4. Some Further Themes on the Outlook of the Capitalist World

The economic pie of 2014 is far larger than the pie of 1500, but it is distributed so unevenly that many African peasants and Indonesian labourers return home after a hard day’s work with less food than did their ancestors 500 ago. Much like the Agricultural Revolution, so too the growth of the modern economy might turn out to be a colossal fraude. The human species and the global economy may well keep growing, but many more individuals may live in hunger and want.

And if ye lend to them of whom ye hope to receive, what thank have ye? For sinners also lend to sinners, to receive as much again. But love ye your enemies, and do good, and lend, hoping for nothing again; and your reward shall be great, and ye shall be the children of the Highest: for he is kind unto the unthankful and to the evil. (King James Version; http://​biblehub.​com/​kjv/​luke/​6-34.​htm; last consulted on June 16, 2018).

We are jeopardizing our future by not reining in our intense but geographically and demographically uneven material consumption and by not perceiving continued rapid population growth as a primary driver behind many ecological and even societal threats. By failing to adequately limit population growth, reassess the role of an economy rooted in growth, reduce greenhouse gases, incentivize renewable energy, protect habitat, restore ecosystems, curb pollution, halt defaunation, and constrain invasive alien species, humanity is not taking the urgent steps needed to safeguard our imperilled biosphere.

People emphasising the sense of community, are inclined to distrust large capitals and advocate strong government regulations; they usually deny the risks of climate change. People who are more hierarchical and individualistic, have respect for successful business men and do not like government involvement, they are inclined to deny warnings on climate change, recognising that accepting it, will lead to taxes or regulations to reduce greenhouse emissions. In the US the debate has become an acid test, where someone joins one group or another. When we argue about climate (…), we actually argue about who we are and to which club we belong.

The earth is finite. Its ability to absorb wastes and destructive effluent is finite. Its ability to provide food and energy is finite. Its ability to provide for growing numbers of people is finite. And we are fast approaching many of the earth’s limits. Current economic practices which damage the environment, in both developed and underdeveloped nations, cannot be continued without the risk that vital global systems will be damaged beyond repair.

False assumption #6: Our planet’s resources are limitless. This is not only a false assumption, but one which could lead to catastrophic consequences for our planet. Our economic model is based on exploiting our environment and ignoring the limits of what our planet can bear. It is an economic system that is a major driver of runaway climate change.

But, even at this moment, one person in five lives in absolute poverty without enough to eat, and one in ten suffers serious malnutrition.

The economic pie of 2014 is far larger than the pie of 1500, but it is distributed so unevenly that many African peasants and Indonesian labourers return home after a hard day’s work with less food than did their ancestors 500 ago. Much like the Agricultural Revolution, so too the growth of the modern economy might turn out to be a colossal fraude. The human species and the global economy may well keep growing, but many more individuals may live in hunger and want.

Germany is virtually the only country in the world with falling levels of both public and private debt. But this is only possible because of its huge trade surplus. Trade deficits must be financed by borrowing. Germany’s trading partners are getting deeper into debt in order to buy German goods. In essence, Germany is offshoring the creation of its money supply. That can’t go on forever, because it eventually results in overindebtedness in trade deficit countries.

The development of the debt state may be understood both as a retarding factor in the crisis of the tax state and as the rise of a new political formation with its own laws.

Trichet’s main concern is that the global debt burden – both public and private debt – is at present higher than before the financial crisis of 2007 and 2008. “This indicates how fragile the system still is. The IMF has pointed this out this very weak. And, to my opinion, the international community is not sufficiently aware of this fact.” (Own, free translation.)

That means the real power to control the world lies with four companies: McGraw-Hill, which owns Standard & Poor’s, Northwestern Mutual, which owns Russell Investments, the index arm of which runs the benchmark Russell 1,000 and Russell 3,000, CME Group which owns 90% of Dow Jones Indexes, and Barclay’s, which took over Lehman Brothers and its Lehman Aggregate Bond Index, the dominant world bond fund index. Together, these four firms dominate the world of indexing. And in turn, that means they hold real sway over the world’s money.

The offshore system has also ended up aggravating the public debt of the countries whose economies are less developed. It was in fact observed how the accumulated private wealth of some elites in the fiscal havens is almost equal to the public debt of the respective countries. This highlights how, in fact, at the origin of that debt there are often economic losses created by private persons and unloaded on the shoulders of the public system. Moreover, it is noted that important economic players tend to follow, often with the collusion of the politicians, a practice of division of the losses.

The rich world is rich, but the governments of the rich world are poor.

it is good to point out how often the public debt is also created by an incautious, if not fraudulent, management of the public administrative system. These debts, those financial losses that burden the various nations, pose today one of the major obstacles to good functioning and growth of the various national economies. Numerous national economies are in fact burdened by having to cope with the payment of interest, which derives from that debt, and must therefore dutifully undertake structural adjustments to suit this need. (See Congregation for the Doctrine of the Faith (2018), n° 32.)

One of the main ways that the super-rich contribute to broader society is through taxes incurred on their income, wealth and capital gains, which can pay for essential public services and redistributes wealth from the richest to the most vulnerable people. However, the IMF has found that tax systems around the world have become steadily less progressive since the early 1980s, via the lowering of the top rate of income tax, cuts to taxes on capital gains and reductions in inheritance and wealth taxes.

Capital market liberalization enhances the bargaining power of capital: effectively, it gives “capital” the right to announce that if it is taxed unduly, or if other measures that it dislikes are adopted, i will leave the country.

The rich and superrich often use corporations to protect themselves and shelter their income, and they have worked hard to ensure that the corporate income tax rate is low and the tax code is riddled with loopholes. Some corporations make such extensive use of these provisions that they don’t pay any taxes.

The Belgium-based Anheuser-Busch InBev (AB InBev) is the world’s largest brewing company, and sells over 200 different brands of beer across Europe, Asia and America. Not only does the company dominate the market—it has a powerful political voice too. It spent $3.7m lobbying the US government in 2014, and 56 of the 141 lobbying reports it filed were on issues relating to taxation. AB InBev has used its influence to deliberately target legislation designed in the public interest, for example establishing voluntary advertising standards to avoid limitations on advertising to young people. In Brazil before the 2014 World Cup, the company was involved with FIFA in pressuring the government to change a law banning the consumption of alcohol at football matches, so that its products could be sold. Small retailers also pay a price for corporate dominance. In the US, the Justice Department is currently probing allegations that AB InBev is curbing competition by buying up distributors, making it harder for micro-breweries to get their products onto store shelves. (See Oxfam (2016), p. 28.)

Paying as little tax as possible is a key strategy for many of the super-rich. To do this they make active use of the secretive global network of tax havens, as revealed by the Panama Papers and other exposés. Countries compete to attract the super-rich, selling their sovereignty.

While we all speak passionately about the importance of democratic principles, we also recognize that our democracies are imperfect and that some groups’ voices are heard more loudly than others. In the arena of international economic policy, the voices of commercial and financial interests are heard more loudly than those of labour and consumer interests. As just noted, they have tried to convince others, with remarkable success, that there is no conflict of interests – which means that there are no trade-offs. The consequences speak for themselves: the growing dissatisfaction with reform policies is partly a consequence of the fact that so many have actually been made worse off. (Stiglitz (2002), p. 25.)

The race to the bottom on corporate tax collection is a large part of the problem. Multilateral agencies and finance institutions have encouraged developing countries to offer taks incentives – tax holidays, tax exemptions and free trade zones – to attract foreign direct investment. Such incentives have soared, undermining the tax base in some of the poorest countries. In 2008/09, for instance, the Rwandan government authorized tax exemptions that, if collected, could have doubled health and education spending.

For instance, today’s lopsided tax policies, lax regulatory regimes and unrepresentative institutions in countries around the world are a result of this elite capture of politics. Elites in rich and poor countries alike use their heightened political influence to benefit from government decisions, including tax exemptions, sweetheart contracts, land concessions and subsidies, while pressuring administrations to block policies that may strengthen the hand of workers or smallholder food producers, or that increase taxation to make it more progressive. In many countries, access to justice is often for sale, legally or illegally, with access to the best lawyers or the ability to cover court costs only available to a privileged few. (See Oxfam (2014), p. 59.)

Inequality has grown dramatically in advanced economies over the past 30 years. Since 1980 the bottom quintile of U.S. earners has received no increase in real wages; the income of the top 1% have tripled (…). The root causes are widely debated. Globalization of product and financial markets has certainly played a significant role; the impact of new technology may even be more profound. And the growth of finance has itself produced rapidly increasing earnings at the top of distribution.

Although global economic well-being appears to have increased in the second half of the twentieth century with an unprecedented magnitude and speed, at the same time inequalities proliferate between various countries and within them. Moreover, the number of people who live in conditions of extreme poverty continues to be enormous. (See Congregation for the Doctrine of the Faith (2018), n° 5.)

On connaît les chiffres dans leur redoutable monotonie (même si certains peuvent les contester).

In 1965 the one-tenth of families and unattached individuals with the lowest incomes received before taxes about 1 per cent of the total money income of the country; the tenth with the highest incomes received 28 per cent of the total, which is to say their incomes averaged 28 times as much as the lowest tenth. The half of the households with the lowest incomes received, before taxes, only 23 per cent of all money income. The half with the highest income received 77 per cent. In 1965 only about 6 per cent of all family units had incomes before taxes of more than $15,000. They received, none the less, 27 per cent of total income. At the other extreme, 25 per cent had before tax incomes of less than three thousand and received only 4 per cent of the income.

There is also (...) a strong correlation between extreme inequality and low social mobility.

If you are born poor in a highly unequal country you will most probably die poor, and your children and grandchildren will be poor too. In Pakistan, for instance, a boy born in a rural area to a father from the poorest 20% of the population has only a 1.9% chance of ever moving to the richest 20%. In the U.S., nearly half of all children born to low-income parents will become low-income adults.

In publicly listed companies, this drive for ever-greater profit has delivered rich rewards for shareholders. For corporations in the UK, the proportion of profits going to shareholders as dividend payments rather than being reinvested in the business, has risen from 10% of profits in the 1970s to 70% today. In 2015, the proportion was 86% and 84% for Australia and New Zealand respectively, thanks in part to a tax credit that investors receive on their dividend payouts. In India, as profits have been rising for the 100 largest listed corporations, the share of net profits going to dividends has also increased steadily over the last decade, reaching 34% in 2014/15, with around 12 private corporations paying more than 50% of their profits as dividends (…). Corporations have also been hoarding cash: according to rating agency Moody’s, US (non-financial) corporations held a total of $1.7 trillion on their balance sheets at the end of 2015135 and have been buying back their own shares to further increase the value for shareholders. In the US, the 500 largest listed corporations spent on average 64% of their profit on buying back shares between September 2014 and September 2016.

Massive debts were incurred in the name of the Icelandic public, to allow the country to continue to function, which are still being repaid to the IMF and other nations eight years later by the citizens of Iceland. In contrast to the U.S., Iceland has chosen to hold the criminals that manipulated their financial system accountable under the law.

The recent financial crisis might have provided the occasion to develop a new economy, more attentive to ethical principles, and a new regulation of financial activities that would neutralise predatory and speculative tendencies and acknowledge the value of the actual economy. Although there have been many positive efforts at various levels which should be recognized and appreciated, there does not seem to be any inclination to rethink the obsolete criteria that continue to govern the world. On the contrary, the response seems at times like a return to the heights of myopic egoism, limited by an inadequate framework that, excluding the common good, also excludes from its horizons the concern to create and spread wealth, and to eliminate the inequality so pronounced today. (See Congregation for the Doctrine of the Faith (2018), n° 5.)

Unemployment and poverty rates have remained high since the Great Recession of 2008, and the number of households receiving nutrition assistance from the federal government’s Supplemental Nutrition Assistance Program has increased by approximately 50 percent between 2009 and 2013. Demand for charitable food assistance has also expanded. HIA 2014 finds an increased number of individuals relying on charitable assistance to access nutritious foods for themselves and their families.

The economy has experienced an unusually slow recovery since the deep recession in 2008 and 2009. The nation’s poverty rate reached 15.1 percent in 2010, the highest rate since 1993. The poverty rate remained at 15 percent in 2012 with 46.5 million people living in poverty. This is the largest number living in poverty since statistics were first published more than 50 years ago.

Piketty’s favorite solution is a progressive annual tax on capital, rather than income. He argues that this kind of tax “will make it possible to avoid an endless inegalitarian spiral while preserving competition and incentives for new instances of primitive accumulation”.

I agree that taxation should shift away from taxing labor. It doesn’t make any sense that labor in the United States is taxed so heavily relative to capital. It will make even less sense in the coming years, as robots and other forms of automation come to perform more and more of the skills that human laborers do today.

But rather than move to a progressive tax on capital, as Piketty would like, I think we’d be best off with a progressive tax on consumption. (…)

Like Piketty, I’m also a big believer in the estate tax. Letting inheritors consume or allocate capital disproportionately simply based on the lottery of birth is not a smart or fair way to allocate resources. (See Gates (2014).)

This is an extraordinarily difficult question in political economy, because it’s about generational imbalances. Right now, the dice are loaded in favour of the baby-boomers, people like me who were born in the two decades after the end of World War Two, and they’re loaded against newborns, children and the unborn. This is a really striking pathology of modern times, this breach of contract between the generations. It’s very hard to fix because the unborn and children don’t get to vote, whereas the elderly now tend to stick around long after retirement age, and they vote in rather large numbers.

tuition fees have nearly doubled, in real terms, in 20 years. (See Anonymous (2015a), pp. 11–12.)

In America, retrenchment in state budgets has pushed up tuition fees. In California, for instance, they have tripled over 15 years, and a further 28% rise is proposed. Outside America, the first big shift towards private funding happened in Australia, where tuition fees were jacked up in the late 1980s. A host of other countries followed including New Zealand, Chile, South Africa, some of the former Soviet republics, Britain and Thailand. China used to impose no fees at all, now it charges 6,000–10,000 yuan ($800–1,600) a year, not much for an urban family but a lot for a rural one. (See Anonymous (2015b), pp. 12–14.)

the fact that among the major reasons for the most recent economic crisis was the immoral behavior of agents in the financial world, where the supranational dimension of the economic system makes it easy to bypass the regulations established by individual countries [and to the fact that] the extreme volatility and mobility of capital investments in the financial world permit those who control them to operate smoothly beyond every norm that does not aim at an immediate profit, often blackmailing by a position of strength even legitimate political authority.

Every time there is a crisis, the taxpayer is called on to bail out the banks and the major financial institutions. If you had a real capitalist economy in place, that would not be happening. Capitalists who make risky investments and failed would be wiped out. But the rich and powerful do not want a capitalist system. They want to be able to run the nanny state so when they are in trouble the taxpayer will bail them out. The convention phrase is “too big to fail.” (See Chomsky and Polychroniou (2017), p. 153.)

Governments want top-class universities because the modern economy is driven by human capital. The goal is to nurture people who will create intellectual property and clusters of high-tech companies similar to those around Stanford and Cambridge.

the interested parties need to collaborate in order to increase the initial qualifications, to renew the schooled professional population and to improve the provisioning, accessibility and quality of career and work guidance. Furthermore traineeships in the context of learning programs and on-the-job-trainings are more encouraged. (See http://​europa.​eu/​legislation_​summaries/​education_​training_​youth/​lifelong_​learning/​c11088_​nl.​htm. last consulted on June 16, 2018).

student-centred learning and mobility will help students develop the competences they need in a changing labour market and will empower them to become active and responsible citizens.

With labour markets increasingly relying on higher skill levels and transversal competences, higher education should equip students with the advanced knowledge, skills and competences they need throughout their professional lives. Employability empowers the individual to fully seize the opportunities in changing labour markets. We aim at raising initial qualifications as well as maintaining and renewing a skilled workforce through close cooperation between governments, higher education institutions, social partners and students. This will allow institutions to be more responsive to employers needs and employers to better understand the educational perspective. Higher education institutions, together with governments, government agencies and employers, shall improve the provision, accessibility and quality of their careers and employment related guidance services to students and alumni. We encourage work placements embedded in study programmes as well as on-the-job learning.

In this regard, it is particularly desirable that institutions such as universities and business schools both foresee and provide, as a fundamental and not merely supplementary element of their curricula of studies, a formational dimension that educates the students to understand economics and finance in the light of a vision of the totality of the human person and avoids a reductionism that sees only some dimensions of the person. An ethics is needed to design such formation. The social doctrine of the Church would be a considerable help in this connection. (Congregation for the Doctrine of the Faith 2018, n° 10).

vier vijfde van de wereldbevolking geen boodschap heeft aan betekenisloze klimaatovereenkomsten en gewoon doorgaat met het verbranden van steenkool en olie.

(freely translated: “four fifths of the world population is not involved with the meaningless climate agreements and just continues with the burning of coal and fossil oil”.) (See Dejaeger (2014), p. 89.)

The purpose of economic activity is to increase the well-being of individuals, and economic structures that are able to do so are more desirable than those that do not. (See Stiglitz (2002), p. 9.)

See, My soul: There are few things that I condemn as severely as this rationalism which rapes and desecrates and kills Faith -- I say Faith with a capital, in order to say true Faith, absolute, regal Faith. I condemn it as My assassin. It is this very rationalism which kills Me in hearts and which prepares and has prepared very sad times for the Church and the world.

I have cursed other things. But none will I curse as this. It has been the seed from which have come other poisonous doctrines, and others, and still others. It has been the treachery which opens the door to the enemy. It has in fact opened the doors to Satan who has never reigned as much as now, since rationalism reigns.

But it is said: ‘When the Son of man will come, He will not find faith in hearts’. Therefore rationalism does its work. I will do Mine. (See http://​www.​bardstown.​com/​~brchrys/​Ratunlsm.​html; last consulted on June 16, 2018.)

It remained for the often perversely articulate John Maynard Keyes to doubt on the pleasure of toil. He quotes the words of an aged charwoman that were preserved on her tombstone. She had just been released from a lifetime of work:

Don’t mourn for me, friends,

Don’t weep for me, never,

For I’m going to do nothing,

For ever and ever.