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April 21, 2015
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Current Concerns  >  2009  >  No 7/8, 2009  >  The American Revenue Authorities: Expansion of the Combat Area (on to Switzerland) [printversion]

The American Revenue Authorities: Expansion of the Combat Area (on to Switzerland)

Discussion with Luis Suarez-Villa, professor for economy at the University of California, Irvine

Luis Suarez-Villa made his doctorate in international policy at the University of Cornell. He is a professor at the University of California, Irvine, whose member he has been since 1982. He specialized in innovative technology and its connections with social changes, economic development and regional analysis. For a longer period of time, Luis Suarez-Villa studied, taught and did research abroad, in particular in Europe, Asia and Latin America. He also often co-operates with the University of New York, the United Nations as well as Spanish and Brazilian universities.

In the following long discussion, Luis Suarez-Villa explains and criticizes the American tax system, which seems to be intended to do harm to Swiss banks. With respect to certain Swiss banks and their expansionist strategies, based on maximum risks without any foresight, his criticism is not less moderate. Luis Suarez-Villa also explains his theory of technocapitalism1 which will enable the reader to understand the latest changes in traditional capitalism.

Daniel Laufer: You invented the term of “technocapitalism” which considers “inviolable values” to be crucial. Could you briefly explain what you mean?
Luis Suarez Villa: Technocapitalism refers to the meaning of inviolable values such as creativity and knowledge. Technocapitalism directs its activity particularly toward the understanding of research and its importance for the new areas of interest for which the 21st century will be symbolic. These areas include nanotechnology, genomics, bio-computer science, genetic engineering, the proteomics, bio-pharmacy, bio-robotics and molecular computer science, just to name a few. The importance of technocapitalism for inviolable resources also covers services with highly increasing value, which require good knowledge; they include for example the financial world, medical supplies, education and computer science. These services will be very strongly bound to the new areas. Medical treatments, for example, are increasingly connected with bio-pharmaceutics, nano­technology and genomics. As a consequence, a new kind of medicine is developing. Perhaps we could call it bio-medicine, supported by genetics.
Although the prospect on these new areas is very promising, it contains severely terrible aspects. These aspects concern the unexpected negative consequences, which are inherent in many of these new technologies. However, the aspect of these new areas connecting them with the activities of multinational companies is particularly crucial and frightening. Large-scale enterprises have captured these areas and their absolute priority – before any other consideration – is usually oriented towards the greatest possible profit and the strengthening of their position. Therefore, they tend to place profit over all human needs and thus often damage our health, nature and the environment, destroy cultural values and corrupt politicians. This is shown quite plainly by the astronomically high number of disputes and by the distrust of the population towards many genetically manipulated pharmaceutical products. Thus, technocapitalism concentrates on the power of large companies and on their crushing control of technology in the 21st century.
Due to its high educational level and the good quality of its human resources, Switzerland represents a nation whose potential for the generation of creativity and new know­ledge is enormous. This potential does not only concern the new areas that will be typical for the 21st century, but also the well-established services such as financing, medical support and education. Switzerland is therefore very well positioned in order to be a very important basis for all services that have to do with knowledge.

Swiss tradition of peace and respect

Hardly any other nation in the world with a population equal in size possesses a potential comparable to Switzerland, as it is a predominant world center for activities based on knowledge and creativity.
On the other hand, the Swiss understanding of government with its referendums and other mechanisms seems to be much more democratic than any other state system so far. The Swiss tradition of peace and respect for the other peoples is likewise crucial in this context. Peace and democratic government are crucial elements, in order to develop a healthy basis of inviolable resources, such as creativity and new knowledge, which serve human needs, respect nature and help to create a better world in general.

Due to its own history, Switzerland depends strongly on service professions, in particular on financial services. Do we have to fear that, in view of the explosion of service occupations all over the world, the financial center Switzerland will lose part of its attraction? And how can it maintain its advantages, although confidence into the banks strongly suffered due to the current crisis?
The banking center Switzerland is in danger if it neglects its roots and its Swiss cultural values. One of these fundamental ­values is the respect for personal privacy, which includes the financial privacy. Caution with regard to financial questions, which should be accompanied by the utmost understanding of any risk in all its dimensions, is a ­typical feature of the Swiss. This means that they never do anything they do not ­understand with regard to the tools and investment schemes. The recent losses by some of the largest Swiss banks, including the loss of some thousand jobs and the destruction of the privacy of their customers which they will be blamed for from now on, seem to point to a substantial negligence of certain Swiss values.

Financial problems of Swiss banks originate from the USA

Large parts of the financial problems, which Swiss banks are confronted with at present, and the prestige damage done to them – as enterprises dependent on the customers’ confidence – originate from the USA. The US megabanks’ strategies – and now also those of UBS and Credit Suisse (CS) – were based on certain conceptions and certain strategic models, which the US commercial thinks tanks monopolized about 40 years ago. These concepts spread in the American commercial think tanks.
They relied on the neoclassical economy, in particular on tools, which can be described as models and hypotheses of the “general equilibrium”. These models, which became known in business circles at the beginning of the 1950s (in the USA), are very unsatisfactory, not only because of their in­ability to measure or understand risks, but also because of their unreal hypotheses regarding behavior and the decision making process of people.
These models and the functions derived from them are at the core of economic science training in the USA and are a central component of the study programs of professional schools, including the area of finance. They were taught to generations of commercial school graduates and are now an integrating component of business practice within many areas, including finances. They are also taught worldwide, since the American kind of management has spread all over the world during the last two decades. These models served as templates for those concepts which determined the operational framework within nearly all areas of banking and finance. Their broad application in the banking world contributed much to today’s worldwide financial crisis.

Maximizing profit by all means

These concepts and models, which I cannot describe here in sufficient detail, which must however meet our entire attention, were taken over by the major Swiss banks UBS and CS, when they established their associated companies abroad, particularly in the USA. In practice and with respect to their consequences these models, their frameworks and templates have led to a new strategic and management culture in the banking world. This new operational culture is based particularly on the crushing, almost coercive devotion to the maximization of profits by all means, including the most speculative ones. Thus, risks were substantially underestimated and the financial privacy of the customers was endangered.
The operational frameworks, based on these narrow and insufficient models, were thought up by the academic gurus of the American professional schools, often sold for millions of dollars, and then legitimized. Some of these gurus have made big money out of this, by hawking around new variants of these models and propagating them by calling the respective approaches “best practice”. But they completely neglected the fact that these practices included high risks. We have now become acquainted with these models’ unreal hypotheses and their results as well as with the resulting strategies. They led to immense losses, which the American mega­banks and the Swiss banks copying them, had to suffer as a consequence. It is not necessary to specify that those, who propagated, sold or defended these risky models, have lost all credibility as the worldwide financial system is now sinking into crisis.

Deregulation was the origin of an enormous wave of financial speculation

The broad application of these models, their work environment and the operational templates derived from them are closely connected with the process of financial deregulation, which began in the 1980s in the USA. This financial deregulation was – when the avalanche of the bank mergers and takeovers began – mainly responsible for the establishment of the American megabanks, while ­existing adjustments were reduced. This de­regulation was also the trigger of an enormous wave of financial speculation, when new unregulated and extremely risky tools became objects of speculation without any restraint and without considering the consequences. Among these tools were secured debts, credit swaps, guaranteed debt bonds and others. At the beginning of the current crisis, the global value of credit derivatives alone was an estimated 520 trillion dollars. The heads of the megabank Citibank estimated that within the next years probably they will have to write off 400 billion dollars. En clair, this means that several banks have given themselves to unlimited speculation for many years, without any prudence and understanding of the risks. In doing so, the banks have been gaining record profits for years, and the directors of these banks were among the best paid of all sectors. The compensation for these banks’ managers have amazingly increased and often reached a six-hundredfold of the wages of an employee in the management of these banks.
One of the results of this long lasting and wildly speculative insanity is the dramatic increase of indebtedness on all levels: for the consumer, for the enterprises, for the governments and for virtually all kinds of activities. Speculating with debts seems to have therefore been one of the principal reasons for the economic growth in the United States during the last 20 years. This enormous amount of debt now threatens both the American economy as well as the American financial system. Today, the USA is the country in the world which is deepest in debt, a situation which is in complete contrast to that of the 1950s. From a financial point of view, the US is a bankrupt state. It need not be emphasized that the financial deregulation of the USA was copied by the remainder of the world and now many other states (and in fact the worldwide financial system) are threatened by the same problems, which are at present threatening the American economy and also its financial system.
This pile of debt, linked with the current financial crisis, caused a sudden collapse of the US Dollar’s value. The collapse of the dollar supported the worldwide inflation. When the prices for food and gasoline increased dramatically, more than a billion people were driven into even greater poverty. The American megabanks are jointly responsible for this unprecedented wave of speculation, which triggered off the current worldwide crisis. They began to create innumerable new investment tools in order to securitize debts, integrate rating agencies – which guaranteed good evaluations for the tools they had created – and in certain cases, by bribing control boards, so that they turned a blind eye on the most shocking bank practices. They also spread financial deregulation all over the world modeling on the US example by encouraging the governments to take over the American kind of deregulation. More­over, they financed think tanks and made them publish reports and studies, which backed the megabanks’ methods, without any consideration for the containing risks. While the American financial deregulation continued to increase, important Swiss banks looked across the Atlantic and tried to imitate the developing American megabanks. They (for example UBS and CS) became megabanks themselves, by imitating the American mega­banks’ firm purchases and control takeovers. This also meant that the privacy of the customers was impaired and in certain cases was completely abolished. In order to get straight access to the American market with the purchase of American investment banks such as Paine Webber by the UBS and First Boston by the CS, the Swiss banks had to submit to the American requirements and sacrifice the financial privacy of their customers even in Switzerland. In 2003, the UBS and the CS had to reveal the data of their American customers, in the framework of what the American authorities today consider to be a tacit exchange of friendly gestures – and the American authorities agreed with the access of these banks to the American market. Thus, Swiss banks to a certain extent transformed into an outpost of the American treasury in Switzerland according to the requirements of American authorities.

Playing the part of the world police seems to be a very expensive venture

Why do the American authorities place such demands? Contrary to nearly every other state of the world, the USA has an extra-territorial tax system. This means that persons residing in the USA, whether US citizen or not, are assessable to the American government, wherever in the world they are. Thus, it seems to be one of the principal purposes of the US authorities to receive from all states and their banks the financial data of each individual, who is in any way connected with the USA, even if the US must then violate these countries’ national legislation. Why do the USA want to push through this excessive and boundless control system and continue using it? Part of the answer is connected with the military expenditure. The economist and Nobel Laureate Joseph Stiglitz recently estimated the costs of the US administration’s Iraq war 3 trillion dollars2. Moreover, the US military budget, wasting unbelievable sums, swallows at least as many national resources nowadays as it did during the years of the cold war. Playing the world police and enforcing its interests where and whenever possible by the use of force seems to be a very expensive venture. All these American military adventures, the prisons and the whitewashed “repatriation” operations which are nothing but kidnappings, including torture or even murder, are very expensive and must be paid. The American tax system is the main means to facilitate such procedures.

The Swiss commitment is in complete contrast to the US military machinery

It is to hardly necessary to state that the traditional Swiss commitment for peace and respect for other peoples and cultures is in complete contrast to this enormous military machinery and its expensive adventures. Nevertheless, Swiss banks are applying US tax laws on Swiss ground.
Perhaps this helps us to understand better why the American revenue offices use methods similar to those of the intelligence agencies. Arresting, interrogating or bribing bank employees and systematically evaluating the data of all bank transactions all over the world – are considered to be normal practices, nowadays. The American revenue offices believe that without exception all methods are permissible in order to procure ever more tax revenues. We must not forget that the American people have never been directly asked for their opinion on any war, taxes or other important government decisions. This seems to make a government like the US administration a very anti-democratic system of government compared with the Swiss state system which draws on referendums for every important decision. It is hardly necessary to state that the lies, the covering up and cheatings, which were used in order to lie the American people into the Iraq war would have hardly been possible or would have been denounced, if the Americans had been asked directly. Just like the Swiss people who are regularly asked for heir opinion on every important decision that is taken by the government. […]

Do you think that the increasing complexity of the financial world and its mechanisms is understood correctly by the political decision makers? Don’t we risk that dabblers take important decisions in this financial crisis on things they do not understand?
The bank bosses constantly complain that politicians do not listen to them sufficiently. Politicians must listen, but above all they must keep the common welfare in mind, which often opposes the interests of the banks. The bank bosses’ highest priority is to make profits but the politicians must prioritize common welfare and national interests. Politicians must be careful and support the cultural values, if these are threatened by commercial interests. The common welfare and commercial interests may sometimes concur, but this is seldom the case. The problem is the balance of power, and none of the two parties feels well with regard to the other.
Sometimes, if the banks concentrate on their major task, i.e. the profits, they can endanger cultural values. When for example the Swiss banks, which are active in the USA, became informants and applied the American tax laws on Swiss ground, it affected privacy as a Swiss value. And why did Swiss politicians accept this kind of taxation? Did they play the tune of profit, which the banks had hoped for, in this case for their business in the USA?

You recently wrote in the “Tribune de Genève”3 that in your opinion the unspeak­able problems, affecting Swiss economics are mainly to be attributed to the fact that those, who caused them relied on “non-Swiss” principles. Could you clarify this term?
It is difficult to synthesize the cultural values. Usually they are embodied in the laws and customs of a nation, sometimes very clearly but often in a completely subtle way. I am willing to regard the respecting of privacy as a very important Swiss value. This is a value with many facets, which – among other things – are at the same time intellectual, financial and political. Be aware that I regard privacy as being multidimensional and not limited to financial affairs. In the financial sector, privacy is probable the most important value, which supports the long-term vitality of the Swiss financial system, not only with external transactions, but also with internal transactions for the Swiss people. In the political arena, this is a value representing the Helvetian approach of democracy, which includes the direct questioning of the constituency, very often by questioning them. It includes furthermore the right to one’s own opinions and political options, also in the private sphere – which again has to do with the personal dignity and identity – without seeking an official agreement before.

Refusal of war and aggression

Another value is Switzerland’s traditional commitment to peace. This value includes the refusal of war and aggression. Conquest, defeat and demands to other nations are blatantly antithetic to this value. Supporting war-leading nations, which conquer and impose their will upon other peoples, are equally antithetic. Such a support can be prevented not only in diplomatic, political and cultural regard, but also in financial regard. It would be important, for example, that Swiss banks do not contribute to the support of those nations and tax systems which invest in aggression, conquest or the persecution of other peoples.
The respect for other nations and their cultures can also be regarded as a Swiss cultural value. This is strongly connected with the commitment of Switzerland for peace as mentioned above. Such a respect is multidimensional. This includes for example that differences in languages, history and traditions are respected. This value becomes obvious in the multilingual context of Switzerland and in the tribute to the different cultures, to its history and its national identity.
A further value is the adherence to standards necessary for the human existence. These include medical supply, education and public security. The rights of employees are also counted among these standards. These standards are usually provided by a general accessibility. Supporting them also means not to copy or imitate the models of other nations, especially of those, who do not grant access to these facilities to entire parts of their population, deport or discriminate against them. The models pretending to deregulate or liberate do very often destroy facilities for a large part of the population or in the end prevent access to them. These prerequisites are closely connected with social justice, which includes integration and poetic justice in social and legal affairs, as well as the possibility to support the human existence in a dignified manner.     •

Source: Mon banquier m’a dit …. Chapter 1;
(Translation Current Concerns)

1 Cf
2 This estimation was taken up widely by the media and is reason for strong arguments in the USA.
3 Letter to the editor of 18 April 2008