giovedì 25 giugno 2009

More and more, it appears that in the 21st century we are returning to the economics of the 19th, where wealth was overwhelmingly concentrated in the hands of a few owners and astute speculators. The developed Western world is in a crisis. Simply put, it appears that neither the Right nor the Left seem capable of creating a society in which all benefit from increased prosperity and economic security.

 

Right-wing claims that free markets will enrich all sections of society are palpably false, while the traditional European welfare state appears to penalize innovation and wealth-creation, thereby locking the poor and unskilled into institutionalized poverty and unemployment. Thus in the new age of globalization, both ideologies create the same phenomenon: an underclass caught between welfare and low wages, a heavily indebted middle class increasingly subject to job and pension insecurity and a new class of the super rich who escape all rules of taxation and community.

 

Looking back, we can date the beginning of this new age. It began as a successful right-wing reaction to the oil price crisis of 1973. Then the major developed OECD countries, especially Britain and the United States, were facing crippling inflation, low growth and high interest rates. It was in Britain that neo-liberalism first emerged in its decisive form. Confronted with union militancy and the apparent bankruptcy of the welfare state, the Conservative party under Margaret Thatcher was elected in 1979. In America, Ronald Reagan took office in 1981, and the Anglo-Saxon countries have pursued and advocated free market liberalization ever since.

 

Neo-liberal orthodoxy has become the world consensus for delivering prosperity and economic growth. Today, its reach extends as far as 'communist' China, which, while eschewing political freedom, fervently preaches economic liberalization. Even the French acknowledged free market supremacy, electing in Nicolas Sarkozy, a president who has persistently denounced the costs of Gallic welfarism and praised the economic advantages of the Anglo-Saxon model.

 

But the benefits of the free market liberalization depend on who you are, where you are and how much money or assets you had to begin with. These caveats apply whether you are a country or an individual. In terms of economic development, free market fundamentalism has been a disaster. The free market solutions applied to Russia during the Yeltsin years succeeded only in mass impoverishment, the creation of a hugely wealthy oligarchical class and the rise of an authoritarian government. Similarly, the growth rates of Latin America and Africa, which had been higher than other developing nations, dropped by over 60 percent after they embraced IMF-sponsored neo-liberalism in the 1980’s, and have now stopped or stagnated.

 

On an individual level, a similar story pertains. Real wage increases in the top 13 countries of the Organization for Economic Cooperation and Development (OECD) have been below the rate of inflation since about 1970. Thus wage earners — rather than asset owners — have faced a persistent 35 year downward pressure on their standard of living. It comes as no surprise to learn that the golden age for the waged worker, expressed as a percentage share of GDP, was between 1945 and 1973, and not under any aegis of economic liberalization.

 

Nobody questions that trade increases prosperity, and that the liberalization of credit and financial services allow hitherto excluded groups to supplement their wages by buying shares or houses and thus participating in the asset economy. But the real story of neo-liberal success is not the extension of assets to all, but the huge and disproportionate share of wealth attained by the very rich. In the United States, between 1979 and 2004 the wealthiest 1 percent saw an increase in their share of national income of 78 percent, whereas 80 percent of the population saw an overall decrease in their income share by 15 percent. That’s a wealth transfer from the large majority to a tiny minority of some $664 billion.

 

The old traditional Left panicked in the face of neo-liberal hegemony and spoke in the 1980’s of redistribution, higher taxes and restrictions on capital transfers. But, outside of Scandinavia, they were whistling in the wind: European state-regulated economies were themselves moribund locked into high unemployment and low growth. Or like Japan which in attempting to recover from a land and asset price bubble – itself sponsored by neo-liberal policies in the 1980’s – tried in the 1990’s a huge Keynesian style state backed fiscal expansion with interests rates cut to virtually zero. In a conspicuous failure of traditional left-wing economics; Japan’s economy remained wholly stagnant for a decade and arguably has still to recover.

 

A new path for the Left was however offered by the country that first experienced the new Right: the UK. By the late 1990’s, Britain was exhausted by Thatcherism; its public services were failing and the country was socially and economically fragmented. Thus in 1997 New Labour was elected. Under the guidance of Tony Blair and Gordon Brown, the new progressives promised that the benefits of rising prosperity would be applied to the public sector and the poor. Social exclusion would be tackled by opening up education and extending opportunity to all. The rest of the world was once more transfixed by the social experiment taking place in Britain. Could this seemingly exclusive neo-liberal circle be squared for the benefit of all? Sadly, after 10 years the conclusion has to be no.

 

Poverty in Britain doubled under Thatcher, and this figure has become permanent under New Labour. The share of the wealth, excluding housing, enjoyed by the bottom half of the population has fallen from 12 percent in 1976 to just 1 percent now. Child poverty is rising again and some 13 million people now live in relative poverty. Social mobility has declined to pre-war levels such that in modern Britain your postal address is a better guide to your life expectancy than your DNA. The least able children from the richest 20 percent of the population now overtake the most able children from the bottom 20 percent by the age of seven. Nearly half of the richest group go on to get university degrees while only 10 percent of the poorest manage to graduate. Clearly, the New Left has entrenched class division even more firmly than the neo-liberal Right.

 

This in a nutshell is the problem: Both Left and Right seem incapable of challenging monopoly capitalism. Neither state nor market can secure a universal wealth and prosperity. However, there is an unexplored economic and social alternative: civil society. Indeed civil society is what both socialism and the free market claim to protect, nurture and advance and it is civic social life that has been so damaged and eroded by the development of the authoritarian state and the extension of the market.

 

There are at least three immediate measures that can be pursued that will gradually recover an alternative that promotes the generation of wealth and innovation and the extension of this evident good to all.

 

Firstly, all should own. In Europe, where some 30 - 40% of citizens do not own their own home, people are denied access to the huge rises in asset prices that we have seen over the last 20 years. Extension of asset wealth to those excluded from its benefits is an urgent policy necessity. The disaster of the sub-prime debacle in the United States is that in the name of extending access to wealth, the poor who jumped at the chance of ownership, were subject to far higher interests rates and hidden costs than the rich. Thus when conditions changed and introductory rates reverted to a penal level of interest - those on small incomes could not cope. The lesson is that the poor need fixed and subsidised home loans, with welfare aimed not only at income but also at wealth extension through property ownership.

 

Secondly, globalised and corporate economies if left alone to operate in a deregulated marketplace effectively destroy local economies and small business. In the Anglo-Saxon countries and Britain especially, all towns and city centres are alike. The same chain stores dominate the high street and force local producers to sell to them or not sell at all. In the UK , some five supermarket chains control well over 80% of food retail and researchers predict that by 2050 there will be no independent food stores left in Britain. What we need is a doctrine of economic subsidiarity – where competition is enforced not on the basis of price efficiency to consumers but also in respect of farmers, producers and independent retailers. As the success of fair trade products makes clear – consumers themselves no longer want price to be the sole determinate. As such, to ensure a genuinely competitive market there could be tax penalties for stores over a certain scale and tax benefits for those on a lower margin. This variegated approach would restore a diversity of supply, self-sufficiency and profit margin to local businesses, enabling them to develop their own culture and produce and compete more effectively with corporate providers

 

Thirdly rates of taxation on the both the working and middle classes are far too high. Coupled with the long term decline in wages there is a long term rise in taxation across the OECD. Indeed the tax burden across the most developed nations reached historic heights in 2000 and again in 2005 when the tax take in all the OECD countries equalled 36.2% of GDP. However, as the recent revelations about tax havens in Liechtenstein attest, the very rich through both corporate and personal tax avoidance are able to largely escape the responsibility of taxation. Indeed the OECD estimates that between $5000 billion and $7000 billion in funds is held offshore in tax havens. The revenue and capital taxes lost to the world community through such sums can only be guessed at. In effect what we are seeing on a global scale is the subsidizing of corporations and the very rich by the middle class and the working poor. Repatriating off –shore assets and income and restoring it to the national tax base is thus crucial to the development of a low tax economy and the rise of small businesses.

 

To conclude only a truly shared economy can correct the natural tendency of the free market to favour monopolies. But we can only share if all own. Thus a generally available and widely distributed culture of ownership and use of assets, credit and capital, would dissolve the conflict between capital and labour since it would be a market without monopoly and a situation where waged labour — since it was the owner of capital — did not need state welfare. In such a manner both prosperity and autonomy would be achieved and the market state would be superseded by civil society.

 

First published in the Italian quarterly review Atlantide, April, 2008

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