For a new social contract for Luxembourg

In the words of American author Upton Sinclair, written 80 years ago: “It is difficult to get a man to understand something, when his salary depends upon his not understanding it!”

These past two weeks, the so-called #LuxLeaks affair has been the talk of the town: between 2002 and 2010, over 340 multinational corporations have “saved” massive amounts of tax with the help of PricewaterhouseCoopers (PwC), benefiting from Luxembourg’s legal system and the proactive help of Luxembourg’s authorities. This was done thanks to creative accounting trickery, commonly known as “base erosion and profit shifting” (BEPS).

Our government reacted quickly, with three main arguments:

1. such tax rulings exist in very many countries (more to the point: “everybody else is doing it, so why shouldn’t we?”)

2. this practice is legal and in conformity with existing rules (“we haven’t done anything wrong”)

3. we’re not proud of what has been done, so we’ll change things (“we’re going to get serious about transparency”).

There were myriad reactions in the local press and on social networks. Most ran along the lines of “we’re not the only ones doing this” or “they’re all just jealous”. However, this simply doesn’t tackle the actual, underlying issue.

We would like to submit a simple statement: what’s been done in our name all these years isn’t right.

Even if something is legal, it can also be profoundly unjust.

If we do not understand the difference between these two concepts, we have to go back to history class or look no further than the many countries the world over in which injustice and human rights violations are happening on a daily basis behind a smokescreen of legality.

Just because others are doing something doesn’t imply that we have to do it as well.

The #LuxLeaks affair is symptomatic for a Luxembourgish model which relies on financial niches which damage other countries: another well known example is the so-called tobacco- and petrol tourism.

We feel that the argument “others are doing it as well” is fallacious: societal models must be grounded in positive choices, not in the best possible capacity to cheat.

We have all reaped the benefits of that system; we’ve been living the good life, but we’ve been living well beyond our means. Most of those who live and/or work in Luxembourg earn unrealistically high wages in order to pay for unrealistically high costs of living. We have long shied away from recognising this, but our productive economy is significantly too small compared to the financial sector and the civil service.

And worst of all: we’ve been living at the expense of others. Not just other states, but other people, like ourselves, who have been paying their taxes, while corporations in their own countries have been dodging them. It is no longer possible to pretend that the Luxembourgish model has no negative consequences for other countries.

It’s high time that we rethink our model. Economic diversification can no longer simply be understood as an ever greater diversification of the financial sector.

We have to learn to live simpler and less materialistic lives. We have to encourage and incentivise creativity, courage and integrity, wherever possible. We have to undertake far-reaching reforms in the civil service and in public finance. We have to break every taboo about the financial sector. The (financial) burden that we shall have to bear in order to change our model will have to be shared in an equal manner – the bill cannot be footed exclusively by the workforce.

BEPS is a part of a deregulated financial system – the offshore system – which makes the rich grow richer while keeping the poor trapped in poverty, be it in Mexico, Nigeria, China or Luxembourg. There is a global tendency towards ever greater inequality: Oxfam calculated that in 2014, the 85 richest people on the planet own as much as the poorest half of humanity. That’s over three and a half billion human beings.

We have to understand that the offshore system deepens inequality by creating endless possibilities to hide money “elsewhere”. This undermines the capacities of states throughout the world to collect tax revenue which is indispensable for the socio-economic development of their countries. We must in ask ourselves whether we agree to be a part of such a system, which, at the end of the day, works only for very few people – and certainly not in the interest of sustainable development. Sustainable development needs tax justice.

We need a paradigm shift, towards a responsible economy, coherent policies and an inclusive open society.

We, who live and work in Luxembourg, have to realise and accept that our country has become part of the offshore system; that our Rule of Law has been hijacked by financial interests. Only by acknowledging and naming the problem can we hope to be able to tackle it.

Luxembourg needs to rethink, retool and future-proof its societal model.

Most urgently: we can’t afford to waste any time. The so-called Luxembourgish model in its current form is no longer viable. At some point, even Luxembourg can no longer compete in the race to the bottom of fiscal dumping or tax wars. If we want to avoid to have a different societal model forced upon us, as has, for instance, been the case in Greece, we had better change it ourselves. Now.

Many of us are working towards this: in the private sector, in civil society, in the civil service. This is no declaration of war against the financial centre: we have a lot of knowledge and skills in Luxembourg, which we can and must use for good.

Beyond the recent proposals of the G20, there is a plethora of other international initiatives and partnerships. There are more informal ones, like the Open Government Partnership, or more formal ones, like the OECD, where we can share ideas and lessons with other states and societies, in order to become more transparent and competitive. We need a transparency and freedom of information act, like we need a more ambitious deontological code for all public office-holders, for politicians and civil servants alike.

Only by working together can we have the democratic legitimacy to make this into a national project for Luxembourg. We need a political consensus to break with the past and write a new chapter – a new social contract.

We owe this to our neighbours, as well as to all the people who live far away from us, but feel the impact of our financial centre.

But that’s not all; we also owe it to the generation of our parents and grandparents, who build our country. Their motto was not: “We want to retain what we have.”

And most importantly: we owe it to our children’s generation.

Luc Dockendorf & Benoît Majerus

This text was published in Luxembourgish in the Luxemburger Wort of 22 November 2014. It also exists in French, German, Italian and Spanish.

Luc Dockendorf & Benoît Majerus

Benoit Majerus

Since January 2011, I am working as an historian at the University of Luxembourg. I have written my PhD on the occupation of Belgium during World War One and World Two. In 2013 I published a social history of psychiatry in the 20th century from below. I am also co-editor of h-madness.

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