A progressive agenda to tackle inequality

Rising inequality is a matter of common concern not only for policy makers, but for  citizens. Protests are proliferating against social injustice to get their fair share. The 'Occupy Wall street' initiative is against the domination of the 1% super-rich, which hold a growing fraction of US national income. 

The OECD warned against the danger of high inequality in western societies  which have to cope with mass unemployment and weak prospects of growth . Now the Economist relaunches the debate on how to tackle inequality. This is a summary of their analysis: 

"The twin forces of globalisation and technical innovation have actually narrowed inequality globally, as poorer countries catch up with richer ones. But within many countries income gaps have widened. More than two-thirds of the world’s people live in countries where income disparities have risen since 1980, often to a startling degree. In America the share of national income going to the top 0.01% (some 16,000 families) has risen from just over 1% in 1980 to almost 5% now—an even bigger slice than the top 0.01% got in the Gilded Age".

 

The issue is that too much inequality is inefficient as it reflects both market and government failures and reduces growth potential, as (human) resources are not utilized fully or in an optimal way. Therefore, it calls for a reform agenda to reduce income disparities, which is less about higher taxes than " attacking cronyism and investing in the young", in particular through rebalancing of government spending. This is what the Economist calls “True Progressivism”.

It is true that in most countries ((except the US) government spending is an important tool for combating inequality. The reason is that it ensures equality of opportunity for citizens, in the sense of Rawls' conception of equity which is based essentially on an equality of means, i.e. freedom, rights, income, wealth  and primary goods, rather than an equality of outcomes. As Stiglitz argues in his last book ("The price of inequality), the US is where income gaps are biggest and have increased fastest, putting in question the principle of equality of opportunity.  

Globalisation has reduced the space for redistribution and has put considerable   pressure on wages. Austerity policies have introduced further cuts in social spending, even in basic services. The result is that they create more inequality  as shown by recent experience in Greece, Spain, Portugal and Italy. 

Governments have the responsibility to promote to a large measure equality of opportunity (and possibly of outcomes). This can be done by attacking special privileges or vested interests but this is not enough. The main task is to  create  jobs for everyone as this is the main foundation of our democracies. Subsequently, a reform tax can be achieved to introduce more equity in the distribution of incomes. Higher taxes on the rich could be a way to finance income redistribution for lower income groups and help demand stimulation. In fine, effective redistribution policies  can be achieved by focusing on education, training and healthcare in order to make workers more productive and citizens more protected. There is no real justification to dismantle the welfare State; instead, there should be incentives to make it more equitable and efficient. 

So far, policy responses have been weak and timid. Last year in a speech at Osawatomie, Obama called inequality "the defining issue of our time". It is time to act urgently with bold initiatives. 

Call for EU solidarity

The European Union has been awarded the Peace Nobel prize as a recognition for its effort to preserve peace among its countries for more than sixty years. This is indeed a major achievement. But we should see in this award a call to overcome the crisis and current social tensions and to preserve the European social model by furthering solidarity among its citizens. 

The German philosopher, Jurgen Habermas wrote in an article published in La Repubblica: 

"At the moment, we Europeans persist in remaining quietly and calmly on the threshold of a two-speed EU. That is why I also see the decision to award the Nobel Peace Prize to the European Union as a call for solidarity among its citizens, who must say what kind of Europe they want. Only by deepening the institutions of "Kerneuropa" – core Europe – will we tame the capitalism that has grown wild and stop the process of the internal destruction of the Union."

P.S: J.Habermas has made a vigorous pledge for a European Constitution based on true democratic foundations as a way to overcome the crisis of Europe. 

E. Hobsbawm: a tribute

One of the last interviews of Eric Howsbawm , the great British historian  in which he argues that capitalism as an economic system is incompatible with moral or social responsibility.

What Future of Europe?

There is a growing anti-European sentiment which takes the form of massive protests and demonstrations almost everywhere. Unemployment and poverty are spreading everywhere and create a favourable terrain for self defence reaction, giving rise to a rethoric of scapegoats against banks, immigrants or the euro as the cause of our problems. Nationalism and localism are becoming more evident from France to Catalonia. Beyond their diversity, they are all the expression of the rise of  'ethnic' identity. 

A political scientist of Yale university, N.Sambanis wrote (NyTimes, August 26)  : "As Europe’s status declines, the already shaky European identity will weaken further and the citizens of the richer European nations will be more likely to identify nationally — as Germans or French — rather than as Europeans. This will increase their reluctance to use their taxes for bailouts of the ethnically different Southern Europeans, especially the culturally distant Greeks; and it will diminish any prospect of fiscal integration that could help save the euro, The result is a vicious circle: as ethnic identities return, ethnic differences become more pronounced, and all sides fall back on stereotypes and the stigmatization of the adversary through language or actions intended to dehumanize, thereby justifying hostile actions. This is a common pattern in ethnic conflicts around the world, and it is also evident in Europe today".

Our politicians use the term  'populism' to qualify the rise of anti-European parties. This is a far too simple argument. We need a much deeper analysis of the causes of the rejection of Europe. It is not the European idea which is put in question. It is about what Europe proposes to tackle European citizens problems. The first cause of rejection stems from austerity policies which have produced poverty and recession. Instead of preserving the welfare State, the crisis becomes an opportunity to dismantle Beveridge's system, which is , despite its geographic differences ( in particular between the 'Scandinavian' model and  the 'southern' one) a model for the whole world. Let us be clear, this model has to be efficient, equitable and sustainable. We should not defend waste and inefficiency neither corruption or fraud. 

Second, Europe is not business as usual. The financial crisis has been dealt with essentially with existing rules. The only innovation was the set up of financial instruments to act as firewalls against market speculation but  they did not allow to stabilise financial markets. Spain and Italy are still on the frontline, although the 'unconventional' intervention of the European Central Bank has brought temporary relief  to these countries. But how does this  translate in permanent improvements in workers living conditions? We did not see any substantial  change in labour market situation in Spain and Italy despite reforms. 

Third, European leaders have failed to explain the reality of the crisis as if their people were not concerned. Poltical competition in a democracy has always been  a matter of education  of the voters and their maturity is the best defence against populism. Before it is too late, we must stop the tempest of the populist rethoric by putting in honour pragmatic, realistic checks. There are supra-national ideas for which it is  worth fighting and they can prevail if the European interest prevails over narrow, selfish  politics. European leaders should propend to what A.Hirschmann called 'self-subversion' meaning in this case a radical change of paradigm. Policies and doctrines have failed since they have created in Europe a divide between creditors and debtors and produced inequality and poverty.   

The struggle for a political Europe is not an abstract goal. It means giving to Europe a true Constitution drafted by the representatives of European people, not by the States. We need urgently large scale investment programmes to foster sustainable growth which cannly be promoted by a European government- with a consistent budget approved by the European Parliament, given national budget constraints. There would be substantial economies of scale and savings if resources and efforts are put in common.

In doing so, citizens could understand that those who command are not oligarchs, and that policies adopted can be subject to confutation as any policy in a democracy. The European Central bank, despite their unconventional weapons, remains a technocratic apparatus, with no political legitimacy because there is no common Treasury and no common government. Political leaders are wrong if they think that it is the solution to the crisis; they just abdicate their power, which is to seek alternatives, not the consensus of  markets. Populism is the product of this abdication.  

We should ask citizens what kind of Europe they want. Let's put it in three basic questions: Do they want a new Europe which could help building global partnerships and solidarity? Do they want a Europe governed by economic liberalism or a kind of 'liberal' socialism uniting the market economy with social equity and fight against inequality? Do they want a Europe where the general interest prevails over particular interests of groups and lobbies which prepend the present to the construction of the future?

An inspiring man of Church

Archbishop Card. Martini passed away today at 85 . After leaving  Milan, the largest archdiocese in Europe where he was archbishop during 23 years, he was living in retirement in his beloved Jerusalem.

He was one of the greatest biblic scholars and  he was well known for his sermons and his profound writings. In opposition to the conservatives, he defended 'liberal' ideas on contraception, the beginning of human life and the role of women in the church. 

But his fundamental battle was against social injustice. In particular, he expressed concerned and defended immigrants and social minorities against any form of discrimination.  Martini said  that the Church had to rekindle a "burning fire in the heart" of men and women today.

Cardinal Martini, then President of the Conference of the European Churches  addressed the European Parliament in 1997 in a symposium on 'Remembering the Origins of the Process of Integration' with these words: ""Europe is faced with a decisive crossroads in its history. On the one hand it opens the way for closer political integration involving the European peoples and their institutions. On the other hand there may be a stagnation of unification or a reduction by only a few economic aspects and limited to a few countries"

He was a man of culture and dialogue who listened to people. This is the Church prophetically inspiring that we need today. 

P.S: Card. Martini gave a last interview to a Jesuit priest, Georg Porschill - who interviewed him in "Nighjt conversations in Jerusalem"  - and which was published by  Corriere della Sera after his death.   " the Church is tired, in the Europe of wealth and in America. Our culture has aged, our churches are big, our religious houses empty, the Church bureaucracy is growing and our rites and vestments are pompous" . He also said that the "Church was 200 years out of date and needed faith, trust and courage to move on".

Beyond the European crisis

Despite their formal unity, EU governments think and act nationally looking first at their narrow, short term interest.  Above all, Germany lacks a vision for Europe which in turn nurtures a growing anti-European sentiment. At best, it tries to manage the crisis in a  context of high uncertainty but not to resolve it . The Greek debt crisis was originally set to cost 50 billion ; now it is out of control despite harsh austerity programmes. Germany's selfish attitude tends to create further divisions in Europe between the North (supposedly more virtuous) and the South (supposedly more laxist). Instead of creating a space of solidarity, it has widened the competitiveness gap (in terms of labour costs per outpur unit) making southern countries uncompetitive and therefore forcing them to implement deflationary policies by reducing wage costs and public spending.

The Euro is not just a symbol of the unity of Europe. It has been beneficial for Germany more than for any country. It would thus be logical that it pays for European economic recovery. In recent history, how many times has Europe paid for Germany? We should not forget that at the London conference (1953), the German external debt contracted between the two World wars was settled by writing down half of the overall German debt.

 In this context, there are three possible options. The first is to improve the existing sructures and instruments but it would be an illusion to think that this will lead to a durable solution to the crisis. The second option is the return to the old D-Mark - a thesis now supported by the liberals and the Bundesbank hawks- whose consequences are unthinkable. Finally, the third option is a common responsibility for debt with Eurobonds, common fiscal rules and harmonized social policies.

The issue is whether Europeans still want to take their destiny in their hands. The idea of a federal Europe has been mentioned by the German chancellor but its contours are still vague. Will it look like the United States of America? The first Treasury secretary, Alexander Hamilton who elaborated the 'voluntary compact' which gave rise to the creation of the Federal State is becoming popular in Berlin. In fact , he defended the idea that debts accumulated during the war of Independence. Is Ms Merkel thinking about a Philadelphia convention? 

Such a political project will be opposed by States not belonging to the euro area such as the United Kingdom and Poland but also by other States such as France which would resist any transfer of sovereignty. But it is clear that Europe needs to go beyond the tortuous mechanisms of the Funds put in place to rescue heavily indebted countries. The current agenda includes complex issues: the modalities of the ECB intervention on sovereign debt; the final 'harmonization' of the Treaty on fiscal compact depending on the German Court's judgement, which will raise difficult issues of interpretation and compatibility between different legislative acts (for example, the norm on debt reduction by 1/20 per annum laid down in the 'fiscal compact'); the banking Union and the set up a European regulatory authority; the political Union. 

We need to redesign the European institutions to a new reality. Let's imagine what these reforms inspired by great Europeans such as Altiero Spinelli could look like . First, a European parliament elected on a genuine European basis. Second, referenda on relevant European issues should concern all European citizens not single States. Why not ask citizens if they want to stay in the euro area and what kind of project they want for Europe? Third, the structure of the Federal union should be based on an elected president who appoints the federal government; a European Parliament which controls the federal government and approves the federal budget; a Constitutional Court which guarantees the respect of the federal constitution.

If a European State has the dimension of a continent in a global world, the democratic system has to ensure at the same time legitimacy but also effective decision making, political leadership and true participation of citizens. The foundation of such a federal system builds on the division of powers. As a matter of fact, these objectives will be achieved in the long term, but it is important to raise awareness among the public opinion in order to ensure an informed discussion and prepare their eventual realization.

Nicolas Boileau, a French poet and critic, also called the 'Législateur du Parnasse', wrote : "N'en déplaise à ces fous nommés sages de Grèce, En ce monde il n'est point de parfaite sagesse : Tous les hommes sont fous, et, malgré tous leurs soins, ne diffèrent entre eux que du plus ou du moins. "

Finance and the good society

Robert Shiller of Yale University talks  about his book, ‘Finance and the Good Society’, in which he argues that even after the crisis, rather than condemning finance, we need to reclaim it for the common good. He discusses financial innovation, personal morality, the importance of education, and the contribution that finance can make to our lives. The interview was recorded in Bristol in May 2012.


Finance and the good society | vox