese communist government, which fought the mighty United States to a humiliating defeat, is now looking to Washington — not Tokyo — to serve as an honest broker with its domineering ideological comrades to the north.

FORMER SOUTH KOREAN COMFORT WOMEN CHANT ANTI-JAPANESE SLOGANS IN SEOUL.The shadow of World War Two still lingers across the small nations whose populations were ravaged and natural resources viciously snatched by the imperial Japanese government. Even as China expands, a suspicion of Japanese motives survives.

How Japan confronts its ugly past is the key to whether its neighbors see it as a friend or rival.

For the South Koreans, there is no more potent issue than the plight of the “comfort women,” mostly teenage girls forced into prostitution to service Japan’s occupying troops. South Korean demands an apology and reparations for the women, now in their 80s or older. Japan’s grudging half-apologies and failure to come to a settlement remains a stumbling block to the restoration of warm relations.

A similar cause of anguish and alarm is the continued visits by successive Japanese prime ministers to the Yasukuni shrine, which contains the remains of war criminals. These regular acts of obeisance to long-discredited warriors is widely interpreted as an act of defiance that keeps alive the militaristic spirit of the World War Two imperial government. (It would be as if German Chancellor Angela Merkel paid an annual visit to the graves of Nazi leaders.)

Again, there has been considerable international pressure on the Japanese to put this matter to rest. Yet Abe and his predecessors continue to keep it alive.

Japan's PM Abe is led by a Shinto priest as he visits Yasukuni shrine in TokyoThe Far East is at a turning point. It is accepted today that the United States cannot impose democracy on others. But the history of postwar Japan confounds such a pessimistic notion.

General Douglas MacArthur’s crowning achievement was as the Allied consul in postwar Tokyo, when he persuaded the defeated emperor and the political leadership that, to convince Japan’s neighbors it had reformed, it should adopt a pacifist constitution. The wording was such that, like the U.S. Constitution, it has proved difficult to amend. It is telling that Abe, who may have wanted to alter the constitution, has instead “reinterpreted” its pacifist strictures.

Nearly 70 years after President Harry S. Truman ordered the nuclear bombing of Hiroshima and Nagasaki, which brought the bloody war with Japan to an abrupt end, new circumstances have made the old pacifism seem dangerous. Though the Japanese now have a large military, which under the constitution must only be used for self-defense, they have until now been inhibited from using it to come to the aid of an ally, like the United States, if called upon.

Like so much in Japan, the change is largely symbolic. A majority of Japanese continue to believe the old pacifist constitution should be obeyed exactly as before. But the menacing actions of the Chinese in the waters around Japan, including dangerous clashes between Chinese and Japanese vessels, suggest that the pacifism imposed on Japan is now itself a threat to peace.

Yet if Japan is to be a help in heading off Chinese aggression and regain its influence in the region, it must put its past behind. That means coming to a generous and just settlement of all outstanding reparations issues and apologizing profusely for past errors. It also means conspicuously abandoning adoration of ancestors whose behavior does not warrant devotion.

Only in that way can Japan take up its new role as a defender of international order and peace.

Nicholas Wapshott’s The Sphinx: Franklin Roosevelt, the Isolationists and the Road to World War Two will be published in November by W.W. Norton.

 

PHOTO (TOP): Members of Japan’s Self-Defence Forces’ airborne troops stand at attention during the annual troop review ceremony at Asaka Base in Asaka, near Tokyo, October 27, 2013. REUTERS/Issei Kato

PHOTO (INSERT 1): Japan’s Prime Minister Shinzo Abe looks at a prompter as he speaks during a news conference to wrap up the ASEAN-Japan Commemorative Summit Meeting at his official residence in Tokyo, December 14, 2013. REUTERS/Toru Hanai

PHOTO (INSERT 2): South Korean Park Og-nyon (R) and Lee Og-sun, both of whom were forced to become so-called comfort women or sex slaves by Japanese soldiers during World War Two, chant anti-Japanese slogans at a protest in Seoul, July 23, 2001. REUTERS/Archives

PHOTO (INSERT 3): Japan’s Prime Minister Shinzo Abe (C) is led by a Shinto priest as he visits Yasukuni shrine in Tokyo, December 26, 2013. REUTERS/Toru Hana

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Rupert Murdoch’s troubles are far from over http://blogs.reuters.com/nicholas-wapshott/2014/07/01/rupert-murdochs-troubles-are-far-from-over/ http://blogs.reuters.com/nicholas-wapshott/2014/07/01/rupert-murdochs-troubles-are-far-from-over/#comments Tue, 01 Jul 2014 06:00:13 +0000 http://blogs.reuters.com/nicholas-wapshott/?p=1543 News Corporation CEO Rupert Murdoch leaves his flat with Rebekah Brooks, Chief Executive of News International,  in central London

The acquittal of Rupert Murdoch’s favorite executive, the flame-haired Rebekah Brooks, on charges of phone hacking and destroying the evidence might have marked the final act in one of the most bruising and expensive chapters in the history of News Corp.

It hasn’t turned out that way.

The $85 million that Murdoch paid to help keep his protégée out of jail has done little more than stoke the fires of resentment against his company in Britain. It also reminded U.S. federal authorities of the likelihood that similar crimes have been committed in America.

With convictions secured in Britain for bribing public officials, there is already enough evidence for U.S. authorities to pursue News Corp. under the Foreign Corrupt Practices Act. Which may be why the FBI requisitioned 80,000 emails from News Corp.’s New York headquarters.

Former News of the World editor Andy Coulson leaves the Old Bailey Courthouse in LondonThere is little worse for a media company than becoming a front-page story. For the past nine years, Murdoch’s empire has been dogged by accusations that it had been running a criminal operation to bribe public officials and steal messages from cell phones to feed the lucrative scandal sheets that funded News Corp.’s growth from the get-go.

The London investigation led to a number of trials that proved Murdoch’s staff paid government employees for information and hacked phones.

But the showpiece — at least so far because more bribery trials are set for later this year and authorities on both sides of the Atlantic are considering legal action against News Corp. — was the trial of Brooks, who ran Murdoch’s London press operations, and Andy Coulson, her deputy, successor, close associate and secret lover. When the frenzy around the hacking crimes was at its most intense, Murdoch said his top priority was not protecting his company, its shareholders or his six children who are set to inherit the firm —  but Brooks.

He proved as good as his word. The 83-year-old media tycoon spent millions of dollars on Brooks’ lavish defense, while prosecutors operated on a cheese-paring budget. Many Brits saw for the first time a U.S. system of justice operating in the Old Bailey, England’s principal criminal court: May the richest side win.

The trick worked. Brooks walked free. But instead of bringing to an end questions about how far up the executive ladder the criminality reached, her acquittal achieved the opposite. In Britain there is widespread disbelief and anger at the Brooks verdict. As one veteran U.S. editor put it, “Rebekah is Britain’s O.J. Simpson.”

Those who have worked for Murdoch also found the decision hard to fathom. While he pays little attention to the running of the Fox movie studio or the Fox TV channels, even Fox News, Murdoch likes nothing better than to play with his newspapers — like a teenage boy with an Xbox. Top editors operate under a rough-and-tumble ethos. Murdoch makes regular blunt calls across the Atlantic to make suggestions he expects to be followed to the letter. As he once said, “I try to keep in touch with the details.”

News Corp Chief Executive Rupert Murdoch speaks outside a hotel where he met the familly of murdered teenager Milly Dowler in central LondonFar from showing Brooks as the consummate professional and the ultimate Murdoch executive, however, her defense rested on convincing the jury she did not know what she was doing. Even though Murdoch had made her editor of both his tabloids, then boss of the whole London operation. The tight grip over every last headline and picture that Murdoch expects from his editors was, the jury was led to believe, conspicuously missing in the one editor he favored above all others.

In the absence of any convincing evidence to the contrary — Brooks was also charged with destroying evidence — the jury accepted that it could not be proved beyond reasonable doubt she knew that phone hacking was going on directly under her nose.

To achieve his key aim has cost Murdoch dear. His company remains in deep trouble in addition to the $1 billion so far in payments to hacking victims and on legal fees to defend his staff. He should, perhaps, have spent more time trying to protect Coulson, Brooks’s devoted sidekick, who was found guilty last week and is to be sentenced to jail time on Friday.

At the least, Coulson’s guilt confirms that criminality reached the door of Murdoch’s office. “For better or for worse,” Murdoch himself put it, “our company is a reflection of my thinking, my character, my ideas.” Though he seems to have handily forgotten his mantra, “The buck stops with the guy who signs the checks.”

Nothing more demonstrates the bullying ethos that governs Murdoch’s company than its response to the hacking investigation. Andy Hayman, head of the anti-terrorist team at Scotland Yard who, despite overwhelming evidence of wrongdoing at News International repeatedly declined to prosecute, left the force abruptly to become a highly compensated columnist at the Times, Murdoch’s mid-market London tabloid. Attorneys representing the more than 1,000 hacking victims were, on instructions from Murdoch’s own attorneys, snooped upon and secretly filmed by private detectives, as were the main attorney, Mark Lewis’ former wife and young teenage daughter.

Private eyes also secretly spied on members of the House of Commons committee investigating hacking by Murdoch employees and who, when Murdoch appeared before them in July 2011, elicited from him the line, “This is the most humble day of my life.”

The Conservative member of Parliament who made excuses for Murdoch in the committee, former drug addict Louise Mensch, left the Commons soon after and is now a highly paid columnist on Murdoch’s Sun.

News Corporation CEO Rupert Murdoch leaves his flat with Rebekah Brooks, Chief Executive of News International,  in central LondonWhile Murdoch gets great enjoyment from tinkering with his publications, their main function could be more sinister. Under the pretext of finding scabrous tittle-tattle that sells papers, Murdoch’s reporters compile dossiers on anyone who may be useful to furthering the company’s business. When journalists balk at this dubious work, private eyes like Glenn Muclaire are employed, a ruse that has spectacularly rebounded on the company.

Those who raise objections to Murdoch’s business aims or criticize his company can expect their private peccadilloes splashed across Murdoch’s front pages. Take Chris Bryant, the Commons media committee member who, in 2003, got Brooks to admit she paid police for stories. First, he had his phone hacked by Sun private eyes, then the paper outed him as gay and published a picture of him in his underpants.

Rather than face another long trial brought against it as a corporation by U.S. federal authorities that would further diminish Murdoch’s reputation and tie up his company, News Corp. will likely start bargaining over the hefty fine his firm must pay. As in London, money will be seen to have trumped justice.

What will happen to Brooks, who, despite the not-guilty verdict, has been wholly discredited? She may take up a senior post in Murdoch’s Australian outfit. The fact that Australia for many years was a penal colony is an irony not lost on the Brits.

For the medium to long term, News Corp. can only move beyond the mire when there is a change at the very top. Which might not happen for a very long time. If Murdoch lives as long as his mother, Dame Elisabeth, he has another 20 years before him.

Shareholders in his public company, run like the New York Times by a family trust holding Class A voting shares, must bide their time before they will be able to extract the true value of their embarrassing and troublesome investment.

Nicholas Wapshott’s The Sphinx: Franklin Roosevelt, the Isolationists and the Road to World War Two will be published in November by W.W. Norton.

 

PHOTO (TOP): News Corporation CEO Rupert Murdoch leaves his flat with Rebekah Brooks, chief executive of News International, in central London July 10, 2011. REUTERS/Olivia Harris

PHOTO (INSERT 1): Former News of the World editor Andy Coulson leaves the Old Bailey Courthouse in London October 31, 2013. REUTERS/Toby Melville

PHOTO (INSERT 2): News Corp. Chief Executive Rupert Murdoch speaks outside a hotel where he met the family of murdered teenager Milly Dowler in central London July 15, 2011. REUTERS/Paul Hackett

PHOTO (INSERT 3): News Corporation CEO Rupert Murdoch leaves his flat with Rebekah Brooks, chief executive of News International, in central London July 10, 2011.REUTERS/Olivia Harris

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U.S. power: Waging cold wars without end http://blogs.reuters.com/nicholas-wapshott/2014/06/26/u-s-power-waging-cold-wars-without-end/ http://blogs.reuters.com/nicholas-wapshott/2014/06/26/u-s-power-waging-cold-wars-without-end/#comments Thu, 26 Jun 2014 06:00:06 +0000 http://blogs.reuters.com/nicholas-wapshott/?p=1422 U.S. President Barack Obama addresses troops at Bagram Air Base in Kabul

Suddenly, it seems, the world is at war.

In Iraq, armed and angry militants of the Islamic State of Iraq and Syria (ISIS) are at the gates of Baghdad. In Pakistan, government forces are mounting a ferocious campaign against the Taliban in North Waziristan. In Syria, the civil war drags on. These are “hot wars” involving the clashing of troops and weapons. Having escaped such “hot” conflicts in Iraq and Afghanistan, these are the sort of war Americans have made it plain they are not prepared to fight.

But there are other wars going on. In Yemen, a forgotten war against an al Qaeda outcrop continues, largely fought with lethal U.S. drones. In Ukraine, Moscow is undermining the Kiev government by stealth. Russian President Vladimir Putin, anxious not to press his luck after successfully snatching Crimea from Kiev, is like a fox sliding through the hen coop, careful not to set off the alarm. He is being countered by targeted sanctions imposed by the United States and the European Union. These are “cold wars” — a contemporary variation on the 40-plus years of  Cold War fought to a standstill by the United States and the Soviet Union.

vietnam -- soldiersThe very nature of war has changed since the hauling down of the Berlin Wall in 1989. As the Cold War raged with often imperceptible intensity, the two sides mounted “hot wars” by proxy in minor theaters — the most prominent and punishing for the United States being Vietnam, a “cold war” first fought with teams of U.S. advisers, war materiel and money that became “hot.”

Before long, the heat became too intense for the American people and their children, who were conscripted to fight, and they called for a halt. Even so, it took many years to wind down. And when the last Americans scrambled out of Saigon, the city had already fallen to the Viet Cong and been dubbed Ho Chi Minh City.

Every U.S. war since the tragedy of Vietnam has been judged against that bruising conflict. It was even assumed for a while that Washington would never take part in a hot war again. Iraqi leader Saddam Hussein’s occupation of Kuwait in 1990, however, threatened the U.S. national interest, and President George H.W. Bush decided to take the oil-rich nation back by force. With memories of our bloody entanglement in Vietnam still ringing in his ears, Bush stopped the Gulf War a little way over the Iraq border.

Rather than go all-out for Baghdad and mount an occupation by U.S. forces, Bush opted for turning Hussein’s hot war into a cold one. Financial and economic sanctions, a no-fly zone, a tightly regulated oil-for-aid market and other restrictive international measures kept Hussein trapped like a house fly in double glazing.

FILE PHOTO OF BAGHDAD LIT UP BY TRACER FIRE.The Gulf War may have been the last hot war the United States ever fought had it not been for the al Qaeda attacks of September 11, 2001, and the need within the George W. Bush administration to demonstrate that America would not let such ignominious attacks go unanswered. Afghanistan was a no-brainer: Osama bin Laden trained his terrorists there and the Taliban had allowed them safe haven. In a mood of controlled rage, Americans saw little wrong with waging a hot war against the killers who were out to get them.

Iraq was different. There is no space here to relitigate the casus belli of that war in Iraq and whether Hussein’s weapons of mass destruction were real or imagined, but the upshot was that U.S. forces set out on their second simultaneous hot war. Bush soon discovered, however, what his father already knew: involving U.S. troops in a hot war in Iraq was punishing.

President Barack Obama then rode an anti-war wave into the presidency. Ever since, a conspicuously silent Bush has left Vice President Dick Cheney to defend the unnecessary war they chose to fight in Iraq.

The heavy toll of waging two wars at the same time, and the steady stream of caskets bringing home the U.S. war dead, appear to have persuaded Americans that they are no longer prepared to take part in another hot war. That is certainly the message Congress gives whenever Obama gets close to acting militarily on his own.

When it came to deciding whether to intervene in Syria, Obama appeared weak by hesitating. His decision to let Congress take the final decision, though, confirmed what was already evident: Americans are in no mood for a hot war.

EAST AND WEST GERMANS CLIMB THE BERLIN WALL IN THIS FILE PHOTO.The notion of waging a cold war, however, has taken a new direction since the collapse of the Soviet Union. In the old Cold War, the West had limited means of exerting its influence over the economies of the Soviet Union and its satellites because the communists operated a command economy virtually divorced from the West. The threat of economic sanctions meant little to a Kremlin that lived beyond the reach of the market.

Since the end of Soviet communism, however, globalization has changed everything. Now instead of condemning a whole population to inconvenience, shortages and penury, targeted sanctions can make life difficult only for the people making bad decisions. The range of the banking and financial systems now ensures that Washington can call the shots when it comes to dodging sanctions or laundering money — as Credit Suisse and the French bank BNP Paribas have learned at vast cost.

Cold wars are slow to win. But the punishment they deliver is more accurate and more effective than the old-school Cold War. Putin, for example, knows he has a limited time before he must bring his Ukraine adventure to a close and nurture a rule of law. For as long as he persists, Russia will lose its most talented citizens as they flee arbitrary justice, lack of freedom of expression, fixed elections and all other aspects of Russian life that offends talented people.

In Soviet days, high-value Russians were confined to the Soviet Union simply by being refused exit visas.

FILE PHOTO OF PREDATOR ABOVE USS CARL VINSON.Obama may have ridden an anti-war wave to become president. But once in the White House, while drawing down the hot wars, he has waged cold wars with vigor — much to the dismay of many supporters.

Obama’s use of drones, particularly in North Waziristan and Yemen, has been ruthless. He is even prepared to kill American-born terrorists with drones. In response to the Crimea annexation and Moscow’s surreptitious invasion of eastern Ukraine, he has levied stern controls and restrictions on the Russian top brass. When European leaders meet later this week, they are expected to weigh extending sanctions to broad sectors of the Russian economy as well as wider circles surrounding Putin.

To mount a hot war has been a last resort for most presidents and it is hard to imagine what pressing circumstances today would cause a president to mount an operation as complex and dangerous as the war in Iraq. But if the United States is to maintain its influence around the globe, and keep terrorists well away from its shores, presidents of either party must be prepared to wage endless cold wars.

To abandon war altogether would be to acknowledge that the American people’s desire for peace had left it pitiful and powerless.

Nicholas Wapshott’s The Sphinx: Franklin Roosevelt, the Isolationists and the Road to World War Two will be published in November by W.W. Norton.

 

PHOTO (TOP): President Barack Obama addresses troops at Bagram Air Base in Kabul, May 25, 2014. REUTERS/Jonathan Ernst

PHOTO (INSERT 1): 173rd Airborne Brigade under fire on Hill 823 in Vietnam, November 1967. REUTERS/U.S. Army

PHOTO (INSERT 2) Iraqi anti-aircraft fire and tracer flares lighting up the sky above downtown Baghdad as U.S. and allied bombing raids launched a Gulf War to liberate Kuwait, January 17, 1991. REUTERS/Patrick De Noirmont

PHOTO (INSERT 3): East and West German citizens celebrate as they climb the Berlin Wall at the Brandenburg Gate after the opening of the East German border was announced, November 9, 1989. REUTERS/Fabrizio Bensch

PHOTO (INSERT 4): The Predator unmanned aerial vehicle flies above USS Carl Vinson in this December 5, 1995 picture. REUTERS/Files

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Democracy is on the ropes. So what are we going to do about it? http://blogs.reuters.com/nicholas-wapshott/2014/06/17/democracy-is-on-the-ropes-so-what-are-we-going-to-do-about-it/ http://blogs.reuters.com/nicholas-wapshott/2014/06/17/democracy-is-on-the-ropes-so-what-are-we-going-to-do-about-it/#comments Tue, 17 Jun 2014 19:15:29 +0000 http://blogs.reuters.com/nicholas-wapshott/?p=1403 child holds her father's hand at a polling station in Kabul

Democracy is taking a bashing. On almost every continent, attempts to extend the right of people to choose their own government is running into deep trouble. In Iraq, Egypt, Ukraine, Russia, Afghanistan, Pakistan and many other countries, democracy is being overwhelmed by despotism and despair.

A commonly heard response is that Western democracy is not for everyone, that what works in our society does not automatically work elsewhere. Another is to suggest that we should not try to spread democracy to the rest of the world; it is none of our business.

Both views are mean and short-sighted. If the United States abandons democracy in the rest of the world, not only is the rest of the world sunk but tyranny will soon be heading our way as voting laws here become more restrictive.

It was 25 years ago, prompted by the collapse of Soviet communism, that Francis Fukuyama, now a Stanford professor, argued that the world had reached “the end of history” and that liberal democracy and free market capitalism was its final phase. It was now only a matter of time, he said, before the rest of the world caught up with the U.S. and Western Europe and ran their affairs along democratic lines.

At first he appeared to be right. Under the final Communist leader, Mikhail Gorbachev, Russia abandoned Marxism-Leninism and the Eastern European vassal states it had oppressed since World War Two liberated themselves. For the first time, countries like Poland and Ukraine voted freely. The onward rush toward democracy soon spread, culminating in a great wave of democratization in the Arab nations of North Africa and the Middle East.

Now that grand vision looks hopelessly naïve. Russia soon reverted to its default position: rule by despot, whether it be Peter the Great or Josef Stalin. Under the pretext he needed to restore order to a gangster nation, Vladimir Putin imposed a regime both oppressive and xenophobic. Human rights have been abandoned, Putin’s opponents are arbitrarily jailed, and elections have become a farce.

The old Warsaw Pact countries in Eastern Europe fared better for a while, but even there true democracy often proved elusive. As a condition of joining the European Union, former Soviet vassal states had to hold free elections, guarantee the rule of law and safeguard individual human rights. Some countries did not need prompting; others found that old ways die hard.

As soon as they were EU members, some governments – of both left and right — reneged on their commitments and retreated into “managed democracies” or “electoral autocracies.” Hungary, Slovakia, the Czech Republic, Bulgaria, Slovenia and Romania, among others, abandoned true democracy and returned to a form of dictatorship. Despite efforts by the EU to promote democracy, many Eastern European leaders have played the West off against Russia.

What happened in Ukraine is typical. Having struggled for years to become democratic, the regime in Kiev was told it could not join the EU until it had set up a system of justice that would free political prisoners, among them former prime minister Yuliya Tymoshenko. It was during this hard bargaining with the EU that Putin made a counter-offer larded with rubles that the then Ukrainian premier, Viktor Yanukovich, quickly accepted, setting off the coup and the country’s present troubles.

Elsewhere, the Arab Spring has sprung. Egypt set the tone for its Arab neighbors by in 2011 ousting its dictator, Hosni Mubarak, and electing Mohamed Morsi’s Muslim Brotherhood, who dismantled democratic safeguards and imposed Islamist restrictions on the country’s Western-leaning population. Egypt’s failed experiment in democracy was overturned by the military under Abdel Fattah el-Sisi, who earlier this month was elected president in Morsi’s place. Events in Libya and elsewhere echo this trend.

In the West, there is endless hand-wringing over the failure of Iraq’s democratically elected prime minister Nouri al-Maliki to keep his splintered nation together. Those being singled out for blame are: President Barack Obama, for not pressing Maliki to permanently station U.S. troops in the country and for not prodding him hard enough to involve the Sunni minority; President George W. Bush and British Prime Minister Tony Blair for overthrowing the murderous tyrant Saddam Hussein; and even François Georges-Picot, Mark Sykes, and Gertrude Bell, who drew the borders of Iraq a century ago.

Voters have gone to the polls in Afghanistan to elect a new president, but there is little hope that once American and Allied troops leave the country that it will not be torn apart by the Taliban and the warring tribal chiefs who run the territory beyond the capital. Again, Western attempts to introduce democracy appear to have been a waste of lives and money.

A woman holds balloon with al-Sisi picture as Egyptians celebrate after the swearing-in ceremony of President elect Abdel Fattah al-Sissi, in  front of the Presidential Palace in CairoBeyond those who are using the current turmoil in Iraq, Afghanistan, Egypt, and Ukraine for domestic political purposes, there is a general feeling among Americans that, having fought two wars for 10 years, it is time for the U.S. to pull back from the world. Neo-isolationism – the modern iteration of the popular movement that kept America out of World War Two for three years – is on the rise and leaders on both right and left are happy to ride the wave.

If only those abandoning the quest for democracy abroad would spend as much energy ensuring that democracy here is in good shape. Instead, it is often the very people who are calling for America to withdraw behind its borders and let the rest of the world hang who are helping the retreat of democracy at home.

One of the best gauges of democracy is how many citizens take part. In the 2012 presidential election, only three out of five Americans could bring themselves to vote. Why? Democracy in America is under attack.

The gerrymandering of constituency boundaries to ensure one-party rule; widespread attempts to alter rules governing who can vote and when on the pretext of non-existent voter fraud; and the Supreme Court’s decision in Citizen’s United to allow corporations to give vast amounts of money to the campaigns of those who will do their bidding on Capitol Hill — all make a mockery of American democracy.

It was not always so. Brave American and Allied troops stormed the beaches of Normandy 70 years ago this month to free Europe and the world from Nazism. They did not flinch from promoting democracy, restoring it to those who had lost it through Axis occupation and annexation, and trying to extend it to the colonies of their fellow Allies.

With the very notion of democracy at risk, even in America, it is worth recalling the words of Winston Churchill, who for six long years urged free people to rise up against tyranny. “No one pretends that democracy is perfect or all-wise,” he said. “Indeed, it has been said that democracy is the worst form of Government — except all those other forms that have been tried from time to time.”

Democracy, like a marriage, takes work if it is to survive and prosper. Amid the clamor to abandon our efforts to help democracy flourish around the world, it must be constantly nurtured both at home and abroad. There is nothing more likely to inspire democracy elsewhere than the example of democracy making a difference to ordinary Americans’ lives here at home.

With polls showing Americans reluctant to intervene to help struggling democracies, it would be easiest for politicians, particularly prospective presidential candidates, to fall in with the public mood. But, with memories of D-Day anniversary celebrations fresh in our minds this month, it is worth recalling that 75 years ago it was bold and ingenious leadership inspired by the noblest of motives that encouraged the Greatest Generation to put their personal self-interest aside and hurl themselves in to what would undoubtedly be their finest hour in freeing the world from tyranny.

TOP PHOTO: A child holds her father’s hand at a polling station in Kabul June 14, 2014. REUTERS/Mohammad Ismail 

PHOTO: A woman holds a balloon with a picture of President Abdel Fattah al-Sisi, as Egyptians celebrate after his swearing-in ceremony on June 8, 2014. REUTERS/Asmaa Waguih

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Whether GM or banks, some companies are still too big to jail http://blogs.reuters.com/nicholas-wapshott/2014/06/10/whether-gm-or-banks-some-companies-are-still-too-big-to-jail/ http://blogs.reuters.com/nicholas-wapshott/2014/06/10/whether-gm-or-banks-some-companies-are-still-too-big-to-jail/#comments Tue, 10 Jun 2014 06:00:58 +0000 http://blogs.reuters.com/nicholas-wapshott/?p=1389 U.S. Attorney General Eric Holder speaks at a news conference at the Justice Department  in Washington

Attorney General Eric Holder is in the middle of a prosecuting binge against some of the world’s biggest companies. Washington’s attempt to bring such large corporations to justice is long overdue.

Tea Party and Occupy Wall Street protesters were furious that financial executives who brought the world to the brink of penury in 2008 paid no price for their reckless behavior. The anger became widespread when the U.S. justice system seemed incapable of bringing culpable individuals and companies to account.

Now a number of large firms are finally being forced to face the music and this notion of whether a company can be “too big to jail” is being tested. Last month, General Motors agreed to a fine of $35 million for failing to respond soon enough to faulty vehicle ignitions that contributed to the deaths of 74 drivers.

Financial institution representatives are sworn in before testifying at the Financial Crisis Inquiry Commission hearing on Capitol Hill in WashingtonProsecutions of other corporations are in the works — including the culmination of the investigation into fixing the LIBOR interbank overnight rate.

Last month, too, Credit Suisse acknowledged its part in a criminal attempt to hide its American depositors’ cash from the U.S. federal tax authorities and agreed to pay a $2.5 billion fine.

Early this month Holder moved against the French mega-bank BNP Paribas, threatening a $10-billion fine — equivalent to the bank’s total 2013 pretax income — for evading U.S. sanctions against Iran, Sudan and Syria between 2002 and 2009. This echoes a similar case against HSBC, which was levied $1.9 billion in December 2012 for helping its clients avoid U.S. sanctions against Iran, Libya, Sudan, Burma and Cuba.

Now that big companies are being prosecuted, amid public clamor for punishments on wrongdoers, however elevated they are, the question is: Is justice being done?

Holder appears to be of two minds about fining large companies. In March last year he explained to the Senate Judiciary Committee that when it came to banks and multinationals, there is indeed such a thing as “too big to jail.”

“I am concerned that the size of some of these institutions becomes so large,” Holder noted, “that it does become difficult for us to prosecute them when we are hit with indications that if we do prosecute — if we do bring a criminal charge — it will have a negative impact on the national economy, perhaps even the world economy.”.

General Motors CEO Barra and GM Executive Vice President Reuss await Barra's testimony before the Senate Commerce and Transportation Consumer Protection, Product Safety and Insurance subcommittee in WashingtonBy May 2014, however, Holder changed his tune — saying the notion of “too big to jail” was wrong. “Some have used that phrase to describe the theory that certain financial institutions, even if they engage in criminal misconduct, should be considered immune from prosecution due to their sheer size and their influence on the economy. That view is mistaken,” he said in a carefully calibrated statement on the Justice Department website.

One key problem in fining large companies is that many of those obliged to pay did not own stock when the crime was perpetrated. Public companies, by their nature, change.

As Heraclitus of Ephesus put it thousands of years ago, “You can never step into the same river, for new waters are always flowing on to you.” Stocks are churned over the years a crime was committed — and only those left holding the shares when the music stops, and the federal agents strike, pay the penalty.

But that obvious miscarriage of justice is a misleading means of understanding how shareholder democracy works in practice. In the mythical theory of how business works, those who own stocks and shares and are entitled to vote at shareholders’ annual meetings are wholly responsible for a company’s management and its conduct.

In reality, of course, the vast majority of shareholders play no part in the running of a company. The key executives and a small number of owners and institutional investors chart the course and most shareholders go along for the ride.

Consulting materials engineer Mark Hood poses in the mechanical testing laboratory at McSwain Engineering, Inc. in PensacolaIndividual shareholders find it next to impossible to make their voices heard, as their many failed attempts to curb excessive executive pay show. Owning shares is an example of responsibility without power. And being caught with a stake in an offending company can prove expensive.

Individuals found responsible for errors of judgment, or who presided over the company when the offenses took place, are rarely punished. Though in the cases above, some medium-ranking executives have been fired, the line of responsibility rarely reaches the very top — where the moral compass of the company is set.

Those who work for the company, who may have had little direct involvement with the wrongdoing, are made to suffer, as large fines affect the company’s profitability and its ability to invest in future growth. The offending company’s customers, too, may suffer higher prices as the fines are passed on.

Fining large companies, then, is hardly an exercise in justice. Most of those punished are innocent bystanders. In the case of the fine against General Motors, U.S. taxpayers may pick up the tab. GM is considered such an important part of the economy it has received subsidies from federal and state sources amounting to $3.57 billion — of which it is now expected to hand back $35 million.

As Holder points out, the impact on the wider economy, both at home and abroad, may be affected by altering the status of one of the small number of key players in a sector.

The example usually cited is the accounting company Arthur Andersen, brought to its knees in 2002 when it obstructed justice by shredding documents pertaining to the Enron fraud. Justice was served — after a fashion — when the company all-but collapsed. Though the real price was paid by the employees. Just 200 jobs were left in a workforce that once boasted 28,000 employees in the United States and 85,000 worldwide.

What, then, is the purpose of imposing fines on a company if the penalty has little bearing on the individuals who committed the crime and merely adds to the sum of human misery? The answer is simple: not much.

Yet, such is the byzantine nature of the crimes, and so ingenious the attempts to cover them up, it is only the threat of a massive fine, or jail for key executives, or closure of the entire company that motivates senior employees to cooperate with federal investigators.

In his appearance before the Senate Justice Committee, Holder urged Congress to amend the law to make the process more fair. Until lawmakers decide they wish to make prosecutions easier to bring or make bosses more culpable for crimes committed on their watch, innocent shareholders and employees will continue to be punished for crimes they did not commit.

But since there appears to be no appetite in Congress for making it easier for the government to prosecute private businesses — injustice will continue to prevail.

Nicholas Wapshott is the author of  Keynes Hayek: The Clash That Defined Modern Economics. Read extracts here.

 

PHOTO (TOP): Attorney General Eric Holder speaks at a news conference at the Justice Department in Washington, March 19, 2014. REUTERS/Yuri Gripas

PHOTO (INSERT 1):  From left to right, Lloyd Blankfein, chief executive of Goldman Sachs Group, Jamie Dimon, chief executive of JPMorgan Chase, John Mack, chairman of Morgan Stanley, and Brian Moynihan, chief executive of Bank of America, are sworn in before their testimony at the Financial Crisis Inquiry Commission and its first public hearing in Washington, January 13, 2010. REUTERS/Jason Reed

PHOTO (INSERT 2): General Motors Chief Executive Mary Barra (L) and GM Executive Vice President Mark Reuss (R) await Barra’s testimony before the Senate Commerce and Transportation Consumer Protection, Product Safety and Insurance subcommittee in Washington, April 2, 2014. REUTERS/Gary Cameron

PHOTO (INSERT 3): Consulting materials engineer Mark Hood poses in the mechanical testing laboratory at McSwain Engineering, Inc. in Pensacola, Florida, March 28, 2014. REUTERS/Michael Spooneybarger

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VA scandal is no mark against big government http://blogs.reuters.com/nicholas-wapshott/2014/06/03/va-scandal-is-no-mark-against-big-government/ http://blogs.reuters.com/nicholas-wapshott/2014/06/03/va-scandal-is-no-mark-against-big-government/#comments Tue, 03 Jun 2014 06:00:43 +0000 http://blogs.reuters.com/nicholas-wapshott/?p=1378 U.S. military veterans listen in the audience during a House Veterans' Affairs Committee hearing on the Phoenix VA Health Care System wait list, on Capitol Hill in Washington

For some, the veterans hospitals scandal is a human tragedy pure and simple. Those who loyally served their nation in uniform, putting their lives on the line, were shunned when they sought medical help.

For others, however, the troubles at the Department of Veterans Affairs have provided what one pundit called “A gift from God.”

For those commentators, the scandal confirmed their worst fears. The logic runs like this: The VA provides a government-run health service; the failures of the VA are a disgrace; ipso facto, all government-run health systems are a disgrace; proving that all government-run bodies are a disgrace. So all government should be sharply reduced — if not abandoned altogether.

Vietnam veteran Downs gives a thumbs up during a demonstration of modular prosthetic arm technology developed by the Defense Advanced Research Projects Agency at the Pentagon in WashingtonThe VA troubles, however, prove no such thing. The poor treatment of veterans has nothing to do with funding and everything to do with administrative incompetence combined with craven deceit.

Anyone who has been kept waiting inordinately by a doctor or hospital, or who has had their treatment or prescription drugs denied by their health insurance company, knows that. Anyone kept hanging on the line for an ill-named “customer service representative” and told by an automaton, “Your call is important to us,” knows that private companies treat customers with equal disdain.

The difference is that in the VA scandal, democratic accountability eventually — it took far too long, we know — kicked in. The top man resigned and top managers who presided over the incompetence and subterfuge were fired. It is a further scandal that it took President Barack Obama himself to push the wrongdoers into admitting responsibility. But at least the problem was ultimately addressed.

When can you remember a chief executive officer of an aberrant cable TV company or phone or utility company or even a health insurance company — fill in your favorite offender here — falling on their sword for keeping their customers waiting?

This is the full quote from the “Gift from God” analyst, former neurosurgeon Ben Carson: “What’s happening with the veterans is a gift from God to show us what happens when you take layers and layers of bureaucracy and place them between the patients and the healthcare provider.”

United States Veterans Affairs Secretary Eric Shinseki addresses The National Coalition for Homeless Veterans conference in WashingtonPerhaps, as a brain surgeon, Carson is given special treatment when he visits the doctor. But the rest of us endure “layers and layers of bureaucracy” whenever we try to access the healthcare we have so expensively bought.

One reason American healthcare is two-and-a-half times more expensive than in comparable countries is because of the “layers and layers” of insurance sales agents, ID checkers, referral faxers, hospital debt collectors from insurance companies and all the other expensive bureaucrats with no medical knowledge who are employed to administer and police the system. Add to that routine over-charging by doctors and Americans seeking healthcare are being ruthlessly abused and exploited by a commercial scheme that offers them little real choice.

Why do even the smartest free-market dogmatists, who like to paint the world in black and white, fail to see the flaws in commercial companies? Here is the dean of conservative commentators, Charles Krauthammer: “If there’s ever been evidence that a government-run system of healthcare is a disaster, it’s here,” he said. “It’s rationing, it’s waitlists, and corruption and laziness — as you get when people are salaried, rather than working in the free market.”

Cannot those employed on salaries by private companies, particularly employees of corporate behemoths who operate near-monopolies, also ration their customers and say they have been put them on waitlists that do not exist? Can employees of commercial firms not also be corrupt and lazy? Does the free market not employ salaried workers? This muddled thinking is simply partisanship posing as intellectual rigor.

The public-private divide is a red herring that used to distract the left from clear thinking. For a century or more, socialists and communists believed that the world’s problems would be solved if only the “commanding heights” of an economy and the “means of production” were brought into state ownership. Many otherwise smart people fell for an ideology that failed to fulfil its promise the second it was put into practice.

Undated handout of a pileup of claims at the Department of Veterans Affairs facility in Roanoke, VirginiaState socialism is now as extinct as the broad-faced potoroo and few except die-hard ideologues dare suggest the government should run everything. Yet the government, tempered by democracy, still has an important role to play when the private sector is found wanting.

It is not merely in treating veterans — whose profound mental and physical wounds can often be so expensive to treat that private insurance companies cannot offer an affordable rate. In many Western European countries taxpayer-funded health systems keep down the skyrocketing costs of treating their ageing populations, just as here in the United States the Social Security system provides an equitable, and relatively inexpensive, way of providing a decent standard of living for retirees.

Other essential services, too, are best administered by the state. Such as the armed services and the police. Schooling, too, is too important to the nation to be left solely to the private sector. State education too often fails, but it is not because taxpayers fund it — it is because the money is spent unwisely.

The question is not whether to have the government provide services the private sector cannot supply. It is a matter of where to draw the line between public and private.

Nicholas Wapshott is the author of Ronald Reagan and Margaret Thatcher: A Political Marriage, and Keynes Hayek: The Clash That Defined Modern Economics. Read extracts here.

 

PHOTO (TOP): U.S. military veterans listen in the audience during a House Veterans’ Affairs Committee hearing on the Phoenix VA Healthcare System wait list, on Capitol Hill in Washington May 28, 2014. REUTERS/Jonathan Ernst

PHOTO (INSERT 1): Vietnam veteran Fred Downs gives a thumbs up during a demonstration of modular prosthetic arm technology developed by the Defense Advanced Research Projects Agency at the Pentagon in Washington, April 22, 2014. REUTERS/Kevin Lamarque

PHOTO (INSERT 2): Veterans Affairs Secretary Eric Shinseki addresses The National Coalition for Homeless Veterans conference in Washington May 30, 2014. REUTERS/Gary Camero

PHOTO (INSERT 3): A pileup of claims at the Department of Veterans Affairs facility in Roanoke, Virginia, July 25. 2012. REUTERS/Government Handout

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The healthy route for Hillary Clinton: Release your medical records http://blogs.reuters.com/nicholas-wapshott/2014/05/20/the-healthy-route-for-hillary-clinton-release-your-medical-records/ http://blogs.reuters.com/nicholas-wapshott/2014/05/20/the-healthy-route-for-hillary-clinton-release-your-medical-records/#comments Tue, 20 May 2014 22:10:00 +0000 http://blogs.reuters.com/nicholas-wapshott/?p=1365 hillary!!

So Karl Rove has cast doubt on former Secretary of State Hillary Clinton’s health. He may have been off when he claimed that the presumed 2016 Democratic presidential candidate spent 30 days in the hospital — she was only kept in for three — but he has clearly drawn political blood.

The Clintons went into full defense mode. Though every presidential candidate in modern times has provided a full account of their health, and if Hillary Clinton decides to run, she too will have to hand over her full medical file — including an explanation of the blood clot between her skull and her brain caused by a fall, a full account of why she fell, what treatment she received, how well she recovered and whether there are any lasting effects. It’s par for the course.

The Clintons being Clintons, however, are keeping mum about the substance of Rove’s accusation. As if it were somehow bad manners to raise health as an issue. Health is, should and will be an issue, just as the health of whoever emerges as the champion from the GOP presidential primaries will be pounced on, prodded and pored over.

Republican political consultant Rove speaks with the National Journal's Brownstein during the fifth annual Washington Ideas Forum at the Newseum in WashingtonClinton’s age will also be an issue in the 2016 election, just as it was for Ronald Reagan — who was 69 years old when elected, compared to her 68, if she runs — and for Senator Bob Dole — who was 73 years old when he made his last White House bid in 1996.

Clinton’s strength in her party is such that until she makes up her mind whether she will run, no other Democrat can raise a cent to explore a campaign of their own. That is why, a full two and a half years away from November 2016, we are in the midst of a phony election.

There may be a number of good reasons that Rove and his fellow GOP strategists are gunning for Clinton this early. Perhaps they consider her such a strong candidate that they are trying to damage her below the waterline — even before she makes her decision about whether to run. Perhaps they feel her popularity in the country is so high — the latest polls show she would trounce anyone the Republicans can put up against her — it is going to take more than two years of sniping to defeat her.

But how should Clinton respond to questions about her health and other pertinent — and impertinent — topics? In this last month alone, she has been accused, when secretary of state, of not designating Boko Haram, the wicked kidnappers of 270 Nigerian girls, a terrorist group fast enough. She also had to dodge the fallout from the reentry into public view of her husband’s Oval Office squeeze, Monica Lewinsky, who reheated the sex scandal for Vanity Fair. In response to both of these drive-bys, she has remained above the fray, leaving surrogates, including her husband, to make her case.

Among the other issues Hillary Clinton must eventually face are decisions she made when first lady. She will be quizzed about her failed universal health care initiative, which has new relevance now that we have Obamacare; her involvement with the Whitewater real estate development; her part in the White House travel office firings; and her friendship with Vince Foster, the White House counsel who committed suicide in odd circumstances.

Above all, she will be scrutinized over her behavior during the Lewinsky affair. Should she have stood by her man, or should she have thrown President Bill Clinton out?

Then there is her time as secretary of state. Did she really do everything she should have done and could have done to minimize the danger to U.S. Ambassador Chris Stephens and the three other Americans who died during a terrorist assault on a U.S. mission in Benghazi?

Republicans think they are onto a winner with Benghazi, and the polls agree, which is why, despite the lack of anything really new, they are pressing ahead with another congressional inquiry. Prepare to be bored — because it is going to be all Benghazi, all the time.

Rove may be onto something. It is not just the baggage Clinton carries around with her; it is the Clintons’ apparent gift for stonewalling that gives the impression they are hiding something.

This may be miserably unfair. There may well be nothing to hide. But the public perception is that the Clintons tend to get into the bunker and batten down the hatches whenever they are under scrutiny. Even when they are innocent.

bill & hillaryThat plays into a further problem with Clinton’s presidential run. There is a general sense that the Clintons make life more difficult for themselves because they are so brilliant at handling the messy side of politics.

When Vice President Joe Biden’s son Hunter was reported to be linked in a business deal to the ousted pro-Russian Ukrainian president, an old journalistic hand said to me, “It’s the Clintons.” Asked what he meant, he said, “The Clintons leaked it. It is just like them.”

I don’t believe for a minute the Clintons did any such thing. But the fact that it was plausible, that it was the sort of thing the Clintons do, is bad for them.

The thought of returning to a time when the Clintons lived in the White House, with all that that entails in terms of washing dirty linen in public, is troubling even to many Democrats.

We have not only seen this movie, we have lived through it. And believe me, it is not worth seeing twice.

So what is Clinton to do? In brief, she should come clean, starting with the blood clot. Issue the full medical records right now. Does that inhibit her from deciding whether to run for the presidency? Not at all. If she has a clean bill of health, it will show Rove as being a little too eager to find a dirty little secret. If her health remains an issue, she needs to get it out sooner rather than later.

If there are questions about what is kept under lock and key in the Clinton Library, release everything right now. If there are questions about how much she and her husband have earned over the years, open the books.

Don’t wait for a week or a month or call in the lawyers: publish and be damned.

If the latest Benghazi investigating committee asks her to appear before them, she should jump at the chance. As she showed during the Senate hearing when Senators Rand Paul (R-Ky.), Ted Cruz (R-Tex.) and other amateurs took potshots at her, she is more than capable of looking after herself.

Benghazi? Bring it on.

Nicholas Wapshott is the author of Ronald Reagan and Margaret Thatcher: A Political Marriage, and Keynes Hayek: The Clash That Defined Modern Economics. Read extracts here.

 

PHOTO (TOP): Former Secretary of State Hillary Rodham Clinton speaks to members of the Institute of Scrap Recycling Industries during their annual convention in Las Vegas, Nevada, April 10, 2014. REUTERS/Las Vegas Sun/Steve Marcus

PHOTO (INSERT 1): Republican political consultant Karl Rove during the fifth annual Washington Ideas Forum at the Newseum in Washington, November 14, 2013. REUTERS/Gary Cameron

PHOTO (INSERT 2): Former Secretary of State Hillary Clinton (L) and her husband, former President Bill Clinton talk at a dinner in honor of Presidential Medal of Freedom awardees at the Smithsonian National Museum of American History in Washington, November 20, 2013. REUTERS/Jonathan Ernst

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