Friday, August 28, 2009

The Robin Hood Tax

The actual health care reform bill (House Bill 3200) reported by the Congress on July 14 - which aims to " provide affordable, quality health care for all Americans and reduce the growth in health care spending",- is vigorously opposed by conservatives as well as the insurance companies which regard the proposed publicly funded system as a threat to their profitable activities.

But there is one fundamental point which deserves attention on the revenue side. The bill introduces an additional tax of 1% on wealthiest Americans to finance health expenditure of 20% worst-off citizens. This might be seen as one of the most radical proposals ever passed through US legislation. It contrasts with Bush policies which introduced tax cuts benefiting mostly the rich Americans. Yet it might appear modest by European standards, notably in continental countries which provide a high level of social protection for all citizens.

The bill contains however the recognition of the principle of solidarity, that is, in the US society the rich should pay for healthcare of the poor who cannot afford it. This will not affect much the wide disparities in income which exist in the US. According to Robert Reich, former US Labour secretary, 1% of the wealthiest in the US has about 20% of total income, the highest level since 1928.

Critics on the conservative side argue that this measure will affect the tendency to invest and innovate and therefore future jobs. But, if a small fraction of this wealth means a better access to healthcare for a larger number of American citizens, who will get more regular checks and live longer in a better health and therefore be more productive, the positive effects on the US economy will be much greater and long lasting.

This is less an issue in Europe, although European societies are increasingly confronted with widespread poverty. Why not introduce a similar Robin Hood tax in Europe, not to finance healthcare but consumption for the poorest to meet their basic needs? This would give a signal that democracy is not only for the rich but also promotes social justice and solidarity.

Tuesday, August 25, 2009

The End of the Mezzogiorno?

Back to old happy days? The Italian government has decided to set up a new Cassa per il Mezzogiorno, a former development Agency for the southern Italian regions. This initiative, strongly supported by the Finance Minister, Giulio Tremonti aims to take back control on expenditure due to the inefficiency of the regions to manage EU funds.

The Casmez was created in 1950 with an initial allocation of a billion lire for a period of ten years, with 66% of the funds earmarked for major rehabilitation of contaminated sites and 20% for roads and sewage networks.

Between 1951 and 1992, the equivalent of 140 billion euro was granted to projects for the Mezzogiorno. Svimez, an Italian research institute for the Mezzogiorno, argues, however, that, between 1950 and 1989, transfers represented in real terms (in purchasing power standard of 1989 prices) about 2.5 billion on annual average, the equivalent of 0,7% of gross National Income. This is less than what the State transfers each year to pay for the deficit of the national railway company. But this expenditure is off budget, in other words it is additional to the normal transfers made by the State to all Italian regions.

The old Cassa was abolished in 1993 by the Italian Budget Minister, Beniamino Andreatta, due to serious budget problems. It left however a huge backlog of unfinished projects which absorbed a few billions of euros. In reaction to the crisis of the development policies for the Mezzogiorno, a new regional policy was set up in 1998 and led by Carlo Azeglio Ciampi, a former Treasury minister who became President of the Republic and Fabrizio Barca, an economist at Bank of Italy. It was meant to provide a strategic direction to investments with an integrated programming framework associated with defined , measurable objectives. This new approach was supported vigorously by the European Commission albeit with some criticism on the overambitious objectives, notably on growth targets: this would have implied huge increases in efficiency of public investment which never happened.

It is evident that the Mezzogiorno has been a big failure. Despite a sustained trend of investment over more than half a century, gross domestic product in per capita terms is still 43% lower than that of the Centre-North of Italy. The ratio between cost and results is, therefore, very low.

We should ask ourselves whether this ‘revamped’ body is really useful: will it truly serve the interests of the citizens and improve their daily lives? Will it be accountable vis-à-vis the tax payers? The experience to date of the former Cassa and the other bodies which came after, such as Sviluppo Italia has shown that this has not been the case.

I am not sure we need other structures to lead development policies from the centre. The risk is that it would inevitably be captured by the same lobbies and parties which prevailed in the past. There is no reason why this should change under current circumstances. We do not have at the moment any details on how this will actually work, but I am rather incline to believe that aid will continue to be delivered as before without any clear and transparent criteria and without a sound evaluation process which will ensure the relevance and the effectiveness of the investment projects.

The main problem of the Mezzogiorno is the lack of effective institutions to enforce market rules, but more simply the Rule of Law. There cannot be any sound development process if the mafias are still prospering and control a growing part of the economy- by controlling (or influencing) institutions, such as procurement mechanisms. Young skilled people are migrating massively to the North and abroad due to the lack of opportunities.

On the other hand, we need to exploit the underused human potential which exists in the Mezzogiorno. We must rely on the ‘creative class’ of the (few) entrepreneurs, craftsmen, men of art who can bring innovation and creativity. This is our hope to restart a ‘virtuous circle’ but there are still too many blockages from a system of power which is not subject to any effective control mechanisms. Democratic accountability which means true responsibility seems to belong to another planet.

It comes to my mind the words of A.Gramsci in 'La Questione Meridionale' (1921): 'The Mezzogiorno does not need special laws or any special treatment. It needs a general policy, external and internal, which is inspired by respect of the general needs of the country, and not by particular political or regional tendencies' "*. Maybe we should think, as suggested by Gianfranco Viesti*, about abolishing the Mezzogiorno.

* G.Viesti, Abolire il Mezzogiorno, Edizioni Laterza, 2003