Tag: Economics

Work and welfare

Suppose that, through the use of machines, sufficient resources could be produced without full employment. The balance between the forms of work and welfare that we are used to would have to change. Since we are arguably in the middle of a transition to such a state now we need to think about how they might change. Otherwise, and we can already see this happening, we will move back towards three broad tiers of society – the top wealth owners who can easily live and even get richer on what are basically rents; those with relatively secure jobs or other job related incomes like pensions or small businesses; and the “precariat” as they have been aptly called, who rely on occasional work, zero hours contracts, welfare benefits etc and for whom poverty is never far away. So far, so Victorian, but the enormous danger is that this structure of society is not stable, not in equilibrium. It depends at the very least on the acquiescence of the precariat, whether through the modern equivalent of bread and circuses, through apathy and inertia or, more likely, through a conviction that the order of things is too complex to change, one of the main axioms of neoliberalism.

The era after the industrial revolution led both to unprecedentedly nasty wars which were in large part the spilling over of commercial (imperial) competition into violence and to violent revolutions within some societies. Although ultimately better conditions for workers were brought about particularly by pressure from unionism and the labour movement generally, in many societies it was a close run thing. This degree of progress was accompanied by a partly successful push towards democratic control of societies, but not universally and not without some dark diversions through dictatorships of different kinds. We cannot be confident that the outcome of re-running the experiment will be equally benign, especially when democracy has been corrupted to the point of uselessness by the introduction of deliberately undemocratic structures like the European Union on one hand and on the other, by the blatant manipulation of public emotions without regard for truth or balance which is what now passes as political skill.

Thus it is important to consider how work and rewards are or can be related in society. In the ancient world the balance was very different and NOT working was often the prerogative of the citizen. Slaves worked, citizens didn’t, at least well-to-do citizens didn’t. There may have been other civic obligations, like fighting in the army, but labour for income was not something on which citizens prided themselves.

In fact, in aristocratic societies both yesterday and today the elite do not work but own most of the wealth and receive and spend most of the income. Typically these have been rentier societies, with the income of the elite coming from wealth (generally land) and very little else. In more modern societies the particular form of work we call entrepreneurial activity became more valued, although much of what passes as high entrepreneurship today remains rent-seeking behaviour dressed up with bustle. But in the twentieth century income distribution generally became more tied to work and median incomes were gradually and slowly raised as labour pressed for their effort to be recognised in income distribution. That process has been reversed or at least halted in the last few decades by neoliberalism, with huge pressure on wages except at the very top to benefit profits. The highest “wages”, those of the most senior executives, have become in effect rents on the holding of high office in a company, out of all proportion to effort or effectiveness.

All this is worth reciting only to show that the relationship between work and reward is and always has been complicated. It is simply a myth that work and reward were always linked closely together. “If you don’t work you don’t eat” may sound robust and fair and may be so in some limited scenarios, but as a depiction of real societies it has seldom if ever applied and it has very rarely applied to elites. It is not a principle on which any complex society has been based and it is doubtful, even by the time all the humane exceptions to it have been allowed, whether it ever could be. So although the new predicament of how to distribute the goods and necessities of life if sufficient were available without everyone working needs to be thought about very carefully, the link it seems to threaten between work and reward is not universal, nor eternal, nor even particularly common.

How can we tax multinationals fairly?

Large multinational companies can easily avoid paying tax in any particular jurisdiction, to the degree that many pay virtually nothing in the UK on massive business streams. But tax is and always has been a creature constructed by laws and if there is widespread abuse or unhappiness with the current results the only answer is to consider how best to change the laws. We have inherited certain taxes from the past, in this case most notably Corporation Tax which itself dates back only to the 1960’s. But the rules don’t seem to work for multinationals. Perhaps it is time to consider whether the notion of taxing profit, the net income of a company available to contribute to public purposes among other things, is outdated in an age when companies can choose where and how they manifest such surplus.

Moving profit around the world to minimise tax is nothing new, of course. For decades companies have tried transferring goods, intellectual property rights and licences, expertise and anything else they could think of so that costs appeared in higher tax countries and profits in low tax or no tax countries. For decades some governments have tried to keep up by disallowing each new device as it appeared, while others connived at avoidance by offering very low tax environments so that they would gain revenue at a low rate but on large volumes of diverted profit. The process was like a game, played for high stakes but relatively even sided until about the turn of the century. By then the ability to switch ownership, money, even the location of a sale with a few keystrokes had become an overwhelming advantage. It seems now that the game has been decisively won by the companies.

So if we believe that multinationals should contribute revenue for public purposes, it is no use tinkering with the rules of the game. We must change the game itself. One way to go might be to tax sales revenues rather than profits. Another would be to divide declared world profits according to sales revenues in each country, the so called unitary tax method which some US states tried to impose in the 1970’s but fell foul of international tax treaties. World profits are less understated than country profits because they are what justifies a company’s management to its shareholders and drives the share price on which executive bonuses often depend.

But both of these suggestions suffer from the same problem. When you buy something on the internet from the UK you may without even realising it be dealing with a company in a tax haven (such as Luxembourg) and that is where your purchase is filled. No UK-based company actually sells anything in this instance. The website says “UK” but the small print says otherwise.

So the solution has to be radical to take account of the radical change the Internet has brought about in the way business is done. Here is one idea. The location of the buyer rather than the seller could be legislated to be the determining factor of where a sale takes place for tax purposes. That location is not difficult to detect and police on the internet. Indeed, multinationals themselves could be required to log sales according to the location of the buyer and tax could then be based on “value of goods bought per country”. World profits, for example, could be divided up by this measure, or a new tax could replace tax on profits and be based on it.

This is not a trivial change. It would require alteration or even unwinding of international tax treaties and understandings built up over decades. It would of course be bitterly opposed by multinationals and their apologists. It would be opposed even in the forums which consider international tax matters like the OECD by countries who have done well out of providing a home for tax avoidance. It would obviously only work fully and equitably if it was adopted by many countries, and although it could work perfectly well unilaterally there would be the usual, inevitable and false scares that it would destroy jobs. In fact, it would only destroy jobs in the tax avoidance industry, because the location of customers is one factor even multinationals do not control. Of course, someone would eventually come up with a way to cheat the system (someone always does) but meanwhile multinationals might contribute a little more to the countries they harvest.

Taxing multinationals fairly is thus possible but it is not easy or quick. It requires radical changes in the way the taxation of multinational sales and profits are understood and in the way countries seek to divide tax sources between them. All the more reason to address the problem sooner rather than later, by getting such ideas onto the political agenda.

UN Development Goals

The UN has recently adopted new development goals which admirably aspire to commit governments to the elimination of poverty, among other things. It may be slightly unfair to say this, but new goals were necessary because the old millennium (Millennium! Old!) goals had failed to produce the results they were meant to produce – there was some progress on some goals, just not enough on enough.

Sadly, the new goals are unlikely to be more successful. In the first place, there are seventeen of them, each divided into many sub goals, more than 150 in all. (I haven’t actually counted!) Any manager will tell you that 150 goals is too many. It is a sufficient number for every country in the UN to claim that it has achieved its own impact on the final document, which is perhaps the hallmark of such diplomatic efforts. But the targets are too diffuse to create real pressure, real focus. Every country will be able to say in the end “Well, we made progress on some goals but of course not all were possible.”

Secondly, as many have pointed out, there are likely to be many tensions between so many different goals but there is a particularly stark contradiction between development goals which hold out growth as the answer to poverty and environmental goals contained (again presumably for diplomatic reasons) in the same document which require slower growth. Unless very different patterns of growth can be found, more growth is likely to mean more environmental impact. Something will have to give and in the meantime existing levels of environmental impact from growth are likely to increase poverty in many parts of the world.

Third, there is a danger that well-meaning people will mistake this declaration for a statement of world values, as happened with the declaration on human rights. These are diplomatically negotiated aspirations, not values. They may be very useful as part of the process of mobilising opinion in favour of desirable goals or even in encouraging people to think about values. Equally, they will almost certainly be appropriated at some stage by corporations who will argue that advancing their corporate interests will further a development goal and is therefore the moral duty of governments.

It is possible that at a practical level some clearly stated and agreed goals could act as a focus of collective action which embodied shared values. But such high level goals are not values. What would happen, for example, if by some miracle they were all achieved – we would presumably set new goals but would that mean new values? That would be a very strange result.

Collective goals should spring from our values, not the other way around. More importantly, these goals tell us nothing, or very little, about how to live our individual lives. Do we for example subjugate our personal goals and aspirations to the UN development goals? That would lead to a sort of developmental totalitarianism. On the contrary, we can only test the relevance and significance of these goals against values we already have. Is sub-goal no. 47 for example (whatever that is) a goal worthy of our wholehearted effort and support? We do not know unless we already have a value framework we can apply. Again, values must lie at the heart of everything we do and thus the search for shared values is no ivory tower game but an essential, civilisation defining activity.

Does wealth cause poverty?

It would if there were a fixed amount of wealth, but there obviously isn’t. There are issues here about what we should do if we wanted to move to a zero growth world in order to reduce our environmental impact, because then the amount of wealth would indeed be fixed. But that is not the world we currently live in.

It would if the wealthy stole from or exploited the poor to get rich. Of course this has often happened and still happens. Not only do people cheat and steal directly from others but people have often appropriated the commons to enrich themselves at the expense of their neighbours, from the early enclosures of common land for example to the despoiling of the environment as an economic “externality”. But to see whether this happens in any particular instance we must look at the facts, inconvenient though this may be for ideologues. The Marxist notion that any and profit is expropriated from the workers, for example, was probably more often true than not in the aftermath of the industrial revolution, but it need not be true. There can surely be such a thing as a fair wage, there can be such a thing as a fair return to enterprise or invention. To declare all profit as expropriation is to expound a tautology once it is declared in advance that all value is from labour. That is not to deny that some employers will grab whatever they can from their workers in the name of free enterprise, but not all profit is dishonest.

A better explanation of poverty existing side by side with wealth is thus that in economic relations human values are very often forgotten. People succumb to their own greed. People do not deal fairly or justly with other people. So of course there are plenty of cases of exploitation and expropriation, more than enough to keep the simple myths of the dogmatic left alive. But again, these are because values are forgotten, not because exploitation is necessarily at the heart of economic relations.

If everyone had sufficient, there would be no moral problem with some having more than sufficient. There might be practical arguments – which would have to be based on empirical evidence – that society could be better, safer, more cohesive at lower levels of inequality, but there would be no moral case for equality if everyone had enough. As a simple demonstration, inequality as such could easily be reduced by destroying the wealth of the rich. Would this help the poor? Obviously not, which shows that inequality is a false target.

Poverty itself is absolutely what we should be taking aim at. The moral outrage is that so many do not have enough. The hyper-rich may be too powerful for everyone else’s good, but that is another argument. They may have become hyper-rich by dubious means, but that too is another argument although it is one we should engage in more vigorously. Focusing on wealth as if it is the direct and only cause of poverty is a distraction which does no one any good.

Sweet ethics

Suppose you are a senior executive of a company selling sugary drinks. Your company’s profits depend on successfully selling more and more of them into both new and old markets. Your shareholders, your peers, your bosses, your workers and your own livelihood depend on this outcome, on which therefore you quite naturally focus all your efforts.

But then people start saying that sugary drinks are bad for children. You can see around you the evidence of child obesity as a growing problem and the statistics back this up. Of course, the causes of the problem are complex and the links are hard to prove. The responsibility is even harder to pin down – it’s not as if you are forcibly funnelling the drinks into captive children, choices are being made by both children and their parents. So what do you do? The first step is surely to try and find out for yourself. You commission some research into what is going on and whether your product really is causing or contributing to obesity. If it turns out that there is no link, you obviously trumpet this as loudly as possible. But what if the evidence points the other way?

There will still be some ambiguity. In the first place, obesity is not a disease as such. It is a cause of ill health, not an illness in itself. It’s not as if the drinks were dissolving children’s bones, to create a macabre example. In the second place, obesity is about excess so it is possible in principle for dietary adjustments to be made, including of course drinking in moderation although that won’t help your sales figures. But other foods – chips, burgers, donuts – are likely to be contributors. It’s not all down to the fizzy drinks.

But this story cannot be dismissed without confronting the obvious ethical dilemma. Not pushing the drinks means the end of your company and long before that the end of your career. Pushing the drinks means contributing to the ill health of children – not causing, but contributing. It’s not quite like the tobacco industry – we are here assuming there is nothing harmful about the drinks as such, just harm from drinking too many, which could perhaps be said of any food. But of course, even if you stop selling the drinks, who’s to say your competitors will? So there might be no benefit at all to children from you stopping.

So on one side there is profit, the health of a major company and the jobs of many people. On the other there are fat, unhealthy children, partly though not directly or uniquely your responsibility. What should you do? It’s a classic dilemma of our time, almost a defining ethical issue of modern capitalism.

Your first instinct as an executive will almost certainly be to defend your product. It is not harmful in moderation and no doubt you offer sugar free alternatives anyway. You hate to give ground to your competitors and you are willing to comply with any new legal restrictions, even if you consider them unnecessary and ill judged. Does that not exhaust your ethical responsibility?

Not necessarily. It is the difficult kind of question which the ancients called sorites. A man with no hair is clearly bald, as is a man with one, two, three hairs and so on. At some point however there are sufficient hairs and the man is not bald. But there is no clear transition point, no threshold. Not everything has a tipping point. Many ethical dilemmas take this form and this is one.

When does the aggressive marketing of a product which is not harmful in itself or when consumed in moderation become unethical? The bar is surely lower if the consumers are likely to be children, certainly lower if there are any signs that people can become addicted, but still, there is no obvious tipping point. That does not mean however that the point of transition is never reached. Not all men are bald. At some point it must be said that the scale of marketing and sales, if not the product itself, is just wrong because it contributes to harm. There are externalities (hidden costs which others bear) in the form of illnesses which someone has to deal with and pay for, so the company’s profits are based to some extent on exploiting these externalities. The company is not wholly innocent.

But if we accept that healthier children are a good idea, we must accept also that in a case like this the market will not produce this result unaided. If we depend on the conscience of the senior executive (you, remember, in our little fantasy), the decision will be delayed long past the point where outsiders might consider any ethical line to have been crossed. You are after all conflicted by your responsibilities to colleagues and shareholders, not to mention self interest. Worse, in the end the least sensitive and responsible company will enjoy a monopoly as others drop out. So the market fails, or rather, the market does a limited job perfectly well and returns a profit out of externalities and doubtful practices. Probably government has to step in, by a sugar tax or regulation or advertising restrictions or whatever, so that the decision balances the various interests in the interests of the community as a whole.

Not for the first time in our history, sugar may thus again test our understanding of ethical and political issues which pit wealth against human well-being.

Greece again

Greece has been brought to heel (or its knees) and the eurozone or EU feels more like the Fourth Reich. If that sounds offensive I am sorry, it is only because the Third was so loathsome. But what else would you call a Europe dominated by Germany in which democratic dissent is punished by draconian reprisals against a whole population?
Having said that, what on earth were Syriza thinking? Their only bargaining chip, it seemed, was that expelling them from the Eurozone would be as damaging to the Eurozone as it would be to Greece. But then it turned out that they would accept anything rather than be expelled, even defying a supportive referendum of the Greek people! What, one can only wonder, happened in the week after the referendum to change their minds? Or were they really just hoping all along that Germany would blink first, without having an alternative strategy? Crazy!
No one comes out of this with honour. There is no doubt that Greece has been profligate and that Greek public expenditure needs to be radically trimmed and brought under control. But some debt relief for Greece was the minimum assistance consistent with the solidarity among nations for which the EU is meant to stand. It is also something from which Germany itself benefited greatly in the past. OK, we understand that some things are done “pour encourager les autres” and that Syriza’s grandstanding annoyed everyone. But what has been done to Greece is shameful. It should make us all suspicious of the real motives behind the European project.

Greek debt

The Greek people have voted against more austerity. Who wouldn’t, given the choice? Politically, it is a strong move by Syriza: economically, well, we shall have to see. Germany is now faced with having to find a face saving formula to help Greece with fewer punitive (or reforming, depending on your point of view) measures – or have Greece leave the monetary union and possibly the EU.

No doubt it is better to be a creditor than a debtor. But there is some symbiosis in every case. As the old adage has it, if you owe and cannot pay the bank £100 you are in trouble. If you owe and cannot pay the bank £100 million the bank is in trouble. On an intergovernmental level the relationship is even more symbiotic than between customer and bank.

Country A has a surplus to lend only because country B has bought country A’s exports on credit, even if the relationship is confused by the parts played by many other countries. So it is not quite right for country A to claim the moral high ground, as Germany is now doing with Greece. Solidarity cuts both ways but the point about sovereign loans is that you cannot send the bailiffs round.

On the other hand, if the repayment of loans is seen as optional, the whole process of international trade could grind to a halt because nobody wants to take the risk. Those with something to sell would insist on cash and just keep the money under the national mattress rather than lending it out. Actually it’s worse: what would “cash” even mean in this context? There would have to be a complicated system of barter, which is perhaps what happened in earlier and considerably poorer times.

So what will now happen? Haven’t got a clue! Germany must choose between two cherished aims, leadership of a United Europe and the maintenance of fiscal propriety. If Greece were the only major debtor my guess is solidarity would disappear and they would decide a United Europe without Greece was better than a loss of power. They would cut Greece loose to take the dire consequences of defiance and incidentally show other countries who runs things. But the calculation has to take into account what happens to the other Southern European debtor countries, who will come under immediate pressure from markets. Merely saying that the ECB supports them will not be nearly enough if Greece has gone. So a face saving formula involving a rescheduling of Greek debts with tough words but easier conditions is more likely. Interesting times.