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Unemployment and Inequality
"The past will devou8r the future" if there is no radical change of direction in economic development. That is Thomas Piketty's prediction. Piketty sees the solution in a global capital tax or wealth tas.
UNEMPLOYMENT AND INEQUALITY: TWO URGENT PROBLEMS OF THE RICH WORLD
[This reading sample of the 2017 book from oekom verlag publisher Munich is translated from the German on the Internet.]
Continuous unemployment and growing inequality are two of the most pressing problems facing the modern rich world.
Since the beginning of the 1980s, the chasm between poor and rich has been growing in the rich world. This development is a puzzle given the generally strong economic growth in the last 30 years. One day economic growth should help reduce inequality. Through the so-called trickle-down effect, the spending of the rich should seep into the pockets of the poor through an economic filtration plant. The population altogether would be strengthened and everyone’s living standard would rise.
Millions of people in the rich world still live nowadays under conditions similar to Victorian England. In the United States, 49 million people – in a total population of 320 million – are considered poor. In Europe, every seventh person is stricken by poverty. In Eastern Europe, Spain and Greece, it is every fifth – above all women, single parents and children. A quarter of the population in the developed rich world is currently “threatened by poverty or social exclusion” when people with very low incomes are added. These are 200 million people. While the chasm between poor and rich grows, the unemployment in the whole rich world is also increasing and stubbornly persists at a high level. Those under 25 are the most imperiled but millions of baby boomers are without incomes, pensions or job-chances. The number of under-employed who cannot find full-time posts though they would like to work more has also increased considerably.
That is a contradiction in an epoch of unparalleled global prosperity and after many decades of wholesome economic growth. For decades, economists explained the opposite should be expected. Time and again they tell us economic growth brings jobs, higher incomes and a higher standard of living. But it did not.
What is wrong in the world?
The international development organization Oxfam gives a simple explanation. There was a “power takeover” by the rich. Oxfam decries the fattest moneybags for manipulating the political system, introducing unfair rules of the game to their favor to pay fewer taxes, observe fewer regulations and hardly fear controls any more. The consequence is that wealth and income – unlike what is generally assumed – have shifted from bottom to the top. Thus the development is running in the wrong direction.
This must change if life should improve. Otherwise the rich will become ever richer since today’s economic system is designed that way. The defenders of the free market economy like to argue they are promoting an egalitarian society. In reality, as we will show, it has produced a society that is like a giant casino in which the outcomes are manipulated in favor of the rich.
In his epoch-making book “Capital in the 21st Century,” the French economist Thomas Piketty predicted a large part of the developed world will fall back into conditions like the 19th century, a time when factor owners, entrepreneurs and bankers controlled the bulk of the wealth while everyone else struggled to survive. He sees a world coming in which the middle class in the rich countries practically disappears.
This raises a fundamental and alarming question. Were the few decades after the Second World War when the distance between poor and rich was greatly reduced an anomaly because of special circumstances? Can the past order that predominated in the history of humanity be a natural order of things, that a tiny minority controlled nearly all the world while the great majority was extremely poor?
This question is not easy to answer. In the past 70 years, a rich world dominated by the middle class seemed decreed by nature and right. However, historically, that was an exception. At no other time within the last 2000 years was there a middle class of that scale.
“The past will devour the future” if there is no radical change of direction in economic development. That is Piety’s prediction. The few decades in the second half of the 20th century in which the middle class led a rather contented life will enter the history books as an interesting but temporary social phenomenon.
Piketty sees the solution in a global capital tax or wealth tax. The cooperation between the tax authorities of countries must improve so they can exchange data about income and wealth. He also urged a more just tax system that enables governments to invest in the infrastructure and education. In Piketty’s perspective, wealth should be redistributed through taxation and more social justice created.
These proposals are hard to realize. The politicians of the rich world must do the exact opposite of what they have done in the last 30 years. They must tax their biggest financial backers and their most powerful citizens
Other economists urge investing more in the infrastructure to create jobs and redistribute prosperity: to generalize the right to intellectual property and give more people the chance of using new technologies and ideas. The educational system should be reformed so more young persons can establish businesses.
None of these solutions touches the essential problem. Persons are obviously freed from unemployment and can make an income by building new streets and tunnels or founding businesses. But nothing fundamental is changed in a system where wealth gradually flows from the majority of the population to the richest. (All personal and corporate success depends on state investment in education, roads, health care, water quality, food safety, airwaves and community centers. Translator’s note)
Such political measures go beyond a temporary improvement. They help the poor earn more and aid the unemployed in finding some kind of work. Long-term changes will not be realized this way.
We believe the solution must be much more radical. To overcome their situations, the countries of the rich world must change their economic system little by little with skilful methods that remedy the problems. They must free themselves from the ideology that preaches individual freedom, free markets and free trade and plays down the influence of the state. Instead they should organize the society and economic system so both serve the well-being of broad sectors of the population. Markets and trade must be actively controlled and cannot remain unregulated. Moreover governments should have “the right size” – that is, they should be small enough to work efficiently but big enough to fulfill the tasks and master the challenges facing them.
Another problem arises. To function, the current economics system needs a resource throughput – resource consumption – that continuously grows. This is designed in the DNA of the system. People must consume more and more to prevent higher unemployment and assure the survival of the system.
However the quantity of emitted greenhouse gases increases and changes the climate of our planet. Climate change has already advanced so far that global weather patters will worsen in the coming decades and the sea level will rise regardless of what is done against this.
Every attempt to steer the economic growth and slow down the damage of the environment throttles the fuel influx that keeps the economic motor going. A cooling economy leads to higher unemployment and thus more inequality and poverty.
Thus the present economic system has forced the developed world into a treadmill turning ever faster and driven society socially and ecologically in a direction that allows little hope. Every conventional attempt to delay the course of things only makes the situation worse. In other words, conventional solutions cannot do anything against inequality, unemployment or climate change. This is also true for a tax on the rich, increasing infrastructure spending or incentives for young entrepreneurs.
We need unconventional solutions that are attractive for the majority of the population so they help carry out the necessary changes.
The proposals in this book offer such solutions. Their realization would increase the well-being of everyone and reduce unemployment and inequality. Thus they offer immediate advantages, benefits and chances for the majority. Diminishing the consequences of climate change is by no means unimportant or irrelevant for us – even if it may only be a side-effect for many. The proposals are the reason we wrote this book.
THE LIMITS OF GROWTH
By Ulrich Thielemann
[This article published 11/24/2010 is translated from the German on the Internet. Since 2011, the economic ethicist Ulrich Thielemann has been the director of MeM, a think tank for economic ethics in Berlin.]
Courting capital should have ended at least after the Lehman bankruptcy. But the world financial architecture is largely the same today. The real economy has reached the limits of growth and we must endure a zero-sum game between fraudsters.
After the Lehman bankruptcy, many thought the end of market fundamentalism or market radicalism had begun. Market fundamentalism insisted “courting” (Hans-Werner Sinn) capital in its insatiable desire of profit serves the well-being of everyone. Nicolas Sarkozy declared after the fireworks of deregulation of the capital markets: “Laissez-faire is over.” Angela Merkel wanted and wants to restore “the primacy of politics over the financial markets” on the plane of a global world economic order since a “human market economy” is only possible this way. She is right.
For a long while, there was hardly a trace of a “new world financial architecture.” This is because the crisis remains misunderstood – as though only a few bankers had “speculated” in the nirvana of their models. The crisis is the culmination point of the seizure of the real economy, society, and politics by the “power of capital.”
THE REAL ECONOMY HITS THE LIMITS OF GROWTH
From 1980 to 2008, the global economic output increased six-fold. Nominal finance capital rose by a factor of 15 in the same time period. Who amassed these profits? An increasingly exhausted real economy up against the limits of growth is not capable of that – despite all the effects of whipping and lashing that capital used by playing off the “locations” against each other.
Instead of deflating capital and canceling the gigantic skimming off the cream mocking all performance justice, politics fed the bubble with trillions of securities. We will all now be servants of capital entirely involuntary and without bonuses.
Therefore the calculation of the actors of bubble capitalism does not work. “Captivity as a hostage” is the magic word or somewhat more elegantly “domino effects.” Memories of 1929 should be kept alive. Peter Steinbruck told us he looked into an “abyss.” As he reveals in his latest book, he passed on the opinions of the bankers whom he consulted as experts. Later German chancellor Merkel said “unselfish advisors” were hard to find.
A ZERO-SUM GAME BETWEEN FRAUDSTERS
Germany promised securities of 142 billion euros, 6% of the GDP or 47% of a federal budget, to the shareholders and creditors of Hypo Real Estate. Given this scale, it must be astonishing why no one asked whether half would have sufficed. Capital market fundamentalism believes profits can be gained painlessly.
As in the past, the bubble game – really a zero-sum game between fraudsters – is based on the generation of non-transparency. The captivity as hostages of capital will not end without clarifying the role actually played by capital and the role it should play for the well-being of everyone. Then a day could dawn when sentences like Josef Ackermann’s axiom “every regulation (of banks) aggravates investments, costs money and endangers jobs” will be seen as hiding particular interests and posing them as the public interest. (Josef Ackermann was CEO of Deutsche Bank for many years and insisted 25% increase in profits was normal)