The Obama plan

In his 'State of the Union' address,  B.Obama outlined a 'kennedian 'vision for the United States. The main thrust is economic recovery coupled with some equity measures for the middle class. Austerity or budget cuts are not seen as an economic policy in itself but as a marginal part of a wider strategy aiming to promote a more sustainable development based on clean energy and other environmental measures.

There are two new ideas in his speech. The first one is to increase the minimum wage from 7 to 9 dollars per hour. The significance of this measure is that economic recovery has to be supported by wage increases rather than reducing purchasing power through internal devaluation measures. As he said in his address: "Let’s declare that in the wealthiest nation on Earth, no one who works full time should have to live in poverty". Persistent high levels of inequality and concern for declining wages of working Americans have strongly influenced that decision. In fact, recent research found that despite the return of the US economy to growth, incomes remain flat but not for the 1% rich. 

The second idea is to " make high quality pre-school available to every child in America" with a view to offer better access to jobs while making savings for the entire society. The assumption is that "every dollar we invest in high quality early education can save more than seven dollars later on - by boosting graduation rates, reducing teen pregnancy, even reducing violent crime".

The agenda is not for 'big government' but rather 'smart government' based on quality and effectiveness of public intervention. But it contrasts strongly with austerity policies which are being pursued in Europe with severe consequences on living conditions of the majority of people.

Europe should take some inspiration of the Obama plan, even if it may appear modest in relation to the depth of the crisis. It has to abandon its destructive budgetary policies and launch a vigorous strategy for jobs and growth at the European level. No country will get out of the crisis alone with current fiscal policies.

Inequality for All

Obama called inequality the 'defining issue of our time' and in his inaugural address took up this theme for his second term.  Over the past tewenty years, differences in in income have widening dramatically between the rich and the middle class. In his film Inequality for all, Robert Reich, the former Labor secretary under Clinton argues that there is no trickle down effect as the rich cannot spend enough to offset the loss of demand by the middle class.

Tribute to Albert Hirschman

Nowadays, there is a shortage of great thinkers with a sort of vision embracing different disciplines and areas of research. Albert Hirschman was perhaps one of the last great thinkers of the twentieth century. He was also a free thinker in the sense that he has never been tied up to any ideology. for over half a century, he was a living conscience for an entire generation of social scientists. Trespassing is perhaps the word which best characterizes his lifetime work.

He was an influential economist who wrote several books and articles on political economy.  His first major contribution was in the area of development economics where he emphasized the need for unbalanced growth. Like in F. Perroux's growth pole theory, he thought that industries with strong linkages with other industries should be encouraged. 

His later work was in political economy and there he advanced two simple but intellectually powerful ideas. The first describes the three basic possible responses to decline in firms : exit, voice and loyalty. The second describes the basic arguments made by conservatives: perversity, futility and jeopardy, in The Rhetoric of Reaction. 

But there is an intrinsic unity in all his work which is conducive to a deep reflection on the problem of development. He wrote: “ In dealing with the multiple and complex problems of development we have learnt that we must fashion generalizations at all kinds of ranges and be deaf, like Ulysses, to the seductive chant of the unique paradigm ”.

As the Economist pointed out, "Hirschman's exit will not silence his voice".

The Monti Agenda

Monti has undoubtedly represented a breakpoint in the morass of Italian politics. He  was appointed by president Napolitano amid fierce economic turmoil in November 2011, helping restore the country’s international credibility. But his government’s tax increases have been unpopular and deepened Italy's recession, the longest since World War II. As he resigned after the right withdrew its support, he called political parties , social partners and citizens to adopt his agenda unveiled on 23 December. 

The “Monti Agenda,” titled “Change Italy, reform Europe” contains a set of   ideas largely inspired by the European agenda. The best definition of his political line is what the Economist called 'radical centrism' (which in a sense is a paradox!). The agenda combines financial rigour to bring down Italy's debt with further reforms, in particular of public administration and institutions and growth-enhancing measures. The aim is to build a"modern and dynamic social market economy" putting more people into employment, increasing the role of women in the society and combating ageing. 

Interestingly, there is a broad consensus on these measures between Monti's centrist coalition and the democratic left. Both parties agree that budgetary discipline should go hand in hand with greater equity and economic growth. However, new resources should be found through further cuts in public spending and fight against tax evasion to reduce taxation in favour of workers, businesses and households and build a modern welfare system. They also pledge for a revision of the recent law on corruption as well as a radical revision of the insittuttional architecture of the State, in particular the provinces and regions. Finally, both agendas point to a better income redistribution between regions as well as social groups and a decisive contribution to the European federal State. But there are also some marked differences, in particular on the need to tackle inequality and the extent of redistribution to the poor.  

On the reform of Europe, which is a central aspect of the agenda, Monti's document may appear rather modest. The underlying analysis of the crisis is that single States lack fiscal discipline rather than ackwnowledging its systemic character.  Each State has to do its 'homework' (that is putting its finance in order") within the European Union framework which essentially works although it needs to be adjusted. The only 'radical' proposal is that the European Parliament should have a constituent role in the reform of  European institutions. But the agenda fails to consider that the crisis extends to the whole Europe and cannot be overcome with orthodox measures. In fact, the only concrete commitments concern the reduction of national debt and the respect of the balanced budget rule, that is the application of the Fiscal compact, approved in March 2012, accompanied by a minimum wage and some taxation on wealth. But the problem is that austerity policies are not sustainable unless there is a decisive move towards a European Federation.

The partisans of  that project do not only focus on institutions. They have a different conception of the crisis and how it affects the life of citizens. The 'fiscal compact' will not help overcome the evil of inequality, unemployment and poverty. In this regard, the Agenda remains on the assumption that sound finance means growth and employment. The alternative project is that, as States are impoverished and cannot stimulate growth and equity, the European Union has to launch a sort of 'New Deal' like in the 30s. The idea was raised since the beginning of the Greek crisis but was opposed by the tenants of liberal orthodoxy. It meant, in practice, a significant increase of Europe's budget - which represents today about 1% of EU GDP  while it is 23% in the US- to foster investments in research, infrastructure networks and energy savings. This is possible with the insitution of two different taxes transferred directly to the EU coffers: the tax on financial transactions and the 'carbon tax' (which alone could provide some 50 billion euros a year).

In American history, Alexander Hamilton realized at some point that the supranational power would take debts of individual States, and gave birth by the Confederation of semi-sovereign States a federation, with resources sufficient to guarantee, jointly and severally a genuine unity. This is what we need today in the wake of a deep crisis in Europe. F. Roosevelt understood the real problems of his country and increased federal spending to invest massively in education, fight against poverty and healthcare. 

Unfortunately, there is no leader in Europe with such a vision and a 'progressive agenda' which can revive growth while tackling mass unemployment and inequality. History is tragic but no one seems aware of it. 

In 

Public Education is our Common Good

Profit is the motor of capitalism. Where there are business opportunities, private sector tends to step in. This principle also applies to the education  sector. The economic crisis and the dogma of austerity which prevails in Europe has as an immediate consequence a reduction of public expenditure in welfare policies such as education or health. Lower investment from the State opens the door to private capital. 

Risk capital has a long experience in investing in education, especially in anglo-saxon countries and northern Europe. In southern countries like Spain or Italy, private equity operations are not so developed, but there is growing interest from the business sector in a context where public investment in education is likely to fall significantly in coming years. The shortfall, which could be, for example in Spain , around 10-11 billion € will be only in part compensated by wealthier families. History tells us that when public investment falls private investment tends to crowd in and vice versa. In fact, one of the main arguments of protests against austerity is to combat privatization and the risk of dismantling public education to the benefit of private initiative. 

Available data on profitability of private colleges and universities do not compare well with other economic sectors. The fall of household income tends to shift students from the private to the public sector as families cut spending in education for their children. However, investment firms acknowledge that education is  particularly sensitive  because clients are the children and their parents. Risk capital firms will step in if it is a stable business based  on foreseeable cashflows over the schooling cycle of students and therefore can provide leveraging. Considering that the duration of private equity in a business varies between 4 and 10 years, the education sector offers a sufficient margin for for making investments profitable in the medium term. This means, that public-private partnerhips could develop as it has already happened in healthcare sector.  

While governments  ensure that budget cuts are essential to sustain the public education system in the medium to long term, opponents to austerity believe that they are taking advantage of the crisis to put more money for education in the private sector. Having exhausted the main sources of business and profit such as the construction and public works and industry remains unattractive because it needs large investments, private capital seeks new business opportunities or expands the existing ones. In that sense, basic services such as education or healthcare offer relatively safe profit opportunities. 

The real problem is that a too large involvement of the private sector may endanger the fundamental right to education as citizens will turn from owners of these rights in users of a private system that they will afford according to their economic possibilities. Some organizations support private investment in education but not for all ages. In the early stages of education where investment brings high social returns, public budgets should intervene in financing education.  

Investing in education increases well being and productivity but also yields positive  returns for the society. According to some empirical estimates by Angel de la Fuente (2011), the social returns to investment in human capital are higher than those on physical capital in most EU countries . Of course, outcomes vary across countries depending on both quantity and quality of human capital investment. However, there is no evidence that private education systems will be better performing. Nordic countries invest a much larger proportion of their GDP in public education with better results than the rest of EU countries. A better educated population means a more productive economic system, and therefore more able to compete globally. It's not a matter of  privatizing education systems. 

One dollar, One vote

Henry Stern, the founder and president of New York civic writes on his website: "Elections are the best way to decide public issues in a democracy. The word 'democracy' means 'rule by the people' , which is a fair and determine which policies a government should follow, and who should be elected to lead that government. A basic principle is one man, one vote" which is meant to support the idea that each citizen's influence should be equal. In reality, some people's influence is greater than others, no matter what system of reckoning is used. The most obvious barometer of influence is money. A man who can give a million dollars to a candidate is much more likely to be listened to than a contributor of $1. It would be impossible to write a law under which every citizen’s views would receive equal attention and respect. But it remains a legitimate goal of reformers to minimize the disparity in resources between candidates.The major distinction between citizens and interest groups lies in their access to candidates. A substantial amount of public business is transacted at fund-raising events for the benefit of individual candidates. Clearly, these events provide contributors with an opportunity to meet with the candidates they support and to try to influence them".

In economics, 'dollar voting' means a process of capital allocation through consumer sovereignty. Ludwig von Mises wrote (in Socialism, an economic and social analysis (1922), tr. J Kahane (1931), p 428 ) : "The capitalist society is a democracy in which every penny represents a ballot paper. 

Obama has won the US elections with a moderate discourse. As the Economist points out, the American poor were hardly mentioned in his re-election campaign. In 2010, 15% of the American population live below the poverty line (around 44% of the median income), well above the OECD average of 6% (see chart below). 

Anti-poverty programmes have allievated the impact of the crisis for the poorest 20% and helped consumer spending. Redistribution is not popular in Almerica, especially among Republicans who want to cut food stamps in order to reduce federal spending. Who defend the poor? Well, they don't have many lobbysts unlike banks or other industries. 

The "one dollar, one vote" result provides an explanation for the increasing difference in the size of the welfare state in Europe and the US. The rise of the rich's income in the US has in fact allowed the rich to increase their political influence and get policy issues closer to their interests which is to limit redistribution to the poor and reduce the size of the welfare State. As a result , poverty has increased at a faster pace and redistribution lagged compared to Europe.

In the mid-50s, a plutocrat, H.L.Hunt had proposed a 'one dollar, one vote' system which would allocate votes based on the voter's wealth and 'contribution to society'. Nowadays, there are more sophisticated forms to increase political influence through money.  This contrasts sharply with equality of opportunity which was at the heart of the American identity. One dollar, one vote is the failure of democracy. 

Hunger Mystification

According to the latest report of the  Food and Agriculture Organization (FAO), hunger has declined by some 132 million over the last decade. This is, apparently, good news, though the situation still remains problematic with almost a billion of human beings lacking food to survive. In his presentation, the director general, José Graziano, former minister under the first Lula government and author of the Fome Zero programme, he stressed that the goal to reduce global poverty by half could be achieved by the end of the decade.

We need to get the facts right. Poverty - as the main cause of hunger -has diminished in the developing world, especially China and Brazil as a result of appropriate policies. But this has not been the case in India, or to a much lesser extent while sub-Saharian Africa and South Asia remain  the most affected areas by hunger and malnutrition.In fact, no one really knows how many people suffer from hunger. The statistics produced by the UN organization refer to 'undernutrition'.  As the graph below shows, the number of hungry people has increased since 1995-97 due essentially to three factors:  1) neglect of agriculture relevant to very poor people by governments and international agencies; 2) the current global economic crisis, and 3) the significant increase of food prices in the last several years which has been devastating to those with only a few dollars a day to spend.  

                                          Source: FAO

The target set at the 1996 World Food Summit was to halve the number of undernourished people by 2015 from their number in 1990-92.   The (estimated) number of undernourished people in developing countries  was 824 million in 1990-92. In 2010, the number had climbed to 925 million people, i.e. one out of seven in the world population. Most visible victims of hunger are children, especially in Asia. 

Overall, there has not been progress in meeting the global goal, although there has been progress in Asia and Latin and Central America. Hunger is caused by poverty as well as conflicts and 'harmful economic systems' where typically military, political and economic power controls most resources and income. In rural areas of Africa and Asia, women are also discriminated in relation to under-nutrition.The uprising in Arab countries have deep and complex roots, but hunger, under-nutrition and insecurity in the face of rising food prices  have triggered the revolts.    

Despite the efforts of the UN organizations, hunger and poverty are likely to increase due to the world economic crisis. The World Bank announced in its 2009 annual report that the number of poor people  (living with less than 2 dollars a day) will increase by 120 million. These forecasts have been confirmed: these millions of victims have added to the victims of structural hunger. 

The world produces enough food to feed everyone. According to FAO estimates, the world agriculture produces 17 percent more calories per person today than it did 30 years ago, despite a 70 percent population increase. This is enough to provide everyone in the world with at least 2,720 kilocalories (kcal) per person per day.  The principal problem is that many people in the world do not have sufficient land to grow, or income to purchase, enough food. But this is not a fatality : the right to be nourished is denied to hundreds of millions of people, especially children. As explained in his latest book by Jean Ziegler, the UN rapporteur for the right to food,  food is a weapon of mass destruction in the hands of powerful agents and speculators in search of profits. The priority is to act immediately and to protect the rights of poor farmers to secure enough food for their subsistance. 

As F.Roosevelt said in a speech to the US Congress, just a few months before he died: "We have come to a clear realization of the fact that true individual freedom cannot exist without economic security and independence. Necessitous men are not free men. people who are hungry and out of a job are the stuff of which dictatorships are made. In our day these economic truths have become accepted as self evident. we have accepted (...) a second Bill of Rights under which a new basis of security and prosperity can be established for all - regardless of station, race or creed"

P.S: Here is one example how we can empower local comunities to make them sustainable by providing enough food for everyone .The article written by Carlo Petrini (in Italian), the promoter of the Slow Food movement, concludes: "Uganda made me know only a further minimal part of an extraordinary humanity, that scattered around the world, achieves little big things in their local communities. This deserves to be known beyond any consideration or view: in front of the children of Bunanimi or Mulono, I have seen the entire Mother Earth, and I have never felt so small"