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A modest proposal to spread the profits of Globalization

by Starvid Wed Feb 28th, 2007 at 06:30:13 AM EST

Labor is labor and capital is capital, and the two shall never meet. Right?

It certainly seems so, with globalization giving rise to ever higher corporate profits while wages in developed countries have been rather stagnant for quite some time (while hundreds of millions of dirt poor people have become just poor and are getting better off as we speak).

Should we fight globalization if we believe it hurts the interest of workers in Western countries? No. On the whole globalization is making the total wealth greater and the standard of living better. But as with all structural changes which we have grappled with before, the question is: how do we adapt and transfer wealth to make sure no one becomes a loser in the brand new world?

And this is where my modest proposal comes in.

From the diaries -- whataboutbob


Corporate profits are becoming larger while wages are stagnating. This is the thing. The balance has been shifting away from labor and towards capital, which means away from the middle class and toward the rich, and in anglo-saxon countries toward the super-rich.

I am not saying my little idea will change this picture, but it is a small step.

So what do we do? Tax corporations higher? No, then they just move away somewhere taxes are lower. Tax wealth higher? No, as the rich and super rich have no problem at all with hiding away their fortunes at the Virgin islands. Shoot Bushco? N... well, on general principle then, but it won't solve this problem.

What we do is lower taxes on capital income.

What is he saying? Is Starvid even more insane than usual? Weren't we supposed to shift the balance back towards labor, not give even more over to capital?

Yes, and no. Higher corporate profits and stagnating wages are actually not the problem. The problem is the distribution of capital, that is, who owns these ever more profitable companies. The trick is changing the ownership of these from the super rich to the middle class, or at least achieving a more equal distribution than the one we have today. After all, what does it matter if corporate profits are higher than ever if those profits go to ordinary people?

But if capital ownership is such a great idea in this era of globalization, why don't more people cut back on consumption to save more and become capitalists? Who knows, but instead of ranting about people wanting useless luxury items like SUV's and plasma TV's I'll argue that most people know nothing about capital ownership having become such a great idea. They aren't being wage earning capitalists because they don't know how good it would be for them.

But if there's a single thing to change people's behaviour, at least in this country, it's lowering taxes. Avoiding taxes is the national sport in Sweden, just look at all the insane saving schemes our banks fool people into just to avoid being taxed, or look at spiking consumption of everything from alcohol to novels when taxes have been lowered.

So, to increase popular capital ownership we lower capital income taxes. No, not across the board. Actually, we raise them a bit (currently standing at 30 % in Sweden), a few percent, to finance a basic capital income discount of, say, 500 euros per year.

These 500 euros would be tax free and they would apply to everyone. If you are Mr. Johan Persson, owner of H&M, and has capital incomes of €300,000,000 million in 2007 you will only pay tax for €299,999,500. While if you are Mr Johan Persson, worker at the Hallstavik paper mill and with a capital income of €1000 you will pay tax on €500 euros, or if you are Mr. Johan Persson, street sweeper with a capital income of €500, you will pay no tax at all.

What is done is actually transforming capital income tax from a flat tax to a progressive tax.

Also, this discount should be accumulated over time and increased at the pace of inflation to avoid unnecessary annual transactions. For example, if there is no capital income for 10 years the tax break will be worth €5000, or actually a bit more as it has been increased at the pace of inflation.

This reform would make capital income a little lower for the super-rich and be a break even at some capital income level depending on the size of the discount and how much the non-discounted capital income tax must be raised to make the reform revenue neutral, but most importantly it would make capital ownership an insanely good idea for ordinary people.

If we choose a 500 euro discount and believe in an annual 4 % return on capital after inflation, all income from the first €12500 of savings would be exempt from tax while income from larger fortunes would be taxed a little higher than before, but due to the fantastic concentration of capital among the rich and super rich, a vast majority of the population, probably including a vast majority of ordinary rich people too, would get better off.

But as this seems such a great idea, Pangloss tells me it would have already been implemented if it hadn't some vital flaw.

So I rely on the skilled readers of the European Tribune to point it out for me.

Display:
Nice one, Starvid: this gets to the very heart of the problem.

But I think the solution needs to be a bit more radical, since you are asking for change WITHIN the current paradigm.

What we are seeing at the moment is the replacement - courtesy of mechanisation/technology/IT/Internet etc - of a gazillion horny-handed sons of toil with what is known as "Intellectual Property".

The fallacy at the heart of conventional - anthropocentric - Economics is that the Sun of Capital goes around the Earth of Labour.

So that when a factory is automated through large Capital inputs the last remaining worker, who switches the factory on and off, has become infinitely "productive".

As I argued in a paper at the University of Lancaster's Institute of Advanced Studies

http://www.opencapital.net/papers/Valueknowledge-based.pdf

this daft conclusion comes about because of what are, I believe, erroneous and unrealistic metaphysical assumptions as to the nature of "Value".

IMHO it is neither Labour nor Capital which is productive, but rather the relationship between them.

Now, the point I am getting to is that Intellectual Property - which consists of the privatisation of the "Commons" of Knowledge - is fundamentally inequitable without some sort of compensation to Society.

I believe - following Henry George's "Single Tax" approach for a Land Value tax - that those who have exclusive right of use of a Commons should compensate those they exclude.

The consequence of this approach would be to apply a levy on land value rentals and also on the rentals that derive from the use of intellectual property.  Such a levy could then be pooled and redistributed to all as a Basic Capital Distribution/ Dividend.

I would dispense with Corporation Tax and replace it with a tithe on the gross revenues of Corporations as one of the mechanisms to achieve this - a Limited Liability Levy, perhaps.

If we then also apply a levy (maybe 10%) on an individual's time (ie Labour) and again pool and redistribute as a "Basic Income" then we have two "pre-distributive" mechanisms which would tend to act against the current concentration of wealth in fewer and fewer hands.

The vehicle for the change of paradigm necessary to give rise to this is the emergence of the new risk and revenue-sharing forms of "property" rights which I term "co-ownership".

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Mon Feb 26th, 2007 at 06:51:24 PM EST
I like your idea.  I think it's a great idea to encourage people to save and invest, and also a great idea to reward the lower/middle classes more to get them started.
by wchurchill on Tue Feb 27th, 2007 at 12:39:29 AM EST
I like it.  It's a good idea, as long as people's investments are diversified, to get folks onto the investment ladder, especially the working class.  It could've helped a great deal, post-recession, in the face of the sluggish wage growth we've seen.

One idea I'd add to it is a policy of governments to match the initial investment up to a certain amount -- (say) $1,000, just to pick a random number -- for people earning less than a certain income.  We've had pilot programs for parents along these lines that, from what I've read, enjoyed a reasonable degree of success.

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Tue Feb 27th, 2007 at 04:18:12 PM EST
But if capital ownership is such a great idea in this era of globalization, why don't more people cut back on consumption to save more and become capitalists? Who knows, but instead of ranting about people wanting useless luxury items like SUV's and plasma TV's I'll argue that most people know nothing about capital ownership having become such a great idea. They aren't being wage earning capitalists because they don't know how good it would be for them.

Most people in the world are not wasting their money on SUV's and plasma tvs. They are wasting their money on food, shelter and clothes for themselves and their families. This is also true for much of the western world.

How your swiftian proposal will help aleviate the imbalances of globalisation I do not know.

by Trond Ove on Wed Feb 28th, 2007 at 03:33:13 PM EST
Everyone is spending money on those things, but it's not as though the vast majority of people in the West can't buy televisions.  The vast majority of Americans own televisions, cars, computers with internet access, etc.  If I remember correctly, roughly the same percentage of the bottom 20% of income earners in America own their homes as do citizens of Germany as a whole.  So let's not pretend as though most people are incapable of affording this sort of thing in America and western Europe.  And Starvid's point is that this potentially lends a hand by allowing workers to take part in the gains to investment that we've seen.  It would be a tad ridiculous to hate on The Evil CapitalistsTM because of their ownership while shooting down the idea of encouraging The Glorious WorkersTM to become owners, as well, would it not?

Hell, the only thing that might save the moronic Revolutionaries-turn-Reaganistas of the Baby-Boom generation is the fact that so many actually have taken on investments during their march to destroy the safety net with tax cuts and federal spending sprees. </rant>

Be nice to America. Or we'll bring democracy to your country.

by Drew J Jones (pedobear@pennstatefootball.com) on Wed Feb 28th, 2007 at 03:58:38 PM EST
[ Parent ]
   
Ownership Society

Defining an Ownership Society
By David Boaz

President Bush says he wants America to be an "ownership society." What does that mean?

http://www.cato.org/special/ownership_society/boaz.html

by Trond Ove on Wed Feb 28th, 2007 at 05:49:16 PM EST
[ Parent ]
Actually, I was a bit inspired by that expression, coined by W*(?). I daredn't say that though as I guessed it would put some of you off a bit. ;)

But one should obviously never underestimate the knowledge of the ET community it seems.

* Just as he was inspired(?) by the Swedish pension system, a version of which he tried and failed to introduce in the US.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Wed Feb 28th, 2007 at 06:18:34 PM EST
[ Parent ]
I think the "ownership society" is, as the CATO article states, a way to put downward pressures on taxes and make ordinary people more susceptible to capitalist rhetoric. As well as increasing share prices. And housing prices.

Which is all nice and dandy if you are already rich.

by Trond Ove on Wed Feb 28th, 2007 at 07:25:15 PM EST
[ Parent ]
Strange thing that.

I know lot's of people from all different income brackets, and no matter their income some people always run out of money a week before the next wage while others save and put away as much as they can.

Of course, you write "Most people in the world", and in that way you are right. But I am not talking of most people in the world but of wage earners, the broad middle class mainly, in developed countries.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Wed Feb 28th, 2007 at 04:02:38 PM EST
[ Parent ]
Well, if you are claiming to want to spread the profits of globalisation, you aren't really spreading it very far, are you?
by Trond Ove on Wed Feb 28th, 2007 at 05:53:10 PM EST
[ Parent ]
Not really, no. I am not trying for some global state run equalisation of wealth, which would never ever come to be any way. Ordinary globalization is doing that rather good though. Both to make sure they get better off as a good in itself and so they try less hard to stop globalization by empowering dangerous populists, as they see there is something in it for them too.

I am trying to help those who are losing out at globalisation, wage earners in developed countries.

Last time they said stop!, quite bad things happened.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Wed Feb 28th, 2007 at 06:22:35 PM EST
[ Parent ]
And by the way, I never said this modest proposal was the Solution. It's a limited one. In its limited self, do you see it as a good or bad idea?


Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Wed Feb 28th, 2007 at 06:24:11 PM EST
[ Parent ]
I posted my answer downthread, so as to not mess up the formatting with that graph.
by Trond Ove on Wed Feb 28th, 2007 at 07:27:39 PM EST
[ Parent ]
imho this is an excellent point.  I know people making well over $150,000 a year and complaining about how they can't save a thing.  
And I know others making $10 an hour that are consistently saving, "maxing their 401k", a great US savings and investment plan, and they are going to have a wonderful retirement.  The trick is really pretty simple.  If you are making $10 an hour, there is someone else making $9 an hour--so live as though you make $9 an hour, and invest the other $1.  do that from your first job at 18 or 21 until you retire at 65.  In the US you're going to get an OK pension, social security (in Europe perhaps the pensions are even better), and supplement that with those saved dollars and you'll do pretty well.  Someone that does this is likely to be the same kind of person that works hard, gets promoted, makes more money over time and voila.  They also may work for a company with a 401k match plan, et encore, voila.

many of those who say they only spend money on food, housing etc,,,,just don't have this discipline.  and don't look where they really are spending their money--eating out, TV's, wine and beer, etc.

by wchurchill on Fri Mar 2nd, 2007 at 08:22:25 PM EST
[ Parent ]
You talk about discipline.  I would talk about the reification of money.  You are right: in a money world, your first thought should be to money.  So "TV's, wine and beer, etc..." are....wasted money.  Because they show no monetary return.  As long as "monetary return" is the key value of a spend...an investment...

This evening I invested in beer...and got back...well...

Things that money can't measure...easily...


Don't fight forces, use them R. Buckminster Fuller.

by rg (leopold dot lepster at google mail dot com) on Fri Mar 2nd, 2007 at 09:22:20 PM EST
[ Parent ]
I love my wine too, and there is certainly more to our lives than money.  I was just trying to make the point that each of us, based on our income level, has choices about how to allocate their money.  And for most of us one of those allocations should, imo, consider how we will take care of ourselves and our partner in our old age, so we continue to have an enjoyable finish to our lives without being a burden on our children financially.  my experience is that many don't use a certain amount of good judgement to make that happen, complaining that they just don't make enough money--which is a copout often, not admitting that they just made different choices.
by wchurchill on Fri Mar 2nd, 2007 at 10:29:39 PM EST
[ Parent ]
I think....

that there should be two things society offers to the humans within it:

1) Protection in old age independent of material resources.

If you have known someone die young, you'll know that getting there...to old age...is an achievement.  

If those rich people have lots of money, then design a system that encourages them to give it up and out...

Taking it away from the dead, for example.  (Hand everything over to your kids when you hit sixty!  What?  You don't trust them?  Well you f***ed up!  The state will take it all.  Don't have kids?  Invest in local businesses...hand it out!  Society will protect the old! )

There is the first mantra: Our society will protect the old.

Second:

"If you are sick you will get the best care possible.  Money will not be an issue."

You smoke?  You get the same treatment.

You're overweight?  You get the same treatment.

You're rich?  You get the same treatment.

You're poor?  You get the same treatment.

Society will look after the sick.

Making fallible (oh so!) humans responsible for looking after a concept as abstract as money...through the years...because otherwise...no care in old age!  No care when you're sick!

I think that is wrongheaded, because it says:

Society doesn't care about you.  It only cares about your money.

Well, that's not quite my point.  I think...well...if you're interested, there could be a good debate about how individuals with money can spread it wisely...questions about that word: "wisely"...

But I never doubt your good heart, wchurchill.  

What I doubt is your sense of...how the world is constructed.  And mine too!

Just one example:

At Mirror newspapers in England, a load of people got shafted over their pensions.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2001/04/01/cnimro01.xml

..as an example.  The workers did the best by what they were told...and got shafted...by some rich git.

I think, yes, people need to consider more, but not...money.

But we come from different areas in this regard.  But seriously, I think a good discussion could be had.

And I will soon have some music that might...well...financing...

heh heh...

Money is a means....and if I can get the ends without money...all the better!

That's my--sort of--take.  Good to read your reply!

Don't fight forces, use them R. Buckminster Fuller.

by rg (leopold dot lepster at google mail dot com) on Sat Mar 3rd, 2007 at 04:22:49 PM EST
[ Parent ]
I'm afraid I miss comments some times.  And as usual you raise excellent, but difficult, points.
1) Protection in old age independent of material resources,,,,,,,If you are sick you will get the best care possible.  Money will not be an issue."

You smoke?  You get the same treatment.

You're overweight?  You get the same treatment.

But how do you handle situations of scarcity.  Mickey Mantle, a US baseball player, was a hero of many Americans.  But he couldn't handle the booze.  When his liver gave out, he was put on a waiting list that due to his drinking and his age put him at the bottom.  How do you handle situations like that?

I would easily agree that there is a certain level of care that everyone in old age should have.  But is there no reward for those that have managed their lives better than Mickey?

Taking it away from the dead, for example.  (Hand everything over to your kids when you hit sixty!  What?  You don't trust them?  Well you f***ed up!  The state will take it all.  Don't have kids?  Invest in local businesses...hand it out!  Society will protect the old! )
not sure where you were headed here, but I'm not for the rich keeping their money to themselves, or handing it down to their kids.  Sure, a little is fine.  Keeping the family farm, or the family home, maybe even more than one home,,,fine.  But I don't think it's healthy to be a "trust child"--that's a new term for me I just heard a year ago.  It's sick, imo.

At Mirror newspapers in England, a load of people got shafted over their pensions.
If I understand your referenced Telegraph article correctly, Maxwell should be in jail.  Am I missing something?  Enron executives are in jail, or in the case of the CEO had a heart attack (that looked a lot like suicide before going to jail), and there are a number of cases of senior execs being in jail because of wrong doings.  (I might add no cases in the newspapers of the other 99% of senior execs not being in jail because of right doings.)

As you suggest in your comments, money is far from everything in our world.

by wchurchill on Sun Mar 4th, 2007 at 03:07:51 AM EST
[ Parent ]
Just one point:

But is there no reward for those that have managed their lives better than Mickey?

I think...those who have managed their lives well have...their lives as their reward...

...maybe there's something here (not sure...): the idea of a reward in the future for...hmmm...you know, planting the best seeds so the next crop will be bigger vs. eating the best seeds so the next crop will be weaker...

And yes, I suppose scarcity leads to decision making...but the richest countries in the world...well...hmmm...I suppose I think sickness and infirmity should not be punished, no matter what the causes.  (The victorians had the idea of the "deserving" and "undeserving" poor...I think society got...healthier...when, after WWII a socialist govt. banished this...meme...and replaced it with...what was it?  The four evils...ah, I have googled and the evils were five.

Three years later, Ernest Bevin, Minister of Labour, asked him to look into existing schemes of social security, which had grown up haphazardly, and make recommendations. In 1941, the government ordered a report on how Britain should be rebuilt after World War II; Beveridge was an obvious choice to take charge.

The Report to the Parliament on Social Insurance and Allied Services was published in 1942. It proposed that all people of working age should pay a weekly national insurance contribution. In return, benefits would be paid to people who were sick, unemployed, retired or widowed. Beveridge argued that this system would provide a minimum standard of living "below which no one should be allowed to fall".

Recommended that the government should find ways of fighting the five 'Giant Evils' of Want, Disease, Ignorance, Squalor and Idleness. This led to the setting up of the modern Welfare State (the culmination of the Fabians' project) with a National Health Service (NHS)

http://en.wikipedia.org/wiki/William_Beveridge

(Don't worry about the delay replying...I'm off and on the computer at all kinds of strange hours at the moment...)

Don't fight forces, use them R. Buckminster Fuller.

by rg (leopold dot lepster at google mail dot com) on Sun Mar 4th, 2007 at 06:23:46 AM EST
[ Parent ]
I think what I'm struggling with here is how do you handle situations where for one reason or another, everyone can't get all the necessary healthcare.  Mickey's example in particular is a pretty good one, because there was not, and I think still is not, anything like an artificial liver.  and you die without a liver (little outside my clinical depth here, but I think that is true).  So Mickey, probably more due to his age, was low on the list to get livers as they became available from people who died--younger people got them.  (actually, maybe he got one and his body rejected it and he couldn't get a second).  but anyway, this is one form of the need for rationing.

Another reason for rationing is cost.  If artificial hearts continue to come along and become practical (outside my depth again, but I've read of some initial clinical trials), I doubt if as the baby boomers age in the US, and same phenom in EU, that either system will be able to afford to give a heart to everyone that needs one.  This will certainly be true in the early days after approval as costs are bound to be high--overtime maybe they'll come down.  so how does one handle that one?  some approaches would be;
o  everybody or nobody
o  a lottery
o  rationed based upon age and maybe other overall health determinants--ie don't give it to someone with terminal cancer that has 3 months left anyway.  or ration based on "qualies", a system developed primarily in the UK
o  have various levels of health insurance, so that some could choose to buy more expensive health insurance that would cover more and more expensive technologies.
o  I think in the above case, you would find charities forming to help families in particularly difficult situations.

the higher price for insurance policies doesn't have a great feel to it, in the benefit the rich sense.  But it would also allow many people to make choices with how they spend their money--keep that car for 10 years instead of 5, and buy a higher level of health insurance, etc., etc.  But the French healthcare system seems to have this concept, where higher levels of insurance are paid for.  In the US it could have the advantage of getting everyone insured at a basic level, and maybe that level could be pretty high.  

by wchurchill on Sun Mar 4th, 2007 at 07:22:20 PM EST
[ Parent ]
The banking reforms in Norway in the 1980's created a flood of cheap credit, leading to a negative savings growth among average norwegians. (And later a formidable bank crisis.)

To encourage norwegians to save again, two tax exemption programmes were instituted in the mid 1980's. One was "Boligsparing for ungdom (BSU)" (Youth home savings programme), the other was "Aksjesparing med skattefradrag (AMS)" (Stock savings with tax relief).

BSU is generally considered a success, and still exists. AMS was cancelled in 2000, among other things because of the influence it had on wealth distribution in society. As you can see in this graph, the financial capital of the top 10 percent richest norwegian households grew rapidly from the end of the recession up until 2000.

Financial capital of decimes of Norwegian households

To be honest, this probably has more to do with the ballooning bourses of the time, althought the top decils of income earners were the ones that most agressively took part in the programme.

But still - what is your argument? That there would be a bigger difference in Norway without the AMS programme?

Even with a generous progressive taxing of stock saving, one cannot escape the fact that if you push more money into the market by small investors, the large investors will be the ones that earn the most from the excess cash. Simply because they start with so much more. Your plan might actually in an extreme example lead to more inequality instead of less.

by Trond Ove on Wed Feb 28th, 2007 at 07:18:43 PM EST
Erm... the graph is gone... Well well.
by Trond Ove on Thu Mar 1st, 2007 at 12:04:28 PM EST
[ Parent ]
one cannot escape the fact that if you push more money into the market by small investors, the large investors will be the ones that earn the most from the excess cash. Simply because they start with so much more. Your plan might actually in an extreme example lead to more inequality instead of less.

I can't see how raising taxes for large capital incomes and lowering them for small capital incomes should be bad for small incomes and good for big.

With the same logic maybe we should have regressive taxes on labor?

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Fri Mar 2nd, 2007 at 11:08:56 AM EST
[ Parent ]


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