Whenever power is concentrated, socially suboptimal policies follow
Yanis Varoufakis is a former Finance Minister of Greece, Professor of Economics at the University of Athens
Cross-posted from Yanis Varoufakis’ blog
Ms Assistant Secretary General of the United Nations, Esteemed colleagues, Ladies and Gentlemen, before I address the question of taxing serious wealth seriously, I you forgive my inability to proceed without an acknowledgement of the human tragedy in the Middle East.
As Secretary General Goutières correctly put it, nothing happens in a vacuum, nothing is sustainable in the face of industrial scale cruelty. So, for the record, I declare that, as long as a single Jewish person is targeted by antisemites, I shall wear the star of David in solidarity AND, at the same time, as long as a single Palestinian is bombed and leaves under Apartheid conditions, I shall wrap myself in the Palestinian flag. Moving on to our session’s topic:
Lessons from the Eurozone
Since 2008, our central banks, fiscal levers and tax systems have been servicing a tiny oligarchy whose riches are surpassing the limits of human imagination while the majority of our peoples have become poorer, disenchanted and cynical – paving the ground to populist zealots eager to poison our politics. Meanwhile, our climate crisis is ever so close to the point of no return but the poor, who will suffer the most, can’t pay for its reversal while the rich whistle down the wind.
This is not a technical problem is search of a technical fix. It is a political problem that guarantees to undermine any macroeconomic policy concocted as if society is a competitive marketplace populated by clones of some representative agent.
At the beginning there was the financial sector’s collapse in 2008. Hot on its heels came the so-called dogma of expansionary contraction – which amounted to (A) history’s grandest and most cynical transfer of private losses from the books of the quasi-criminal financiers onto our public debt ledgers, combined with (B) universal fiscal austerity – supposedly to arrest the burgeoning public debt burden. The result was a massive liquidity trap that increased public debt and led Europe and the US to the greatest disconnect ever between available liquidity and real capital investment.
This was no mistake. At best it was an example of motivated irrationality – of the sort I witnessed back in 2015 while negotiating with the troika regarding two related, red-hot, issues: Debt & VAT. My proposals got off to a flying start when I discussed them first with the IMF leadership. To restructure Greece’s public debt to the official sector I had proposed swaps using GDP-indexed bonds and perpetuals with no further haircuts for privateers. Regarding VAT reform, I proposed the simplification of rates (that the IMF demanded) and the reduction in rates (that I wanted to reduce VAT evasion and stimulate the small business sector). To my surprise, the IMF leadership endorsed both proposals in private. A few days later, at the following Eurogroup, the deal was off – without warning or explanation.
Why? Did they change their minds about the logic of the policies we had agreed? No, it was a political decision to fall into line with Berlin’s policies. Which begs the question: Why did German officials claiming to want to increase our tax base, so as to rein in our public debt, undermine an agreement that would do exactly that? The answer lies in the political economy of the eurozone. Put simply, there were always only two ways the eurozone could be held together.
Option 1 was to federate de facto, even if not de jure – a process whose first step would be the sort of Debt & Tax Restructuring I advocated for Greece before proceeding to the second step: the issuing of eurobonds (in the interests of surplus recycling) in tandem with a 5-year aggregate paneuropean green investment plan. But that would kill off the neomercantilism at the heart of the German business model. European net exporters would no longer be able to reply on the US trade deficit as a source of aggregate demand for their exports. And it would also mean higher German wages.
Option 2 relied on massive austerity accompanied by massive quantitative easing – which, at the expense of crushing investment and causing deepening rifts between North and South (now East & West too!), it turned the eurozone into a permanently stagnating (yet still rich), politically impotent, monetary union – one that is incapable of investing properly in its own Green Transition.
In summary, the eurozone crisis reveals how macroeconomic policy is always and everywhere subjugated to the authority of concentrated rentier power which will sacrifice the common good at the drop of a hat to reproduce itself. I submit to you that this is an insight our discussions on taxation and sustainable development cannot afford to neglect.
Taxation Reform: State of Play
Recently, many hopes have been vested in windfall taxes, wealth taxes and a universal minimum corporate tax rate in the context of the OECD’s Base Erosion & Profit Shifting (BEPS) framework.
We all know this framework’s severe limitations: 15% is too low and too flat a rate and it comes with more exemptions than Swiss cheese comes with holes. Moreover, the multinationals can conjure up as many IP-based deductibles as they please to pay as little tax as they want to pay.
Multinational rentiers, in short, do not fear the new OECD framework. And this at a time when a new, menacing form of macroeconomically significant rent is coming into play: Cloud Rent. In a recent book I argue that a new form of capital, cloud capital, has emerged as a produced means of behavioural modification. Amazon’s or Alibaba’s capital, for example, does two things: It trains us to train it to train us to train it to manufacture our demand for wares that Amazon sells to us directly bypassing all markets – wares Amazon does not produce but over which it ‘taxes’ their producers a huge cloud rent (between 15% and 40%). There is, ladies and gentlemen, no way our national tax offices can quantify, let alone tax, these cloud rents through conventional means. To tax them, we must tax revenues at the point of sale – a cloud tax on revenues, not on reported profits. And to do so with a progressive rate that is small for cloud-based start-ups but rises with the size of the firm’s revenues.
At the national level I believe we need a combination of:
The Progressive Cloud Tax on Digital Platform Revenues; including the millions spent by corporations and political parties on social media.
Local Progressive Corporate Tax Rates – with punitive rates for windfall monopoly profits
Zero VAT rating for basic goods
What about the international level? Professor Stiglitz has advocated the issuing of new SDRs to fund the Global Green New Deal in the Global South. That would be splendid. But, I fear, it will not happen. While Joe is right that the new SDRs will not cost Northern governments money, it will cost them power – coveted power over the Global South.
So, what should happen? Ideally, we would need to introduce a modern variant of John Maynard Keynes’ International Clearing Union (ICU) featuring a common accounting unit in which all trade and capital flows are denominated (like Keynes’ bancor or the IMF’s SDRs) plus two levies: A trade-imbalance levy that taxes trade deficits and surpluses symmetrically. And a capital-surge levy in proportion to any surge of cross-border capital flows. These levies can then flow into a Global Green Fund for investing in green energy in the Global South.
The beauty of the two levies, the trade-imbalance and the capital-surge levies, is that, unlike the minting of new SDRs which involves exogenous political decisions, here the new funds are produced endogenously by the trade and capital flow imbalances that the same two levies help keep in check. This is a little like the brakes of an electric car which, as they slow it down, help generate the electricity that helps propel the car forward.
Naturally, just as the powers-that-be will not flood the Global South with SDRs, they will not go for this revival of Keynes’ ICU either. But the Global South can create this system as a coalition-of-the-willing, perhaps in conjunction with BRICS Pay or the New Development Bank, and then exert moral and political pressure on Northern countries (like Norway and Finland) to join in.
EPILOGUE: The need to blend high-end policy with grassroots organising
To conclude, whenever power is concentrated, socially suboptimal policies follow.
Ergo, no policy proposal, however smart or common-prosperity-enhancing it might be, stands a chance unless supported by a transnational, progressive, grassroots movement ‘out there’.
Here is an example of what I mean: In ten days, on Black Friday, just like on previous Black Fridays, the Progressive International is organising an international rolling strike against Amazon. It begins, with the first light in Vietnam before it proceeds to Bangladesh, then to Germany, to New Jersey and finally to Amazon’s HQ in Seattle. We call it #MakeAmazonPay.
Why? Because rational discourse is never enough. No global corporate tax, no cloud tax, no windfall or wealth tax will be enacted without such a movement pushing for it globally.