The last mailing summarised Thomas Piketty’s account of how we got into our present position. This looks at his final chapter, where he puts forward proposals for a better economy and society in the future. He says: “New forms of social ownership will need to be developed, along with new ways of apportioning voting rights and decision-making powers within firms. The notion of permanent private ownership will need to be replaced by temporary private ownership, which will require steeply progressive taxes on large concentrations of property”.
By a ‘just society’ he means one that “allows all of its members access to the widest possible range of fundamental goods”. However, “Grand declarations of principle, like those formulated during the French Revolution or the US Declaration of Independence did nothing to prevent large social inequalities”. So definite policies are needed, always “conceived as the result of an ongoing collective deliberation”.
First, he deals with power-sharing in companies. “The idea that the ‘one share, one vote’ model of corporate organisation is indisputably the best cannot withstand close scrutiny”. Post-WW2 experiments in Germany and Scandinavia to involve workers on company boards, and to take “into account the general interest and the good of the community” need to be pressed further. One method might be to limit the voting rights of major shareholders in all but the smallest firms (those with fewer than ten employees) so that by the time the company has more than 100 employees no one shareholder can wield more than ten percent of the votes in any board decision.
It is on taxation that his proposals are perhaps the most radical. He suggests an annual property tax to supplement inheritance taxes, ranging from a tenth of one percent on individual wealth of less than half the national average, up to ninety percent on fortunes of more than ten thousand times the average. Inheritance tax similarly should range from five percent to ninety percent from half to ten thousand times the average. These taxes should fund a one-off capital endowment for every young adult (he suggests at the age of twenty-five years), to help towards buying a house or setting up a business. The ultimate aim is to reverse the concentration of wealth in fewer and fewer hands that has been evident since the 1980s: overall tax rates “of at least 5-10 percent are necessary to reduce the concentration of wealth at the top of the distribution or at least to stabilise it”. In this way property and wealth cease to be a sacrosanct “personal possession” and become more of a temporary holding for the benefit of the whole community.
Income tax and social security contributions, in Piketty’s scheme, remain the resource for all the purposes which the community decides to undertake together. In total, these should amount to something like 45 percent of total national wealth, growing from ten percent on incomes of half national average to ninety percent on ten thousand times the average. This would again, as in the middle of the twentieth century, begin to “eliminate pointless high salaries”.
Among all the measures which these taxes fund should be a basic income, which Piketty would set “for individuals with no other resources at 60 percent of the average after-tax income; this amount would decline as other income increased. It would apply to about 30 percent of the population for a total cost of about 5 percent of national income.” But this should never be seen as a substitute for other forms of social security which will still be required for emergencies and other cases of need. It may also be useful to relate social security contributions much more closely to the expenditures they are said to support, in order to give taxpayers a greater sense of control and responsibility rather than feeling that their money disappears into a poorly understood State-run ‘bottomless pit’. This tax system should replace almost all indirect taxes (such as VAT), which weigh much more heavily on poorer families than on richer.
Countries with written constitutions should write in the principle of social and fiscal justice. But the details must always remain the responsibility of elected parliaments “after public deliberation.” Constitutional courts and judges should never be allowed to intervene in order to strike down decisions arrived at democratically.
A common argument against such proposals is that international competition destroys any chance of their success, as international business flees to “low tax” regimes. One example (which Piketty describes earlier in his book) is the European Union, where decisions about international trade are made by qualified majority (55% of member countries representing 65% of the total EU population), while taxation and other matters must be unanimous. So member states which see themselves as potential tax havens can veto realistic levels of corporation tax and spark a ‘race to the bottom’. But “Governments have considerable freedom to make progress without waiting for international cooperation to be achieved.” This is obviously true for large economies, such as the USA (if it chose that option), but even smaller economies can form alliances to tax global business more effectively (even some EU countries could do precisely that without in any way violating existing treaties). Many businesses, of course, do not have the advantage of global mobility. In such cases “the authorities could easily require corporations and other legal entities listed as owners to submit the names of their shareholders and the number of shares held by each. Coupled with information on financial assets submitted by banks and other financial institutions, tax authorities could transform the real estate tax into a progressive tax on individual net wealth [and] could also require all firms doing business or having economic interest in the country to submit information about their owners…… With such a system, the only tax avoidance strategy would be to sell the assets and leave the country.”
Having outlined proposals for fiscal (tax) justice, Piketty turns to other important matters.
“Along with rising inequality, global warming is the greatest challenge the world faces today. These two are intimately related and can be resolved only if dealt with simultaneously.” His ideal solution is “a progressive tax on carbon emissions at the level of individual consumers: the first five tons might be taxed little if at all, up to some maximum level beyond which all emissions would be prohibited”. This, he recognises, raises “complex issues, which could be overcome (for example, by using credit card information). Carbon content is already measured for electricity (reflected in bills).”
Turning to “educational justice” he proposes that “every child should have the right to the same educational funding, which could be used for either schooling or other training”. So those who leave school at the age of 16 or 18 should be entitled to the same funding as those who go on to Higher Education and University. They could then draw on their entitlement to secure further training later in adult life, or perhaps in some cases use it to set up businesses. (Presumably in the UK the present regime of state loans for Higher Education would need to be changed to suit such a system).
The workings of democracy also need to be rethought. “In theory universal suffrage is based on a simple principle: one [person] one vote. In practice, financial and economic interests can exert an outsized influence on the political process, either directly by financing parties and campaigns or indirectly through the media, think tanks, or universities. The question of political financing has never really been considered in a comprehensive way”. His proposal is to create “Democratic equality vouchers” to offer a small annual amount (he suggests the equivalent of 5 euros) to each citizen “which could be assigned to the political party or movement of his or her choosing”. Other political contributions from firms and other organisations would be banned, and “there would be a strict ceiling on private individual donations”. These vouchers should, he says “replace the current system of tax deductions for charitable contributions, which is just another way of subsidising the cultural and philanthropic choices preferences of the rich”. His intention is in no way to replace parliamentary debate by some form of ‘direct democracy’ (such as referenda), but “rather to make parliamentary democracy more dynamic and participatory by encouraging all citizens, regardless of their social background or financial means, to participate regularly in the renewal of political movements and parties”.
Finally, Piketty turns to the question of international justice: “Existing trade agreements should be replaced with much more ambitious treaties that seek to promote equitable and sustainable development” (including agreed policies on migration). “Liberalisation of commercial and financial flows should no longer constitute the heart of the global system. Trade and finance would then become what they always should have been: means in the service of higher ends”. We cannot afford to wait for “the entire world to agree before moving ahead”. Rather “It is crucial to think of solutions which will allow a few countries to move….. by signing co-development treaties among themselves, while remaining open to others”. International development aid must continue (at one percent of national wealth), and “transfers should go directly to the treasuries of the states concerned once certain conditions are met, including respect for human rights and fair voting procedures (which should be spelled out in detail)”. This is because sustainable economic development depends above all on good government, and “Circumvention of state institutions in poor countries by governmental and non-governmental organisations has been a factor in slowing the process of state formation”. Perhaps he would also agree that it is vital to support those who wish to challenge their governments to be more democratic and responsive to the needs of their people. “The loss of revenue due to the very rapid elimination of tariffs by the rich countries, which have not generally assisted poor countries in developing more just taxes to replace them” must be addressed, so those governments may “have greater resources to pay for schools and health services”. Also “Profits earned by large multi-national corporations should be apportioned among states in a transparent manner. If agreement cannot be reached, any group of countries (or a single country) could act on its own, imposing its share of the global tax on a company in proportion to that company’s sales of goods and services on its territory”.
All this may seem very optimistic, even utopian, but the current collapse of confidence in the liberal ‘free-market’ system, and the risk of al fall back into confrontational and destructive nationalism, make such new thinking more than ever necessary. As Piketty says, “Human societies have yet to exhaust their capacity to imagine new ideological and institutional solutions”.
Two final comments:
First, our study of Biblical economics (written up in “For Where your Treasure is….” http://wp.themeetingplacewymington.co.uk/wp-content/uploads/2013/02/treasure.pdf ) taught us that the heart of the Biblical idea of justice is the need to share resources that can produce wealth, and prevent them from being monopolised by a minority of wealthy and powerful people. With land as the main source of wealth in Biblical times, this was to be achieved by the Jubilee redistribution of landed property every fifty years (see Leviticus chapter 25, from verse 8). Piketty’s proposals for the progressive sharing of wealth are in many ways consistent with that principle in our modern and complex economy, one that has been deliberately undermined and ignored for many centuries.
Secondly, his comments about the limitations of present-day democracy are worth noting and taking further. He highlights the way money can distort political debate- but the way the economy works itself alters political alliances. From a society divided into the ‘Haves and the Have-nots’- where the ‘Have-nots’ were a majority, so democracy could bring about real change- we are becoming, as someone observed in the 1990s, a society ‘divided into the Haves, the Have-nots, and the Have-a-lots. And today the Have-a-lots have the Haves on their side.’ A minority-owned and controlled economy must offer a market (in jobs, goods and services) to as many people as possible. But it cannot incorporate everyone, because after a certain point profitability falls (the clearest example of this is the housing market). Those who are lucky enough to find themselves in the market (or those who hope to join soon) are unlikely to join with those excluded to vote for radical changes to the system- so the excluded minority have little political leverage, and their protests can easily be suppressed. If “democracy” continues to fail the poor in this way, it will be necessary to build up resources on the margins of the mainstream economy that not only offer some security, but can increase confidence and political “clout”. The Early Church did not wait for the Roman Empire to become more just- it created alternative economic communities, so that “there was not a needy person among them” (Acts 4:34).