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Après Piketty

Posted on June 27, 2014 by Tom Healy

Tom Healy, Director NERI
Tom Healy, Director NERI

In scenes slightly reminiscent of the papal visit to Ireland in 1979 the departure of what the media has styled ‘rockstar’ Thomas Piketty has left a curious void.  Was it a temporary mid-summer event to fete the fascinating and seductive ideas of a left-leaning French economist while regretting all the time ‘but that would never work here because ….’?  We belong to a world where tax is viewed as a ‘burden’ and we wonder why the French ‘tolerate’ such high taxes (and yet, ironically, wonder at their public infrastructure, health system and early childhood provision). 

I love the French term for a wealth tax: ‘Impôt de solidarité sur la fortune’ It means, literally, ‘Tax of solidarity on fortunes’. In the English language we use the term ‘tax burden’ to refer to taxes. They are conceived as a burden – to be minimised and avoided as much as possible.  According to this political and ethical philosophy the individual stands outside and alongside the collective.  The rights of the individual and the collective are seen as more or less mutually exclusive. The collective – very frequently, is seen as a means towards the vindication of particular individual rights. ‘Particular’ because these rights relate to unfettered freedom to own and dispose of property.

As stated in a previous Monday blog (‘PIketty on inequality’) Piketty has shaken the cage of the normally monological, consensus-laden landscape of political economy discourse such as it is in Ireland.  In a way, people felt safe to discuss Piketty, his evidence and his ideas (even if it is doubtful many actually read his book entirely) because it didn’t necessitate radical change in social or tax policy in the here and now. It was pitched very much at the global level or at the level of ideas and long-term goals. ‘Equality is good. Let’s have more of it. Everyone is a sort of social democrat now’ seems to be the underlying sentiment among at least some economists and commentators. Or, perhaps, a more realistic perspective borrowed and adapted, inappropriately from St Augustine, ‘Make us more egalitarian but not yet’. We just have to pass through another decade of two of mild prolonged austerity during which we get our public finances in order, pay down most of our debt and ‘reform’ (a wonderful term to mean many different things to different people but in this context ‘reform’ = ‘freer’) product, service and labour markets. Put bluntly, ‘Piketty is accepted as largely right but the world is the way it is and we have to muddle along as best as possible until better times return – hopefully times more hospitable to the implementation of the Great Moderation in Inequality (GMI) that largely ruled from about 1920 to 1980 in the evidence reviewed by Piketty for the major capitalist nations.

Recent decades have been characterised – broadly – by the following trends:

  • A rising share of national income going to capital and not labour;
  • A rising inequality in income to labour (before taxes) with a developing culture of super salaries and bonuses in both public and private sectors;
  • A transfer of wealth from the public to the private domain running alongside higher returns to some forms of capital (the socialisation of banking debts, perversely, is part of a privitisation of public assets as publicly acquired private losses are turned into income streams for private rentiers lending to governments).
  • A predilection for more risky financial assets and property over productive assets correlated with periods of boom and bubble to be followed by bust .

The productive state assets and social services as an example. Piketty depicts a hypothetical world which begins to look less hypothetical (page 542):

‘According to the national accounts of the various European countries, the proceeds from selling all public buildings, schools, universities, hospitals, police stations, infrastructure, and so on would be roughly sufficient to pay off all outstanding public debt. Instead of holding public debt via their financial investments, the wealthiest European households would become the direct owners of schools, hospitals, police stations, and so on. Everyone else would then have to pay rent to use these assets and continue to produce the associated public services. This solution, which some very serious people actually advocate, should to my mind be dismissed out of hand.”

In plain English this is how Public-Private Partnerships work. And this is what has been adopted in many European states ‘to get around’ Eurostat/European Union Commission measurement rules on General Government debt. Essentially the public domain is being privitised in a clever way – in effect - while taxpayers pay a handsome rent over a lifetime for services rendered as a result of building or operating what was a public good (even if legally the asset remains in public ownership under various forms of PPPs).

Towards end of his book in a chapter entitled ‘The Question of the Public Debt’, Piketty argues that there are three ways of dealing with large public debt: taxation on capital, inflation and austerity. In the past a combination of real growth and price inflation helped radically reduce public debt (such as happened between 1989 and 2007 in the case of the Republic of Ireland). In practice, the European Union is following, exclusively, the third approach – that of sustained, coordinated and deep fiscal austerity. The reason that this is socially and politically feasible at least up to now is due to the changed balance of social and continental political forces since the 1970s’. However, it is a social project of dangerous proportions and short-sighted perspective because:

  • Rising social inequality and exclusion in many parts of Europe risk fraying the bonds of civic support and engagement whether at the national Member State or EU community level;
  • In the absence of growth in output and employment a policy of austerity will embed long-term unemployment or under-employment; and
  • The real elephant in the room is not, primarily, the precariousness of fuel supply or the level of public debt (which in any case is someone else’s assets when we think and measure globally) but the unsustainability of a carbon-fuelled pattern of consumption and production aided and abetted by a global system of finance capital that is largely out of control.

Piketty places much emphasis on the taxation of capital wealth without spelling out in any detail how it would be implemented. He sees it, correctly, as an inter-state and global challenge. Attempts to levy significant one-off or continuous taxes on wealth in the context of free movement of capital are likely to be self-defeating as capital can move.  The solution is to agree on internationally binding taxes allied to good information obtained as a result of international treaties and data-sharing protocols involving banks, tax authorities and other agencies. All of this might seem like a pipe dream in today’s Europe – largely governed by ideas and interests inimical to the sort of values and ideas promoted by Piketty. 

However, we have to start somewhere and we have to believe that change is possible. The Nevin Economic Research Institute has made a very modest proposal for the introduction of a net wealth tax which could yield enough in each year to contribute over  1,000 new social housing units. Hardly a very over-reaching proposal. It could take the form of a super-mansion tax on values over one million Euro to pay for new social accommodation. 

Posted in: Inequality

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