Isa Tiilikainen – Pike & Hurricane

When everything fails: lessons from Nauru

Isa Tiilikainen — Sun, 14 Jun 2020 09:49:11 +0000

In the Pacific Ocean, 4500 kilometers northeast of Australia, there is a tiny island nation called Nauru. The population today is at around 12 000 and it is one of the least visited countries in the world. In the 1970s Nauru earned the reputation of being the wealthiest nation of all, measured by GDP per capita. But the tragic chain of events that followed can now serve as a lesson for the rest of the world.

A long way to independence

Let’s start from the beginning. The history of Nauru has been a road paved with tears. In the 1800s European merchants brought alcohol and firearms to the island, leading to a ten year civil war during which one third of the population died. Then the Germans took over and Nauru was made part of Bismarck’s Empire in 1888.

After the First World War, the UN ordered Nauru to be under the mandate of Britain and Australia. Then came the Second World War. Nauru was occupied by the Japanese and bombed by the US. Japan took over half of the population as slaves to the Chuuk islands and left Nauru close to extinction.

For the next two decades Nauru was again ruled under Australian mandate, until the year 1968 when the island nation declared its independence.

Nauru’s wealth

But how did Nauru end up as the richest nation in the world? It’s all thanks to a natural resource called phosphate.

In the year 1900 an Australian prospector, Albert Ellis, was the first to discover phosphate on the island. In an agreement with the Germans, the British ’’Pacific Phosphate Company’’ began exploiting the reserves in 1906. Phosphate is a key ingredient in fertilizers, which started becoming increasingly used in intensive farming during the 1950s. For decades, all the money gained from Nauru’s natural resource went to the Brits and the Australians. But with the declaration of independence in 1968, Nauru nationalized it’s phosphate mines. And so the fun began.

The increasing population of the world needed more and more food, which created a huge demand for agriculture fertilizers. Ship after ship of phosphate was transported to Australia and from there onward, and money was flowing to Nauru. There was no need for taxes. Education and health care, everything was free. Phosphate made every single citizen so rich, that by 1970s Nauru had the world’s largest GDP per capita. If we count the total in euros, Nauru exported 2,2 billion worth of phosphate in less than 35 years.

Turning tables

But what follows when one gets too much money too quickly? Foolishness. Nauruans began importing all kind of electrical equipment and refreshments to the island; fridges, freezers, televisions, sports cars, steaks, cheeses, soft drinks. Building bigger houses and establishing its own airline for a nation with a population of then 7000. Buying sports cars didn’t make much sense either, as the country only has one road with a speed limit of 50 km/h. But everyone needed to have a car, or two or even three. And when people didn’t have to work much anymore, traditional professions like fishing practically vanished.

Years rolled by as Nauruans were enjoying their life. Until the century changed to 2000s and the nation made an observation. The phosphate had run out. So, not only was Nauru now facing economic devastation after losing their only source of income, the mining had left the island’s nature severely contaminated. Nauruans had been digging the land under their feet. It is estimated that 40% of the marine life has been lost as a result of the pollution.

80% of the land mass in Nauru is uninhabitable today. Practically the whole center of the island is in ruins after of the phosphate mining. Where there used to be tropical mango, lime and papaya trees, there now is landfill where the wrecks sports cars lie on top of each other. Nauru has become unable to sustain any agricultural crops of their own and is fully dependent on imported and highly processed food that comes in mostly canned.

During the 80s and 90s, there had already been some talk about the financial state of the island, and the nation had found a brief source of income from becoming a tax haven. Especially the Russian mafia took advantage of this and allegedly laundered several tens of billions in cash through Nauru.

When all the phosphate then ran out, the State of Nauru declared bankruptcy in 2001. This meant that all of nation’s banks fell and the properties that the state had gathered in previous years had to be sold. Nauru turned to cash economy and unemployment rate at the island rose to 90%, a rate which it still is at today. A new plan was needed, to get the nation back on its feet.

Nauru and Australia

Australia came to the rescue, but with a hefty cost.

Around the same time in 2001, a refugee crisis was erupting in Australia and the country had started to adopt strict immigration policies. It was decided that any migrants who came to Australia by boat would not be taken in anymore. However, all these refugees that were turned away, needed to be relocated. And so, Australia made a proposition to start collecting them at Nauru. This decision is known as the ’’Pacific Solution’’ and it ended up becoming Nauru’s economic lifeline.

Today, Australian aids form a large part of Nauru’s GDP. By estimate, the refugee deal benefits Nauru with several tens of millions a year. But the fact which Nauru doesn’t want media attention on, is the conditions at the detention camps. Human rights organisations have reported of assaults, sexual harassment and child abuse. Refugees are not allowed to leave the island. Some have even ended up committing suicide.

Nauruans are annoyed at the negative media attention the country gets. They view the detention camps as a matter of Australian politics which they have little to do with as the camps are largely run by Australians. And as a country with major financial issues, the deal was impossible to turn down. The Australian Labor Party has suggested that the refugees should be moved to Australia, where they originally were headed. But this would then be a another major blow to Nauru’s economy.

Protesters in Perth, Australia, 2015

Climate change as an added threat

Not only has Nauru faced environmental devastation and economic catastrophe in recent years, the island is now also in the front lines of the climate change. It is estimated that if the sea level keeps rising with the current speed, before the year 2100, Nauruans themselves will become climate refugees. Less than one meter rise is enough to cover the only habitable part of the island, the one road where every citizen lives.

While the story of Nauru poses frightful omens for the future of the world, it could just act as a warning example. The rest of us still have a possibility to choose a different path. Just by looking at the historic statistics on increasing global average temperature, average energy consumption or the amount of carbon dioxide in the atmosphere, it becomes evident that the current rate of exploitation of natural resources is in no way a sustainable plan for the future. It is now up to the world not to replicate the mistakes that Nauru has made. At least the former President of Nauru, Baron Waqa has some hope. In 2017 he was asked: Could the story of Nauru be a lesson to the rest of the world? He answered: “Well yes, it was a learning lessons for ourselves too. We didn’t plan for this to happen. So, could the rest of the world learn from this? I sure want to believe that they would.’’

by Isa Tiilikainen

Photo Credits

Nauru, 2013, casjsa CC BY-NC-ND 2.0

Air Nauru Boeing 737-400;C2-RN10, August 1994, Aero Icarus, CC BY-SA 2.0

The site of secondary mining of phosphate rock in Nauru, 2007, Lorrie Graham /AusAID , CC BY 2.0

Love Makes a Way, 2015, Louise Coghill , CC BY-SA 2.0 CC BY-SA 2

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“The European Union wants to kill our cuppa”: How Euromyths and fake news affected the Brexit vote

Isa Tiilikainen — Sat, 22 Feb 2020 15:26:00 +0000

On 31 January 2020, Britain became the first country ever to leave the European Union. The Leave campaign leading up to Brexit was, to the surprise of many, a success. But how did they manage to do it?

Britain’s relationship with the EU has always been a problematic one. Their accession to the European Union, then EEC, in 1973 was preceded by two previous attempts, both denied by the French. Then, only two years after joining, a referendum was held in 1975 asking the British people: “Do you think the United Kingdom should stay in the European Community?”. With two thirds of the population voting yes, the country continued to be a member, but the suspicion and mistrust towards the Union always accompanied the 47 years of British membership.

Scepticism appears to stem from this belief of British exceptionalism: they are fundamentally different, and superior to, other nations. In a similar manner, the thought of personal exceptionalism led David Cameron to believe that he could win the referendum on Brexit. The imperial myth of Britain as a superpower leads to the nation approaching the EU from a standpoint that their country deserves a special status and preferential treatment.

To this idea of exceptionalism, the Leave campaign built its narrative. On one hand, the sense of superiority, and on the other hand the myth of being the underdog of the EU facing unfair treatment. Their strategy can be broken down to three parts: (1) simple messaging appealing to people’s emotions, (2) massive social media campaign by micro-targeting, and (3) controlling the debate framing with falsehoods.

False narratives

“We send the EU £350 million a week: let’s fund our NHS instead”, read the side of the infamous Brexit Battle Bus we can all remember. To suggest that such an amount of money would be available for extra spending when the UK leaves the EU was both misleading, as well as a straight up lie. According to different estimates, the actual amount of net payment, after deductions, agriculture subsidies and regional grants, comes down to about £160-190 million a week. And even this amount of money is surely not going to be fully budgeted for the NHS, as post-Brexit customs and legal institutions, among other things, will take up a large part. But the facts didn’t matter. What was important was to build a strong Eurosceptic narrative and appeal to the already existing cynicism of the population.

During the last 25 years or so, British newspapers like the Daily Mail and the Daily Express have been whipping up paranoia related to all kinds of things the EU allegedly wants to ban. Whether it’s curvy bananas, vacuums, kettle pots, lawnmowers or double-decker buses, the EU is about to ban it and Britishness is being severely threatened. These false narratives about the EU are called Euromyths and there have been so many of them circling around, that the European Commission has its own web page dedicated to addressing them. The openly EU-critical news coverage has been widely spread in the British media over the last few decades and that, without a doubt, contributed to the Euroscepticism among the nation. The seed of Brexit has therefore been developing for years before the actual referendum took place.

Social media targeting

A key component in winning the Brexit vote was the massive social media campaign spreading false narratives. The Leave campaign spent 40% of it’s campaign finances on one single technology firm: AggregateIQ. In pounds, this sums up to about 2,7 million, which translates to about 3,2 million euros. AggregateIQ is essentially referred to as a ’’department’’ within Cambridge Analytica; the company that many associate with the ’’fake news’’ around Trump’s 2016 Presidential campaign. The same methods of micro-targeting in social media were substantially used in the Brexit campaign. What this microtargeting essentially boils down to, is targeting individuals based on specific information gathered about them online. Cambridge Analytica is, for example, legally able to buy consumer data sets from airlines and magazine subscriptions and then connect this information with people’s personal data. The aim is to find persuadable voters and target them with suitable triggers. Facebook has proven to be a great source of psychological insights to millions of voters and fundamentally make all of this targeting possible.

While some of the Leave campaign’s ads run on Facebook maintained that new trade deals outside of EU would create 300 000 new jobs in Britain, others included claims ranging from the EU wanting to “kill our cuppa”, banning tea kettles, complaining about “5 million immigrants coming to the UK by 2030” and “Turkey’s 76 million people are granted visa-free travel by the EU”. So the message was not only focused on “costs and control”, but also based on the nationalist and even xenophobic sentiments. Thus, the campaign was successfully able to target a vast amount of people with a diverse set of values. The way in which the falsities were spread, not only through social media but also through mainstream media, was systematic and strategically intelligent.

Controlling the framing

As was established later on, the Leave campaign’s political message was in many ways built on lies, but initially the lies were not intended to be believed; that just came as a bonus. The intention was to frame and warp the debate. Vote Leave’s strategy was to constantly put out misleading information that would then distract the Remain campaign from having to interfere. By this, the Leave campaign managed to set the stage in their own benefit and get the opposite side to play into their hands.

As the Remainers were forced to correct the falsehoods the Leave campaign was actively repeating, they ended up just reinforcing the myths. You see, even though the claim of sending 350 million pounds a week to the EU was false, it impelled the Remain campaign to talk about the fact that Britain does send money to the EU, and that is exactly the subject that the Leave campaign wanted to talk about. Remain’s efforts to concentrate on the single market, economic affairs and all the benefits EU brings to Britain, went to waste. As Dominic Cummings, the campaign director and mastermind behind the Leave campaign, said: “Would we have won by spending our time talking about trade and the single market? No way.”

by Isa Tiilikainen

Photo credits

Banksy does Brexit (detail), Duncan Hull, CC BY 2.0

UK News Brexit Headlines 22nd June 2016, Jeff Djevdet, CC BY 2.0

Vote-leave-misleading-headlines, Abi Begum, CC BY 2.0

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UF trip to Albania

Isa Tiilikainen and Jasmin-Leyla Virta — Tue, 05 Nov 2019 13:57:12 +0000

Albania is said to be one of the oldest European nations and yet the history and the culture of the nation and the country itself are not very familiar to most of us. In the beginning of October 2019 we had the unique chance of travelling to Albania and getting to know the country as part of the fall trip arranged by UF Malmö.

On the first day of our trip, we took part in a walking tour of Tirana, saw a lot of important sights and heard interesting stories of its history. All the historical facts about Albania in this article are based on the information presented by the local guide on the tour.

The capital surprised us with its beauty, tons of greenery and colorful houses. The metropolitan area of Tirana hosts 1 million citizens, which is around a third of the country’s whole population.

The city of Tirana is located next to the mountains, to one of which we took a day trip.

Landscape of Tirana from Mount Dajti

Painting the city’s buildings in bright colours in the early 2000’s originally was the idea of the then city mayor, now Prime Minister of Albania, Edi Rama who is also a painter. It was his vision to highlight the bright and happy future ahead after the grey years of communism.

During our trip we gained a lot of insights into the historical chapter of Albania, in particular, when it was a lesser known communist dictatorship within Europe. However, this nation’s history starts from the ancient times, when the country was part of Illyria. Before the modern era, Albania was ruled under the Roman, the Byzantine and most significantly the Ottoman Empire, until it gained independence on 28th November 1912.

The most prominent feature of Albania’s recent history, has been it’s strict communist rule under Enver Hoxha from 1944 until 1991. Albania sometimes even was referred to as the ‘’North Korea of Europe’’ due to the personal cult surrounding Hoxha, strong restrictions to citizens freedoms and severe violations of human rights during this time period.

Small statue of Hoxha together with a statue of Lenin and two of Stalin

The beginning of Hoxha’s rule was strongly influenced by the Soviet leader Josef Stalin as Hoxha followed his footsteps in creating a communist regime with a closely planned economy. In the 1950s, once the Soviet Union abandoned Stalinism, Albania tightened its relations with the People’s Republic of China led by Mao Zedong but eventually also this relation was destroyed and Albania was left without allies. This lead to the isolation of the nation, and no man could freely enter or leave the country.

In the 1980s the Pyramid of Tirana was the Enver Hoxha Museum, today, it is waiting to be reconstructed as a youth center

The communist era was marked by Hoxha’s paranoia of foreign powers invading Albania. Its legacy is still one of the most visible features of the country, as the leader built over 700 000 bunkers all over the country to protect the people. Today, a great amount of these bunkers are still visible in the Albanian landscape and two museums called Bunk’art 1 and 2 are telling the story of communist Albania to the public.

Reconstructed bunker in the city center of Tirana

Collection of bunker photos at Bunk’art 1

In 1991 communism collapsed in Albania, surprisingly through elections, and the country was ready to open its borders and contribute to the international community.

Germany donated a piece of the original Berlin Wall to Albania as a memorial after the collapse of Communism

One rather ironic part symbolizing the end of communist era in Albania is the site of former leader Enver Hoxha’s house. The first international fast food chain ever to arrive in Albania was Kentucky Fried Chicken, and today their restaurant is located across the street from Hoxha’s house, the face of the logo smiling directly at it.

Enver Hoxha’s house

Since the communist rule, Albania has been developing rapidly, striving to get rid of the organized corruption and other societal issues, and today it is a member of many international organizations such as NATO and WTO. The modernization and shift to market economy took place quickly, as in the past 27 years the country has been able to establish remarkable reforms.

The country today is very pro-west and eager to join the EU, with as much as 94% of the population in favor of joining. Our visit in the Swedish Embassy in Tirana gave us more profound insights on Albania’s possible EU accession, and we discussed the role of Sweden as a big supporter of Albania’s accession after 50 years of bilateral cooperation. As you are reading this article, the EU leaders are discussing the opening of accession negotiations with Albania.

During our trip we also heard about the most current political and societal situation of Albania, when visiting CRCA – Children’s rights center Albania and Roma Active, an NGO helping Roma and working on challenges the minority faces in Albania. These visits gave us a lot of information about the current issues the nation is facing, especially in terms of becoming an applicant to the EU. One large problem is the fact that young people are leaving the country to study or work abroad and are not returning. NGOs like CRCA are working towards building trust and safety net for young people to return and invest in their home country. Though there are still major issues with transparency, grass-root corruption and trust in politicians, Albania seems to be on the right path in terms of becoming more and more democratic. It is likely that within the next decade, Albania will be ready to officially begin the EU application process, which we think would be beneficial to all parties.

UF Malmö visiting CRCA

by Isa Tiilikainen & Jasmin Virta

Photo credits

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Moving money out of the public eye: tax evasion in the EU

Isa Tiilikainen and Jasmin-Leyla Virta — Sun, 29 Sep 2019 13:49:02 +0000

Tax fraud and tax evasion within the European Union (EU) form a big problem that concerns all EU citizens. For instance, in 2017 the EU lost 137 billion euros in value-added-tax revenues, but taking also other types of tax frauds into account, the estimates of lost revenues due to tax evasion and avoidance go all the way up to 1 trillion euros.

Tax avoidance and evasion can be carried out in different ways, such as aggressive tax planning by taking advantage of loopholes in legislation or by transferring money to tax havens. Tax havens are often associated with remote and foreign states but, despite the close economic integration of the EU, can also be found within the Union.

Today, tax avoidance is a recognized problem in the EU, so how is it still possible?

Free movement of capital facilitating tax avoidance

The free movement of capital is one of the EU’s four freedoms and the basis of the European Single Market meaning that all restrictions and limits on the movement of capital – for example, on buying and selling shares and assets, as well as foreign investments between member states being prohibited. This freedom, related to banking secrecy, has created an opening for tax frauds – or at least made the monitoring of tax compliance trickier.

The EU has been working on harmonizing taxation and legislation in the member states, but still there are big differences regarding state provided tax reliefs and tax transparency. This has offered more room for systematic tax planning, tax avoidance and, eventually, tax evasion. As the taxation differs from one member state to another and the tax rates can be notably lower, tax payers, investors and companies might consider directing their income and profits through a different member state that is not their country of residence. Due to this, a total of seven EU member states, Belgium, Cyprus, Hungary, Ireland, Luxembourg, Malta and the Netherlands, are considered tax havens.

In recent years, this action has been closely observed through the Luxembourg Leaks – a major investigation revealing that over 300 foreign companies avoided taxes by channelling the taxation through Luxembourg where companies pay significantly lower corporate taxes than in other European states as the state’s legislation makes offers of substantial tax relief and deduction deals in privacy.

Several multinational companies, such as Disney, Pepsi and IKEA, profited financially by centralizing their income stream on European market through Luxembourg where they had to pay less than 1% taxes of their profits whereas taxation in other EU countries could have cost them billions of euros more, as the average corporate income tax rate in the EU countries is currently around 21,3%. Similar taxation deals are found for example in Ireland with Apple and in the Netherlands with Nike, as revealed by an investigation of the so-called Paradise Papers.

Zero-sum game?

Free movement of capital and tax planning within legal framework can create healthy competition and maximize profits for all actors, the EU, the member states, the companies, as well as individuals. However, at worst, harmful tax competition can unbalance the equality between the member states.

According to Spanish Member of the Parliament, Miguel Urban, the problem with tax evasion is the lack of fiscal unity in Europe which leads to fiscal competition and dumping aimed at attracting companies and capital. One can even argue that free movement of capital facilitates tax evasion. Miguel Urban states: “We are returning to a feudal system, where the feudal lords don’t pay any tax. This aristocratic class and modern feudalism is called Bono, Messi, Christiano Ronaldo as well as Nike, Apple and Amazon. It’s a class that positions itself not only above the middle class but also above small and medium-sized businesses. It’s a new nobility that believes to be above the law.’’

States’ right to choose their form of taxation is an argument often referred to by the tax-avoiding nations. For example, many Luxembourgers have publicly expressed this opinion, as a spokesman for the Luxembourg Finance Ministry says: “Each country should be free to fix taxes according to its national priorities”. Many lobby organisations promote this view as well, as Nicolas Mackel from Luxembourg’s financial lobby puts it: “Competition is healthy. And it is legitimate. To align the rules would certainly increase taxation. And that is not necessarily the most appropriate thing”.

These opposing views have created some contradictory outcomes mainly associated with the President of the European Commission, Jean-Claude Juncker. Previously Juncker has been the Finance Minister of Luxembourg, meaning that he has been one of the main actors preparing the tax relief deals with multinational companies, but as the President of the Commission he has been forced to fight against these deals and tax evasion.

However, with regards to the internal market system of the EU, it is evident that when one country offers tailored tax deals to multinational corporations, it steals the revenue from all the other countries. When multinationals dodge taxes, the gap has to be somehow compensated for and this often means increasing taxes on small and medium-sized enterprises, lower- and middle-income households and cutting back on public services.

The EU loses around 20% of its corporate tax revenue to tax havens. The woeful part about tax evasion is its clear connection to inequality between citizens all over Europe. Had the correct amount of corporate taxes been paid accordingly, there would be no need for any budgetary cuts.

Time to act

Recently the EU has taken measures to combat tax evasion as one of the focus points of its agenda.

One of the most effective and recent actions of the EU in the fight against tax evasion is the Anti Tax Avoidance Package based on the recommendations of The Organisation for Economic Cooperation and Development (OECD). The package was introduced in 2016 and aims at achieving fairer and more coherent corporate taxation by increasing transparency and helping the member states to act united against tax frauds. As a part of this package the Anti Tax Avoidance Directive, creating a minimum level of protection against tax avoidance, was applied on 1 January 2019. The directive includes rulings against profit shifting to low-tax countries, to prevent double non-taxation and to discourage artificial debt arrangements.

Even though these measurements are now applied, the fight against tax evasion is still in its early stages. Like with many other major issues within the EU there seems to be more talking than taking action. One reason for this is the fact that taxation is still very highly associated with member states sovereignty. As a consequence, policies and rulings related to taxes are handled in the Council of the European Union with unanimity which means that one single member state can obstruct the proposed changes and legislation if it collides with their own national interest.

Issues with a cross-border dimension, like aggressive tax-planning and evasion, are hard to tackle with only domestic policies. The EU’s internal market structure between 28 member states can both be the accelerator of the problem, as well as the key to a possible resolution.

Written by Isa Tiilikainen & Jasmin Virta

Photo Credits

Bad Weather, Frédéric Schneider, CC BY-NC-ND 2.0

Commission President Jean-Claude Juncker debated the last EU summit, Pietro Naj-Oleari (European Parliament), CC BY-NC-ND 2.0

Members making statement during vote on motion of censure against the Commission, Pietro Naj-Oleari (European Parliament), CC BY-NC-ND 2.0

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