The free market and fairness

The second crisis of capitalism (part 5)

Do we support a free market?
The answer is clearly “maybe”.
We’ve nothing against the free market,
just as long as it doesn’t stay free.

That is from a poem I wrote in about 1990, satirising Labour Party policy. Neil Kinnock was trying to walk a precarious tightrope between traditional socialist policies and the new economic (and electoral) realities of the time. Now I look at the lines again, I am disconcerted to find that – far from satire – they come quite close to saying what I now believe.  

But not entirely. I do still believe in the free market, because I cannot see any other mechanism for successfully creating wealth. And if there is to be a free market, then it does have to stay reasonably free or it defeats the object. However, the word ‘reasonably’ is important, as is the word ‘maybe’ in the poem. With a further 30 years of experience, I would say now that neo-liberalism has had its chance to show that it can combine wealth generation with social fairness. And it has failed. The so-called ‘trickle down’ effect has been close to non-existent.

Although this series of blogs is subtitled ‘the second crisis of capitalism’, I remain reluctant to say that what we are experiencing now is capitalism. It feels more like a corporate casino in which 0.1% of the population get to play with everybody else’s chips. The risk is all ours; the reward is mostly theirs. The left would no doubt say that this was always the definition of capitalism, but I don’t agree. And in any case, it is not the left that needs to be convinced.

The left will always applaud books written by people such as Thomas Piketty and Aeron Davis. The left will read them. The left will review them and pronounce them excellent (which they are). As a result, the right will mostly not read them. But the right, or at any rate the moderate right, ought to read them. In fact, it’s far more important that they should than that the left should. In the left’s case, it’s preaching to the converted. It is the right who need persuasion, who need to be converted. It’s not impossible, and it is now essential.

The principal conclusion drawn by both Piketty and Davis is that there needs to be far greater transparency – preferably public transparency but, failing that, at the very least transparency in the financial information available to governments. If tax that, by any reasonable standards, is legitimately due from individuals or corporations is to be collected, then governments have to know who has got what funds and where. In an age when governments are enfeebled everywhere, one of the things they can categorically do is to demand information from financial institutions and, if it is not supplied, to deny them a licence to operate.

Piketty wants to go further and for governments to impose a wealth tax, whereby the net value of every citizen’s global assets would be assessed for tax each year. He advances a hypothetical rate for such a tax, low at the bottom end, high at the top. The intention is progressively to stop, and if possible to reverse, the growing inequality of wealth and to ensure that the proceeds of economic growth are shared more equitably.

I am pleased that Piketty cites specific rates, even if he stresses that they are intended only as an example. This enables me to calculate what additional tax I would have to pay if Piketty was Chancellor of the Exchequer. The answer, for the last financial year, is £892. Am I prepared to pay this much extra every year to help combat growing inequality and to replenish the resources of the British Government?

One answer is that, if I were not prepared to pay this or something like it, then it has been hypocritical of me to have voiced the opinions I have in this series of blogs. So, yes, I would be prepared in principle to pay about £1,000 annually. However. People like me are not the main target of the proposal. We are the small fry that get caught in the net. That is perfectly reasonable, as long as the sharks also get caught. Will they?

Piketty is not naive and is well aware of the difficulty of collecting taxes from the super-rich. He specifies the problems that both France and Italy have faced with imposing a national wealth tax. He believes, correctly, that it is a problem that needs to be tackled internationally, while acknowledging that the degree of co-operation required for this to happen does not exist and may never exist.

Countries now compete with each other not only in trade, as they always have, but in tax as well. Every country is trying to grab tax revenues that could have gone to other countries, and is framing policies accordingly. This is not a zero-sum game: it’s a minus-sum game, because the amount being collected is diminished by tax competition. The ‘free market’ has come to tax revenues.

Piketty believes that the EU might be large enough and powerful enough to impose its own standard wealth tax and to largely make it stick. However, he is not entirely sanguine about that, and he was writing before Brexit. In fact – and this is based on my sense of what he feels, rather than on what he actually wrote – Piketty’s heart is not in the practicality of what he proposes. He advocates it because he can see no plausible alternative. But, for the present at least and with good reason, he seems to doubt that it can happen. The attempt, however, needs to be made.

The issue of corporate taxation must be addressed too. Personally, I favour the lower rate that now obtains. But it must be collected. Physical, measurable things are the easiest to tax. Profits are not one of them. Profits can be manipulated in all manner of ways, as well as being spread throughout the world to minimise tax. Turnover is far more measurable, country by country. It would not be appropriate for every business, but for some multi-nationals – such as Apple, or Amazon, or Google, or Facebook, and dozens of others – a tax on turnover might be more productive than a tax on profits.

The Pavlovian reaction of the centre right will be to oppose any new tax on principle. Tax. Tax. Tax. All the left wants to do is tax. It is time to stop the lazy thinking embodied in this response.

All taxes are not the same. It is one thing to say that middle- or even moderately high-income families should be taxed lightly. It is another thing altogether to accept that more than half the increase in national income goes to the top 1%, that this process is enabled by massive tax avoidance, and to do nothing to redress the situation. Conservatives pride themselves on being the Low Tax party. It would be better if they tried to be the Fair Tax party.