It is said that western societies are founded on Christianity; ideas like Christian charity and equal rights are woven into the fabric of society.
Is that really true? Are these ideas part of everyday life, part of the relationships between corporations and their employees – between politicians and their constituency?
Western countries are built on liberalism – individual freedom for all, in principle. Is liberalism built on Christian values? Well, freedom sounds good, but……
In reality liberalism means freedom for some at the expense of others. Liberalism and Christian values are only related when politicians defend their politics. The real world is quite different.
Let me use my home country, Denmark, as an example. Denmark is broadly regarded as a country that has succeeded in creating one of the most equal societies, where no one is left out – everyone is included. There is always help close by, paid by taxpayers.
That is not a true picture. Since 2008 the number of Danes living in poverty, and the number of children growing up in poverty has more than doubled. The Gini coefficient (measuring the degree of inequality) has increased markedly from 2008, peaking in 2013 with 28,5, and it hasn’t bounced back yet.
In Denmark some are more equal than others. Some have more access to the riches created by the development of society, giving them more freedom than others. Those at the bottom have had their freedom actively reduced by government intervention, cutting their access to social welfare, thereby pushing them even further down the social ladder. At the same time, governments have been cutting down on education, even though Denmark is in serious need of a qualified labour force.
The principle is the same in every other Western country: People at the bottom must put their lives at the disposal of a society, that actively chooses not to be equally accessible to all its citizens, top or bottom. That is what inequality and unequal right is all about.
That is definitely not Christian charity.
An attempt at a policy to solve these social problems is non-existent. The message to the bottom is simple: it is your responsibility to make yourself available; not so much to society, but to the elite at the top of the social ladder: They must be allowed to exploit you as a resource for their own wealth.
We should revert that principle 180 degrees: society should be made available to all its citizens on equal terms, not only the ones that have a job, but everyone.
As a member of the lower classes clawing at the social ladder to get at least some kind of grip you easily develop an attitude: why should I be available to a society, that is not available to me – a society that is actively bad mouthing me, especially during election campaigns.
Not even those that have a job is included on equal terms. It is quite common for public officials to be at the lashing end of the political whip whenever the elite claims to be in need of tax cuts. The political chorus claims that public efficiency needs to be improved; essentially employees need to work more within the same working hours. Constantly cutting the Budget to make room for tax cuts for the top of the social ladder, so THEY can feel more included than they already are – at the expense of public employees and those at the lower end of you-know-what.
The result is not only that public employees are physically or psychologically worn to the limit. Public service also suffer. It is as if liberals do not accept that public services like education, health care etc. play a central role in creating progress for the macro-economy. It is as if they only recognize the contribution from the private sector. But where would the private sector get access to qualified labour if they public sector did not provide it, both as education and as healthcare, helping those afflicted by illnesses back into the labour force; or social welfare helping the unfortunate ones caught in the slippery mud at the bottom of the ladder, to rejoin the labour force after having been educated. The private sector cannot provide these services to any significant degree.
Liberals would counter these arguments by stating that tax cuts are necessary to stimulate the economy. Each dollar, or Euro or….. spent publicly is a liability, while each dollar spent privately contributes to economic progress.
But that is simply not true: what is needed is a operational balance between public and private spending; to define what services to the macro-economy can best be provided by the public sector at any given time, and what services can best be provided by the private sector. This is by no means a constant balance: if a macro-economy shows signs of imbalance between different parts of the macro-economy, i.e. increasing unemployment and a resulting decrease in general consumption of products, then such problems can best be solved by the public sector increasing its investments in job creation. The private sector cannot contribute in starting the process of macro-economic rebound, but public investments will increase the general consumption of products, thereby making private investments profitable. It will be a political task to ensure that economic conditions are ripe for such investments – there are many aspects of this, among them education and social demarginalization.
The Liberal Society – where did it go wrong?
There are two main points:
The first point is that values generated as a result of improvement of conditions for economic activity caused by a developing society, ends up in the deep pockets of the elite and especially financial institutions. The development of society improves economic conditions as a result of the contribution of all the citizens of society; As consumers, as labour, as investors. They create added value from this joint effort, which is expressed as the capitalization of land values – when economic conditions are improved for all, land becomes more attractive, as any economic activity need access to land; Thus, the market price of land rises as a result of society’s development.
This added value will in theory end up in the pockets of landowners, but in reality a very large part will be channeled into financial corporations, as access to land requires debts and debt must be repaid with interest.
A distinction must be made between the productive economy, which creates services and products, and the speculative economy. The latter contributes only to a limited extent to the productive economy, and only through risk-taking capital. But most of the proceeds flowing through the speculative economy are labour-free profits and they all originate in the capitalization of land values.
Another point is the almost religious belief in market forces and their ability to create perfection.
My study of economics had taught me that the ideology of many conservatives was wrong; their almost religious belief in the power of the markets – so great that we could largely simply rely on unfettered markets for running the economy – had no basis in theory or evidence.
(Joseph Stiglitz: People, Power and Profits. Penguin Random House, UK, 2019).
The problem is the outdated capitalist (and neo-liberal) mindset, stating that if markets are kept free of political governance, market forces will automatically ensure that the macroeconomic machinery will run smoothly and seamlessly. Even if an economy shows recessive trends, market forces will by definition remove these recessive trends given time: Prices will fall, wages will fall, etc.; it will all happen by itself; no need for political intervention. It was this mindset that led to the Great Depression of the 1920s and 30s, where it was clearly proven that this is nonsense. It was also this mindset that have prevented the EU from fighting the crisis that started in 2008 as efficiently and quickly as, for example the United States, and is still hampering the recovery of European economy.
Liberalism is just old-fashioned concrete-capitalism. History has long proven that it is destructive, destabilizing and actively induces inequality. It creates periodic recurring crises, i.e. when an imbalance arises between inflated property prices resulting in a debt burden exceeding the real market value of those properties. This blow-up of property prices is due the easy access to fast and often large profits obtained from speculation in the capitalization of land values.
It means that the few who are able to maximize their work-free profits distance themselves from the weakest in society. It constantly increases inequality.
The freedom of the markets is not just about the balance between the production of goods and services on the one hand and the demand for them. It is also about the balance between the supply of jobs and the demand for them; the availability of a skilled labour force. But it is also about the freedom to achieve work-free profits, not least on the financial markets, across borders. These are the processes that create the immense riches of some and create poverty for the weakest.
Capitalism/Liberalism not only creates economic inequality due to a general “greed is good”-way of thinking. The same way of thinking is behind the extreme growth in resource consumption, which is behind all pollution, climate change, vandalism against natural resources, etc. Liberalism is a political-economic ideology that is devastating its own livelihood.
How do we create the inclusive society?
The first point:
All members of a society take part in the improvement of the conditions for economic activity, as this society develops, leading to a capitalization of land values, Land Value Rent. It is therefore logical that these values should be divided equally among all members of society.
It is equally logical that the values created by the work of each person should not be seized by others, including the state, by taxation.
The logical consequence is that the common costs of covering the services provided by the public are covered by the values we create together (the Land Value Rent), while the proceeds of the individual’s performance, is exempt from taxation.
The last part is Liberalist’s wet dream: that tax on work is removed. The liberalists simply forgot to think of something else as a substitute.
The principle is simple: A Land Value Taxation is implemented gradually, i.e. over 20 years, to replace any other form of taxation. When implemented fully this land value tax must have a magnitude that prevents workfree profits obtained by the de facto ownership of land – in other words the tax must redirect these capital gains into the public treasury. Income tax in any form is a tax on value creation, and therefore inhibits value creation. A tax on capital gains on land values averts workfree profits. These profits are but a tax on the productive economy by financial institutions and land owners; an tax on top of income tax.
A Land Value Tax must replace income taxation, and will therefore lower the tax burden. If the proceeds of the Land Value Tax exceeds public expenditure, this surplus must be shared among all members of the society as a general basic citizens income, an individual’s share of the proceeds of society.
It is inclusive because all citizens get their share of the values created by the efforts of society as a whole. It is inclusive because the salary of people is not taxed; the value of land on which your house stand IS taxed. The value of your house, your garden, your solar cell panels etc. is not taxed. If you start working 10 more hours a week, the extra salary is not taxed. Your tax burden will increase only when the value of your land parcel increase, due to the general development of society.
The same holds true for companies: The value of the land used by a company is taxed, but not the company buildings etc.. Its yield is not taxed, apart from what is paid in land value tax. If the yield increase, the tax does not. Expanding the business will not automatically “expand” the tax burden. It may be part of a general growth of the macroeconomy, which might lead to an increased land value, but this will not increase the tax burden, measured as a percentage of the yield.
It will become easier/cheaper to create new jobs. If society invests in social rehabilitation of the weakest and in education, this will potentially help a lot of people to climb the social ladder; to be included, to the benefit of us all.
It will only be the right to obtain workfree profits that will be taxed, hopefully to an extent that prevents workfree profits completely. Of course society will develop, and the conditions for economic activity will improve. This means that the potential for workfree profits will increase, and the taxation of land will also need to increase. But that is just a part of the general improvement of the macroeconomy.
The second point:
In the Great Depression in the 1920’s and 30’2 there was a shift from traditional capitalist thinking to more modern capitalism. The economist John Maynard Keynes entered the scene, with a completely different approach to economy than the traditional. His main thesis was that economic markets cannot function without political guidance. There must be the right balance between freedom and control:
- There must be government control to prevent monopolies from arising and prevent the market mechanisms from overheating, i.e. creating imbalances between different parts of the economy; an example could be when profits from capital gains exceed the real market values of the mortgages.
- There must be public services available to ensure the stability of the economy, in the form of a social service, a health service, education, physical infrastructure and many more.
- If, or rather when, an economy become recessive with high unemployment and social need, private corporation will be unable to kickstart the economy. The government must step in with increasing public investments in job creation, social rehabilitation and education.
Keynes’s analysis proved to be constructive. Public job creation kickstarted the economy and the increase in buying power led to an increase in the yield from private investments and production. Public control with the fiscal and financial policies prevented the growing economy from overheating again.
Without the analysis of Keynes and the implementation of his recommendations the Depression would not have been solved. Unfortunately his recommendations were quickly forgotten by politicians and business. Traditional capitalism in the form of neo-liberalism is back. Thanks to globalization greed is back as a central element in the economy. Macroeconomy is again dominated by speculative economy, and the quick and easy workfree profits are again creating havoc, in the form of international crises and overheating.
The EU is a prime example: The EU has implemented a harsh control of the economy, especially in the Eurozone. Normal macroeconomic tools like devaluation, public investments and adjustment of interest rates are strictly forbidden in the German-dominated Eurozone, resulting in member states having had a difficult time bouncing back after the crisis in 2008, much more difficult than the USA. Key numbers show some progress, but still there is a marked inequality, especially in the Southern- and Eastern European countries. The progress has not yet trickled down the social ladder.
In other words: the inclusive society can only be realized if “free movement” of market mechanism are severely limited; the free market does not create a near perfect balance between the different cogwheels of economy. This perfection is an illusion, perhaps rather a manipulation, covering a deliberate wish to maintain inequality, so that the rich can continue to skim the cream.
It is about limiting access to work free profits: the aforementioned land value tax to redirect capital gains out of the free financial markets, into public economy, is needed so that financial markets can be limited to deploying risk-taking capital.
This is inclusive because it dampens the mechanisms that create inequality. The top of the social ladder will no longer be able to exploit workfree profits to distance themselves from the bottom. The public should play a much more active and constructive role in helping the poorest to rejoin society, if not as part of the workforce then at least as consumers. This will be financed by revenue created by all of us, while revenue created by individual effort will be exempt from taxation. Perhaps – my assertion will be “probably” – there will be a surplus for a general basic citizens income, that will contribute to lowering inequality even more. This societal model is NOT the complete and final solution to all socio-economic problems. But it will constitute a foundation for a society that does not suffer from the automatic distortions created by a neoliberal society. It will also not suffer from those distortion that characterize the socialist society – socialism is in essence just a variety of the capitalist society: The state obtains the role as the strong monopolist holding all the riches, while all citizens are reduced to social welfare clients.