Alliances Against PovertyNovember Conference, Brussels

The Pre-Conditions for a Transformative Agenda in Social and Employment Policy

Jeremy Leaman (Loughborough University, UK; EuroMemo Group;

J.Leaman@lboro.ac.uk)

Critical Juncture in Development of the ‘social state’

• ‘European social model has already gone’ Mario Draghi (Wall Street Journal 24.2 2012).

• Exaggerated but significant restatement of neo-liberal intent

• Europe remains the socially and fiscally most committed region, yet its systems have been under attack since the 1970s

• Delors’ vision of social dimension to cushion effects of Single Market now largely rhetoric

• Welfare costs remain prime target of NL attack

Crisis as ‘opportunity’

• Opportunity of Keynesian renaissance thwarted by embedded NL demonisation of state debt Thus >>>

• Sovereign debt ‘crisis’ became opportunity to continue the weakening of the social state through

• a) The commodification of key services:• b) Privatisation, outsourcing, ‘competition’ • However: a) NL objectives not yet fully realised and• b) are causing long-term economic damage and

generating strong opposition

Persistence of Delusion

• Fatal cocktail of capital market deregulation, monetarism and neo-liberal supply-sidism has ‘deformed’ Europe (Jörg Huffschmid)

• ‘decoupled’ monetary from real accumulation (Altvater)

• Generated boundless ‘liquidity factories (K.Philips)• Promoted an unprecedented redistribution of

gross (market) income in favour of capital, thus:• Compounding need for state remedial transfers

Inequality in European EconomiesDistribution of National Income 1980-2005

1980 200558

60

62

64

66

68

70

72

74

73.1

63.6

Wages and Salaries as Percentage of National Income

1980 20050

5

10

15

20

25

30

35

40

26.9

36.4

Gross Profits as percentage of National Income

5

Gross Wages Ratio Gross Profits Ratio

Logical Fallacy of Neo-Liberalism

6

Figure 4. Profits Ratio and Investment Ratio in Advanced Economies 1980-2005

Source: IMF World Economic Outlook, April 2007, data from Charts 1.15 & 5.7; profits ratio defined as the share of income from capital in national income before tax and transfers; investment ratio is the proportion of gross fixed capital formation to GDP in any given year.

19 1816.2

31.735.3

38.5

0

5

10

15

20

25

30

35

40

45

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

Profits Ratio

Investment Ratio

Neo-Liberal De-Accumulation

7

Source: Weale (2012: 62)

UK: Ratio of Net Assets to Annual GDP 1920-2008

Challenge to progressive forces

• We need to Halt the ‘deformation of Europe’ through neo-liberalism

• Defend and protect surviving elements of social provision

• Maintain and restore the social state as badge of European civilization

• Re-establish the ambition to create a pan-European architecture/ set of norms based on social justice, international solidarity and the right to secure employment

Preconditions for Transformative Agenda

• Societal change engineered by Neo-liberalism is multi-dimensional

• Reversal thus requires holistic solution• Not just choice of new technocratic

policy-mix• Preconditions are thus political,

economic and cultural

Political Preconditions

• Strategic alliance of progressive forces to match interest lobbies of capital, built around commitment to the centrality of public goods to social cohesion and the ‘courageous state’ (Richard Murphy) >> Encouraging:

• International Cooperation and Solidarity• A Trans-National Politics to Match transnational

capital, committed to• Regulation and Harmonisation (to decent levels)

Economic preconditions

• Prioritisation of economic recovery over fiscal consolidation, c.f. post-war debt reduction

• Control of strategic gate-keepers in finance, extractive industries, retail monopsonies

• Primacy of qualitative growth and full employment

• Reduction of demand asymmetries in EU/ EU17, convergence through Fiscal and Clearing Union

• Reduction In Disparities Of MARKET INCOME

Socio-cultural preconditions

• New expectations of what ‘stable growth’ means• Lower expectations of rates of return: addiction of

pension and investment funds to Ponzi-capitalism• Reduction in private debt as vehicle for growth >• State debt historically reactive (Figure next slide)• Cultivation of consensus concerning public goods

and taxation as necessary conditions for social cohesion and civilization (Wendell Holmes, Adolph Wagner)

State debt is reactive, not primary

Fiscal Preconditions• Social policy without a coherent fiscal policy is

not feasible OR• NL dismantling of public social provision is

pre-programmed by weak fiscal culture• EU Fiscal Policy: an object lesson in failure in

the face of Globalisation, MNCs and the MS as ‘competition states’ where:

• Tax reductions are deployed as supply-side inducements to MNCs and HNWIs (high net-worth individuals)

History of EU Non-Harmonisation of Taxation

• Acquis tax harmonisation only affects VAT• No established commitment to progressive

income tax• No established standards of taxable income or

assets• No established minimum/ maximum rates of

direct taxation . The Result is >>• Tax and regulatory arbitrage by MNCs

Tax Competition Accelerates after 1990

• No tax conditionalities in Copenhagen Criteria beyond VAT and some excise duties

• EU ignored move to flat tax regimes in pre-accession Baltic states 1994/95 and the sharp reductions in corporation tax throughout CEE

• Irish tax ‘piracy’ only began after 2000 >>

Corporation Tax Rates 1980-2009

1980 1990 1995 2000 2009*0

5

10

15

20

25

30

35

40

45

50

EU5EU10EU8

Asymmetries

• All EU countries affected by shift from direct to indirect taxation and a gradual decline in tax ratios (as % of GDP)

• CEECs are characterised by both heavy reliance on indirect taxes and lower average tax ratios

• RESULT: a) lower resistance to shocks and reduced ability to redistribute; b) some countries are chronically vulnerable to shocks and to pressure on social expenditure; c) capital imports

Lessons of Failure

• Without fiscal convergence and strengthened public finances, the European (social) project is doomed

• Requirements for change/ recommendations:• 1) Commitment to progressive taxation• 2) Harmonisation of scales of progression• 3) Harmonisation of PIT and CT rates• 4) Shared standards for calculating tax bases

Harmonisation

• 5) Commitment to transparency, country-by country-reporting, formulary apportionment

• 6) Bi-lateral deals with secrecy jurisdictions should be rescinded (UK, Germany with Switz)

• 7) Tax-avoidance should be outlawed and Tax Havens in Europe and overseas put out of business

• 8) Harmonisation of European wealth taxes

Harmonisation 2

• 9) Removal of the anomaly of non-taxation of aircraft fuel

• 10) Tax competition and ‘tax poaching’ should be eliminated

• 11) Stability and Growth Pact/ Fiscal Pact should be reformed to prioritise convergence of member states’ productivity and external balances

• 12) Reform of the ECB

Employment Priorities

• Full employment is a primary public good• End to the scourge of youth unemployment

and the ‘wage scar’• Convergence to higher participation ratios via

expansion of childcare and pensionable parenthood (as public goods)

• Expansion of training and re-training to establish critical mass of skill (craft skills as source self-esteem)

Investment Priorities

• Reverse decline in Investment Ratio• Prioritise education, training and skills as

‘social capital’• Prioritise public infrastructure• Sustainable technologies• Low carbon transport systems

Reduce Democratic Deficits

• Establish answerability of key institutions (Commission, European Central Bank)

• Empower European Parliament BUT ALSO• End the ignorance of elites through the

promotion of a critical and active civil society• ‘Our ignorance is their power’• ‘Our understanding is our power’• Evidence of that influence: Andrew Haldane (Bank

of England) honoured Occupy movement