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Matias Turkkila:

Crony Capitalism

A Speech Given at the Publication Event of the Book Taxes, Debt and Crony Capitalism (Veroja, velkaa ja kaverikapitalismia) on 25.5.2018.

Good morning – Welcome – and thanks to the previous speakers – Matti Viren and Sakari Puisto – and thanks to Matti Putkonen for his comments and organizing this session.

Our new book, ”Taxes, Debt and Crony Capitalism,” covers a number of subjects and themes: political and financial systems with their consequences, incompetence and ineptitude, intentionally keeping silent, alternatives and options, and what I will talk about here – ’crony capitalism.’

’Crony capitalism’ travels under various names – some euphemistic, some not so very ’polite.’ There are terms such as ’large corporation favouritism,’ pro-business, covert corruption and if we go to the extreme, we have kleptocracy. The major difference here in Finland with what often happens, for example, in other countries is that these transfer of assets from ’one pocket to another’s’ occurs ’legally.’ Finland doesn’t have the situations such as in Russia with significant ’gifts,’ all kinds of court cases, etc. – yes, sometimes we have these cases in Finland but these are the infrequent exceptions.

Alright, then, let’s begin. I’d like to call on some references to people who are professionally versed in these matters – and not leave you dependent on only my comments.

We can start with Jaakko Korhonen, Finnish representative of Transparency International, which considers itself active in anti-corruption issues. He states that Finland has a tradition of not dealing very much with unpleasant matters in public.

Anu Kantola, communications professor, has said that Finland has always promoted itself as an embodiment of a corruption-free environment. It may come as a surprise to some that Finland, too, has its own forms of pervasive corruption – albeit ’quiet.’ Finland may well have a wrong tradition of ’silence.’

Ari Salminen, Professor Emeritus, has written that crony capitalism disrespects the legitimacy and position of the ordinary citizen, exaggerates the authority of so-called ’experts,’ creates unnecessary delays in the handling of issues, encrypts and conceals important questions, makes for conditions of incompatibility and is, over-all, a major cause of a lack of competition.

We can add more unwelcome consequences: contradictions in advantages and benefits, illogical restrictions, unfair disqualifications, cartelization, systematic favouritism.

If one speaks to small enterprises, one notices immediately a reflection of Professor Salminen’s comments — when these smaller firms compete for various projects, the large companies invariably succeed and the smaller are left out.

The OECD has done a study of corruption with the aim of finding which industrial sectors were most prone to corruption. As of the year 2014, these were the rankings:

Mining – 19% of corruption cases

Construction – 15%

Transport – 15%

Information Technology (IT) – 10%

So if one wants to know where corruption is happening, it’s best to look first at these areas.

Dr. Mika Maliranta, an economist at Finland’s Research Institute of the Finnish Economy, has made an interesting and informative diagrammatic model which divides the attitude towards ’the market’ into what he thinks are its various segments: left- and right-thinking segments that take a positive attitude towards ’the market’ and those that are less favourable. The latter are the government-directed (’government monopoly capitalism’) and ’commercial/business’ sectors. Maliranta believes that the ’tragedy’ occurs when the government sector ’meets’ the commercial segment – and ’big business friendliness’ simply means the government uses its political means to favour certain businesses and interests. The inevitable conclusion is that when one area is favoured the rest fall into disfavour.

A doctoral dissertation has just now been published – written by Anders Blom, someone who has also been labelled as a super-lobbyist. Dr. Blom has been associated for years with promotion of loosening laws and regulations with regard to private firms – and has headed an organization with these aims.

Nevertheless, his dissertation goes to great lengths to show there have been ’operations’ and co-operation where Finland’s economic elite has found its way – through lobbying, etc. – to work with political forces to arrange laws and programs that have cemented the elite into ’governing Finland.’

According to Blom, the ’lobbyist insiders,’ working through crony capitalism, have more information and tools at hand than the very legislators writing the laws. These influences – both direct and indirect – have succeeded in getting down to the grassroots of society. Blom also says that the Finnish media has been ’loyal’ to these insiders for many years.

Blom says that the commercial segment of Finland has had European integration as a goal since the 1960’s. The recession of the 1990’s was a contributor towards the attitude of ’business’ that this integration was an absolute necessity. No matter what the price, Finland would be part of any ’European market’ association and any common currency.

Let’s now look at – and categorize – the various means that would be used by these crony capitalists to implement their goals. I’ve put them under 5 terms:

  1. Massive regulation
  2. The ’Forgotten Man’
  3. Legislation with a double function
  4. Political appointments
  5. Capture the control agencies

 

Massive regulation

Technology expert Jaakko Lindgren has said that 8 of the 10 largest private companies in the world would not be permitted to operate in Finland or would at least face extremely difficult legal problems.

The purpose of massive regulation is to put legislative obstacles in the path of any potential competition to existing companies – open competition is considered the bane of crony capitalism.

Corporation executives have said that more regulations are a benefit to them – the ’more the merrier.’ These companies can hire hordes of lawyers to ’arrange’ legislation that creates special exceptions, compliance possibilities and similar loopholes for the benefit of these corporations – whereas newcomers are kept off the market with restrictive regulations.

The European Union has just now put in force the General Data Protection Regulation (GDPR) and many small businesses are scratching their heads as to what this means for them – and what penalties and sanctions exist. Such a regulation is a dreamed-for gold mine for all kinds of ’consultancy’ firms but a nightmare for small enterprises that cannot really afford such advice.

 

The ’Forgotten Man’

The next situation has been described 130+ years ago by Yale professor William Graham Sumner – and he described it as ’the forgotten man.’ Sumner posited that there would be a person ’X’ with a ’problem’ – person ’A’ would notice this and tell person B – they would decide to assist ’X’ by using the resources of person C – WITHOUT ever discussing or consulting with C! ’C’ became known as the ’Forgotten Man.’

The presence of this condition comes into play particularly with the ’double function’ I describe with the following comments.

 

Legislation with a double function

The term ’double function’ is my own. The meaning is that one supports legislation that favours a particular standpoint and action – but then proceeds to take steps in the opposite direction.

When there is this split in the supposed message and action with what really happens, the ’forgotten man’ syndrome, above, becomes a very useful tool for obfuscation of what has really been intended and what is happening.

Three ’hot potatoes’ in Finnish politics come to mind immediately that illustrate how this duplicity works: the ’youth housing policy and program,’ the proposed rural system for domestic sewage treatment, and the extremely controversial proposals for reform of the governmental social and health systems. The existence of crony capitalism shines through in every case as political parties and economic interests collaborated in ’constructive (for them) deception.’ In reality, the situation is another variation of the infamous ’con game.’

 

’Political appointments’

Government and common funds are used, in one way or the other, for a variety of corporations, associations, foundations and institutes. Much of the personnel of these organizations have been appointed by the political parties and they are, no doubt, considered compatible and suitable in the eyes of those parties that have selected them. In the world of crony capitalism, these appointees can be expected to be supporters at the grassroots level for their ’sponsors.’ Who dares to bite the hand that feeds them?

These appointees are often receiving giant salaries which, of course, work their way through to providing favourable decisions for these ’sponsors.’ These situations do result in unfavourable publicity in some quarters but they also gain friends among those that are similarly getting huge payments for doing little.

 

Capture the control agencies

In Finland, the people handling the preparation of legislation in finance, insurance and pension management are invariably working, or have worked, for these companies – a classic case of the gamekeeper turning to poaching. This is given the official-sounding term ’regulatory capture’ and has been written about by George Stigler, Nobel Prize winner.

Stigler has posited that every economic area with sufficient political power will try to control entry to that area. Regulatory policy will also be created to restrict the growth of new firms.

All this leads to regulation being ’favouritism’ – and not ’control.’

What, then, are the most effective forms of control in Finland?

Media

Government opposition

TSO’s (Third sector organizations)

Academic research institutes

Parliamentary constitutional commission

Chancellor of justice

Ministry of justice

Citizenry of Finland

One can ask – which, if any, of these categories have been ’captured’ as per George Stigler’s description or conjecture?

The ordinary Finnish citizen is often thinking what will happen next month when the money runs out. The burning question is where, indeed, is the money going? It goes to housing, energy, food, transport and taxes – and all these amounts are increasing significantly!

Finns are coming to the idea that living in the more remote areas of the country is bad – living in the city centres is good. Transport to proper services is becoming more and more difficult and expensive. The obvious solution is, supposedly, a simple move to the city.

What’s to be done about this? Political mechanisms for solution appear to be inoperable. Transport systems become more congested, housing is constructed in even higher concentrations – often leading to more problems of mould and dampness in residences. How has it come to this where ordinary people cannot live ordinary lives – have a chance to go easily to work and then return to their homes, have usual hobbies, etc?

Similar difficulties confront small businesses – they are locked out of decent-sized orders, etc. Regulation is keeping these small firms from getting onto the market. As I’ve said before – restricting one area or group of companies results in favouring others.

And those ’others’ are the large corporations, oligopolies and monopolies – banks, insurance companies, food ’giants,’ construction companies – and, to which, we can add those firms in health services. Beneficiaries of the regulation system include certain protected (from competition) areas as well as those with ’interesting’ political connections. Among those protected, one can certainly note the pharmacy business which is, in essence, a license to print money.

Outside of the usual government budget systems and controls, we find the government, corporation-type, monopolies. Two of the most significant in Finland are the National Betting Agency (Veikkaus) and the alcohol monopoly (Alko-Altia).

Additionally there is a slew of large associations, institutes and foundations joining the fray with all types of connections putting more meat on the bones of crony capitalism and the ’army of lobbyists’ that Anders Blom has documented.

It doesn’t seem to matter which parties form the government – the voice of large corporations and organizations gets to dominate. The ’system’ is able to generate a flow of funds sufficient to support key candidates in elections. ”The beat goes on.”

Occasionally, the government will fall in love with a particular field of subject and the distortion gets a new direction. There’s now been a romance with something called ’bio-economy’ and all kinds of subsidies, investments and special considerations fall into place – and, as usual, to the disadvantage of other matters that haven’t gotten some trendy ’magic’ connected with them. The result is a ’virtuous cycle’ for firms and organizations thought to be part of the ’bio-economy.’

The control mechanism is supposed to work at the grassroots level as well. There are, however, many ’prizes’ available locally – such as zoning permits for shopping centres – and influential considerations such as distribution of National Betting Agency funds. The spider web grows.

Government research projects can also be targeted for building up political advantages which are later difficult to criticize – if they have even been discerned.

We should note too that another tool in the toolbox for distraction and distortion is to predict great misfortune if certain decisions are not taken – biblical floods, Armageddons, etc.

As for the question of Parliament deciding with its own lower committees the legality and constitutionality of its actions – one can only be deep in bewilderment with regard to the legitimacy of such ’oversight.’

Now we should look at the matter of the media having a supposed controlling effect. Finnish Broadcasting (YLE) is governed as a part of the Finnish Parliament – it is difficult to see how it can be an independent critic of governmental policies and actions. In the newspaper and digital news reporting the biggest player is Helsingin Sanomat – and it is clearly in the camp of the large corporations.

There are many local newspapers and they are, for the most part, connected with political parties – though they have now been making those affiliations less overtly. An important consideration when assessing the independence of journalists is to realize there is a gigantic pile of Euros spent regularly on advertisements. What editor is going to be kicking sand in the face of large corporations which are – in effect – paying the salaries of the paper’s journalists and other publishing expenses?

The main-stream-media might as well announce: ”Good Finnish citizens – everything is going well for you – and not so well for others – hold on to your wishes while we handle important matters.” The large corporations need the media to be able to get their programs through the legislative process. However, if there are no critics of this favouritism, there may then be waves of serious media disruption that could well end up in court processes.

’Traditional’ Finland is in a period of change. Large Finnish corporations are compelled to give over their absolute power to the large international corporations.

Finnish crony capitalism will fight to the end – with the result Finland gets the worst of both worlds – Finnish corporatism and a policy that is favourable to the large European Union nations.

’Traditional’ Finland will have its monopoly – Valio. And the ’EU-Finland’ will have Nestle, Unilever and Proctor & Gamble.

I’d like to give a few suggestions to a few different groups about crony capitalism, its causes and consequences.

For legislators – please note that massive regulations result in massive corporations. And if you are approached by a lobbyist, kick them out – or do the OPPOSITE of whatever they have been promoting.

For journalists – whose voice is your media speaking for? You may well find the answer in an advertisement on your front page. If your content is a continuous repeat of some particular ’interest’ association, please re-think your ’messages.’

What do we have to offer? Wealth, high palaces, good employment positions, fine old age living support. What can the ’other side’ offer? You are offered the label of being surly troublemakers that make a mess.

Here is something to remember – citizen motivation and organized operations are the antithesis of crony capitalism.

And, as well, it should be said that every time an injustice is seen, it doesn’t mean we need new legislation!

Thank you.

 

 Matias Turkkila is the Editor-in-chief of Finland News (Suomen Uutiset) – the newspaper of the Finns Party 

 

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Dr. Kai Järvikare has written an article in ”Taxes, Debt and Crony Capitalism” in which he introduces discussion about the prevalence regressive taxation – taxation which puts the greater burden on the lower-income population. This is the opposite of progressive taxation where people with high incomes pay at taxes at higher rates. Regressive taxation means that the less one earns the stricter is the taxation.