Saturday, 4 July 2015

How about some 'market non-conforming democracy' Angela Merkel?

If the yes votes wins Sunday’s Greek referendum and Syriza falls, “too many will believe”, fretted the Guardian’s columnist in chief, Jonathan Freedland on Saturday, that Brussels and Berlin engineered the toppling of a democratically elected government.

I wonder where they could have picked up that delusionary belief?

It clearly can’t have come from the senior German conservative politician, described as “one of Europe’s most influential politicians” who told the Times newspaper  last week that Angela Merkel’s CDU would block any deal with the ‘communists’ Alexis Tsipras and Yanis Varoufakis, campaign vociferously for a ‘yes’ vote, and then install a ‘technical’ government in Syriza’s place.

Revelations from Martin Schulz, German social democrat (!) and President of the European Parliament, to the effect he wanted to Syriza to resign and be replaced with a “technocratic government so we can continue to negotiate” obviously had no effect.

But, perhaps, you know, “too many” have just been paying attention to the record of Eurozone institutions and core country governments like Germany’s since the beginning of the financial crisis. A record that betrays an unbending desire to topple recalcitrant governments and views the will of the people as a minor impediment to which no credence should be given.

Let’s have a brief refresh

Ireland, February 2011

On the eve on the Irish general election in February 2011, the European Commission helpfully intervened to point out that the result would have absolutely no effect on the country’s IMF-EU bail-out conditions, imposed after the financial sector imploded and its enormous bad debts were transferred to the state. It could not be renegotiated as it was “between the EU and the Republic of Ireland, it's not an agreement between an institution and a particular government,” the Commission said.

The Irish government, it emerged last month, was strong-armed by European Commission into agreeing the 2010 bail-out in the first place, and also to accepting that ‘senior bondholders’ such as large banks, should not share any losses. The ex-General Secretary of the Irish government’s Finance Department, told an inquiry into the causes of the financial crisis in June that the European Commission applied enormous pressure through “misinformation” and “anonymous media briefings” so that Ireland swiftly agreed to the €85 billion IMF-EU bail-out.

All this was quite in keeping with the views expressed in May 2011 by now European Commission President Jean-Claude Juncker, that fiscal policy was “too important” for voters to have any say over, and should be determined in “dark, secret debates”.

But, you can say that, technically speaking, Eurozone institutions were not toppling governments, just telling them what to do.

Hang on a minute …

Portugal, April 2011

After months of Portuguese Prime Minister Jose Socrates refusing to accept a bail-out, the European Central Bank (ECB) intervened for the sake of the banks (sorry Eurozone). In April 2011, Portuguese banks decided to stop buying government bonds if Lisbon did not seek a rescue. The head of the country’s banking association admitted that he had been given “clear instructions” from the ECB and Bank of Portugal to cut off the tap.

During the ensuing general election campaign, ECB and European Commission experts demanded that all parties sign an accord agreeing to the bail-out memorandum. Before the election, that is. “Let's not have a public dialogue every day,” said EU economy commissioner, Olli Rehn. Portugal has since been lauded by the London School of Economics for establishing consensus over implementing austerity. Well done.

Moving swiftly on …

Greece, November 2011

You could be forgiven for thinking the Eurozone’s current travails with Alexis Tsipras and co were the first time a Greek Prime Minister had thought of holding a referendum on bail-out conditions. But back in November 2011, Prime Minister Georges Papandreou (of the centre-left Pasok party, currently riding high at about 3% in the polls), announced a referendum on whether to remain in the euro and accept the then austerity measures being proposed. But before it could happen he was called in for a swift re-education session with Angela Merkel, then French President Nicolas Sarkozy, the ubiquitous Jean-Claude Juncker, then European Commission President Jose Manuel Barroso and the IMF’s Christine Lagarde. “We made Papandreou ... aware of the fact that his behavior is disloyal,” said Juncker.

But they didn’t stop there. In the words of the Financial Times journalist, Peter Spiegel: “Mr Barroso had called Mr Samaras, the Greek opposition leader, from his hotel before the meeting. He knew Mr Samaras was desperate to avoid the referendum. Mr Samaras told Mr Barroso he was now willing to sign on to a national unity government between his New Democracy party and Pasok – something he had assiduously avoided for months in the hopes he could secure the premiership on his own. Mr Barroso summoned his cabinet and other commission staff to his suite… to plot strategy. He decided he would not tell Mr Sarkozy or Ms Merkel of the conversation but according to people in the room, they began discussing names of possible technocrats to take over from Mr Papandreou in a national unity government. The first person to come to Mr Barroso’s lips was Lucas Papademos, the Greek economist who had left his post as vice-president of the ECB a year earlier. Within a week, Mr Papademos would have the job.”

Technocrats, engineered to take over from elected politicians, who’d have thought it?

Last but not least:

Italy, November 2011

Alright, this one involves Silvio Berlusconi, who you could say, deserved it, but the point still holds. If the EU could remove an obstructive right-wing politician, they would have no qualms about doing so in the case of a left-wing government - like Syriza.

According to a 2014 book by former US Treasury secretary, Timothy Geitner, he was approached by EU officials in November 2011 with a plan to overthrow Berlusconi. The idea was that the US would refuse to back IMF loans to Italy as long as Berlusconi remained in power. Geitner didn’t oblige but the plotting didn’t stop there.

According Lorenzo Bini-Smaghi, Italy’s former member on the European Central Banks’s executive board, the EU decided to remove Berlusconi and replace him with former European Commissioner, Mario Monti, because he started threatening in private meetings to ditch the euro and bring back Italy’s former currency, the Lira.

What did definitely happen was that the interest rate on Italian government bonds rocketed in the autumn of 2011 and Berlusconi resigned on 9 November. He was replaced by Monti, who announced an austerity programme and the interest rate miraculously plummeted.

Greece, 2015?

The difference now is that the current Greek government is not prepared to accept ‘dark, secret debates’ or hotel room coups and won’t go quietly into the night. With a ‘no’ vote in Sunday’s referendum, Angela Merkel’s guiding philosophy of ‘market conforming democracy’ is threatening to turn into, heaven forfend, market non-conforming democracy.

And they are really, really asking for it …

Vote Oxo cube

Saturday, 20 June 2015

The price of freedom. Can we afford an unconditonal basic income?

This blog has previously scrutinised the case for a universal basic income and how it might play out in practice. But in a sense these are subsidiary to a more fundamental issue– namely how could a basic income be financed? An unconditional income for everyone might be theoretically desirable, a sympathetic sceptic would object, but what’s the point in speculating about how it could work when the astronomical costs of implementing it render such speculations idle fantasy? In any event, through austerity, society is furiously paddling in the opposite direction.

Firstly, it should be remembered that a basic income would likely save lots of money in certain areas. It would mean the abolition of many social security benefits and the end of the current obsession with checking up on people’s work seeking activities. No job diaries, no Work Programme, no Work Capability Assessment. There wouldn’t be any ‘benefit cheats’ under a basic income, because if the money comes without conditions, it’s impossible to cheat.

In addition, there would be less direct savings, too. I think a basic income would quickly produce a healthier society, both physically and mentally. The space, choices and ‘de-pressurisation’ it would afford, would lead to a smaller financial burden on public health services and fewer drug prescriptions. If the current neo-liberal capitalist society is, in essence, a social problem generating machine (and one which rudely lumbers society with endless disturbances to deal with), basic income is a problem reducer. Fewer problems, less expense.

But, even if all this is borne in mind, a universal basic income would seem, on the surface, to be monumentally expensive. In 2009, the economist Harry Shutt estimated, based on figures from the UK Citizen’s Income Trust, that the cost of a basic income in Britain was equivalent to an income tax rate of 57% or “around double the current basic rate of tax and national insurance”. The economics editor of the UK’s Channel 4 News, Paul Mason, believes, on a rudimentary calculation, that a subsistence level basic income of £6,000 a year would cost £290 billion. This contrasts with a current UK ‘welfare bill’ of £167 billion or 23% of government spending (memo to the British public: nearly half this amount goes on pensions). Mason factors in the benefits of a basic income: no tax relief needed for those on low or moderate incomes and lower health spending, but concedes that a “fiscal gap would be closed through raising tax – so this is not a cheap or easy solution”.

And while there are other kinds of taxes that can be utilised – a land value tax or a financial transactions tax for example – closing this fiscal gap invariably centres on one suspect, income tax.

And in the Mason case, we are talking about an income floor type of basic income. Wouldn’t the more generous kind of basic income, US$30,000 or £20,000 per person, be decisively beyond the bounds of affordability?

But it’s interesting that if you put the question of financing the basic income to the people that have thought most deeply about it, the Swiss group, Generation Basic Income, they come up with a very different solution. And Generation Basic Income aren’t proponents of a half-hearted basic income either. They advocate what might be called, ‘basic income max’ –  an annual rate of around £21,000 for every adult and half that amount for children. They will be taking that proposal into a referendum on the issue in Switzerland in 2016.

One of Generation Basic Income’s spokesmen, Enno Schmidt, is adamant that a universal basic income should not be funded out of income tax. “Whoever wants to fund basic income with income tax, has not understood it,” he says.*

Schmidt’s argument is that a basic income funded from increased income tax would be passed on in prices of goods, thus producing an endless demand for a greater basic income and generating spiralling inflation. Moreover, funding a basic income through income tax will reinforce the impression of those with well-paying jobs subsidising those without this income. “The people who earn money with their work will say: we work and pay our labouriously earned money to others who are lazy,” Schmidt argues.

His answer is that a basic income should be granted through an annual tax-free allowance and funded through a consumption tax, the equivalent, I guess, of VAT in the UK or the sales tax in the US. A consumption tax, incorporating the financing of the basic income, would, Schmidt estimates, need to be set at around 50% of prices. This is obviously much higher than it is at present – VAT is currently 20%, in the UK, for example.

Schmidt believes that, with the introduction of a ‘basic income max’ for everybody of £20k annually, prices, including wages, would fall dramatically. But with the introduction of the basic income consumption tax, prices would rise again to their original level. “Prices remain with this tax as high as they were for the consumer,” he says.

His argument is that consumption tax is a fair way of funding the basic income because how much a person contributes is determined by how much they ‘take’ in consumption. “The consumption tax is not unjust,” he says. “Whoever buys a lot, pays a lot for basic income elsewhere,” he says. Whoever takes a lot of performance from others for their benefit, contributes greatly to the basic income.”

I can certainly see the immense problems that ensue from trying to fund basic income from income tax. Over and above everything, this method involves paying for basic income in mammoth tax rises, before the benefits of unconditional income can be seen. They have to be taken on faith.

The consumption tax method of funding basic income is new and, I confess, I don’t understand all its ramifications. Two issues do immediately spring to mind, however. One is that consumption taxes are, nowadays, regressive – everyone, the billionaire and the homeless person, pays them at the same rate. In the past, (in the UK in pre-EU days for example), luxury items had a larger tax rate attached to them. Should a consumption tax for a basic income have graduated rates for more expensive goods?

The other question that arises is whether this kind of arrangement would lead to an enforced frugality? Because many people would deny themselves consumption, and thus paying the accompanying tax, if that’s where it would mostly be applied. Would a basic income, ironically, put basic goods out of the reach of most people? It’s important to remember that basic income would not, automatically, redistribute income. There would still be immensely rich people on the basis of their wage income and ownership of assets. Huge inequality could remain.

Ultimately, I’m not convinced that a universal basic income is possible without tapping the immense wealth that exists at the summit of society, held by corporations and a tiny minority of individuals. The charity Oxfam has famously estimated that a mere 85 people control as much wealth as half the population of the world. And the situation is rapidly getting worse. Oxfam says that the wealthy have captured opportunities from the poor and middle classes, skewing the political and economic system in their favour.

Real progress will not arise through tax redistribution, through increasing tax on the wealthy, as the clamour for a basic income tacitly acknowledges. It has to go deeper than that. "If change is ever to occur," asserts Gar Alperovitz in his 2002 book, America Beyond Capitalism, "an assault must ultimately be made on the underlying relationships that have produced the inequality in the first place - especially those involving control and ownership of the nation's wealth."

One of the earliest advocates of a basic income, the French thinker, Andre Gorz, thought an unconditional income would enable people to refuse work because it would bring about "the pooling of socially produced wealth". I still think we need to concentrate on the difficult part, the socialist part, which is how to produce the pooling.

*From correspondence with the author