Politics
Silicon Valley’s ascendance to the pinnacle of American corporatism and power has just been cemented—Google has now surpassed Goldman Sachs in terms of total political contributions. The company’s political action campaign, NetPAC, has so far spent $1.43m versus Goldman’s $1.4m. Four years ago, Google only spent a third as much as Goldman. The spending is a sign of just how aggressive Google has become in campaigning for its interests, and is this year focusing on issues ranging from tax, to immigration visas, to government spying. While tech industry workers tend to lean towards to the Democrat camp, Google has been donating more and more to Republican areas, even if they do not agree with the party’s social views—“business is business” said one Republican consultant. All told, the tech industry has donated over $22m this year to political campaigns, but that figure does not count the sometimes lofty private donations of those working in the industry, like the $500k donated by Eric Schmidt, Google’s executive chairman. Republican congressman Bob Goodlatte, Florida Senator Marco Rubio, and democratic contender for congress Rohit Kanna, have all been major beneficiaries.
FINSUM: The tech industry has undergone a major transformation over the past five years, morphing from a near “hippyish” persona—remember big tech founders speaking out against the moral bankruptcy of the financial industry—to one of big business and corporatism. The public’s pushback is already underway in San Francisco, and it will be interesting to see if it spreads in the US. Tech hatred is thriving in Europe.
The EU appears to backtracking about as fast as it can from one of the critical elements of the ongoing US-EU trade talks. So-called “arbitrations” or mechanisms where corporations can engage in legal proceedings without getting tied up in national courts, are proving to be a major roadblock on the EU’s side. The mechanisms, which the EU already uses in hundreds of bilateral trade agreements, most recently in its trade deal with Canada, are becoming politically toxic across the EU, as EU residents become fervently opposed to US corporate activity in Europe. The EU’s new trade chief, Cecilia Malmstrom, has said that “arbitrations” may be left entirely out of the trade agreement, but that she could not say anything more concrete, other than their current status needs to be changed. “It is indeed a very toxic issue in this parliament and elsewhere,” said Malmstrom. If arbitrations were to be left out of the trade talks, it would prove a major blow to the whole effort, as it would essentially leave the finance industry entirely out of the agreement. The US said it was committed to including the arbitrations, which can effectively be described as investor protections.
FINSUM: Anti-US corporatism is running rampant in Europe on the back of the spying scandal and the actions of companies like Uber, Apple, and Google. The spite held on the European side of the Atlantic threatens to dissolve the whole effort as European politicians have to save face and give in to populism.
The Kremlin is extending its control of Russia, this time using tactics reminiscent of the old Soviet era. Moscow announced yesterday sweeping new changes to the media industry, saying that foreign ownership of media companies could be no more than 20%. In doing so, the government will force several popular journalistic outlets to either close or sell. The bill to change the rules passed through Russia’s congress by a vote of 434-1, as lawmakers believe the west is using media companies to launch a propaganda offensive within Russia against the government. Vedomosti, the Russian edition of Forbes, will be one of the largest businesses hit, along with dozens of other newspapers and magazines. Forbes has been highly critical of the Russian government and oligarchy, and was successfully sued by Igor Sechin, Rosneft’s CEO, last year, after the magazine published an unflattering article about his high pay and inappropriate power in the government.
FINSUM: This move is tantamount to another round of sanctions, and it is interesting to see how, in contrast to the west, when Russia imposes new rules it also slowly tightens the vice on its own people. Russia is digging in for a long-term standoff with the US and Europe.
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Yesterday, the Russian oligarchy began to feel a new world order because of the west’s sanctions. The fifteenth richest man in Russia, billionaire Vladimir Yevtushenkov, owner of Bashneft oil company, was yesterday placed under house arrest for suspected money laundering. Analysts were quick to point out the similarities to the prosecution of Mikhail Khodorovsky, the former owner of Yukos oil company, several years ago. It is believed that Yevtushenkov’s arrest was politically and economically motivated. Specifically, Igor Sechin, the billionaire owner of Russian oil company Rosneft, is believed to greatly desire and need Bashneft’s oil reserves to prop up his company after western sanctions delivered a grave blow. The perplexing aspect to the situation is that unlike Khodorovsky, Yevtushenkov was at least until recently a very close ally of president Putin, but seldom stepped into the political limelight, playing his Kremlin-dictated role as a passive billionaire perfectly.
FINSUM: It seems as though the west’s sanctions have sparked a round of vicious cannibalism amongst Russian business and political leaders. Rosneft has repeatedly asked the government for a $42 bn rescue loan. Perhaps the Kremlin thought it was easier to simply gift Yevtushenkov’s fortune.
The US Treasury appears to be moving ahead with significant rule changes which would limit US companies’ ability to profit from moving their tax domains overseas. The department is undertaking the changes in order to combat the practice which has come to be known as “inversion”. However, despite the efforts, even the Secretary of the Treasury, Jack Lew, acknowledged that he was not sure that his department had the legal right to make wholesale changes to the law. Analysts and lawyers are split over the whether the changes, which include limiting earnings stripping, reclassifying certain debt held by United States subsidiaries of foreign corporations as equity or restricting the repatriation of untaxed offshore cash from corporations that have gone through an inversion, would actually hold up in court. However, based on a wealth of legal research, and analysis of a major tax case in the year 2000, in which Chevron lost a tax appeal, it seems that any corporate challenge to the Treasury’s authority would face long odds. In fact, since 1986, only 13 out of 55 appeals have been successful, which means the Treasury’s changes might go unchallenged.
FINSUM: It looks like the Treasury will be able to push its changes through. However, what will be most important is that the new rules are written in such a way so as to not limit legitimate investment, as if they fail to do so, the new regulations could end up hurting the country more than helping it.
One thing is for certain—the West has so far failed to stop president Putin’s advances in Ukraine. Last week it was confirmed that Russian forces were openly fighting in Ukraine, ending the ambiguity that has surrounded the situation for months. Now, the west is weighing further actions against Russia, including sanctions which would further ban Russian industry from accessing western financing, but interestingly, leaders are also considering whether to ban Russia’s hosting of the World Cup in 2018. Analysts say that move could potentially threaten Russia more than the steps taken so far, as they would directly relieve Moscow of a large economic gain. The US pioneered using large international sporting events as a means to enact political goals when its team boycotted the 1980 Olympics in Moscow.
FINSUM: While this is an interesting story, analysts seemed to be overestimating the potential effect here. Putting has found a way to get around every line in the sand that the west has drawn—by stepping over it slowly and ambiguously. Will the west unite to stop Russia, or will it flounder under the weight of its own indecision?