Viewpoint by Roberto Savio
The writer is publisher of Other News, an eminent proponent of “information that markets eliminate” and founder of IPS-Inter Press Service News Agency. This article is being reproduced courtesy of Other News with the writer’s permission. He can be contacted at utopia@robertosavio.info and his articles and comments can be read on Facebook @robertosavioutopia
ROME (IDN) – In the year that has just ended, the world’s 500 richest people increased their wealth by one trillion dollars, rising by 23 percent to top a comfortable five trillion dollars, outstripping even the US federal budget which stands at 3.7 trillion dollars.
What lies behind the figures for the world’s billionaires published in the Bloomberg Billionaires Index is the not widely known fact that the amount of money circulating stays the same …no new money has been printed to accommodate these 500 billionaires but, more importantly, this means that the rest of world’s population actually lost those trillion dollars!
According to Forbes, the magazine for the rich, there are over 2,000 billionaires in the world, and this number is going to increase and increase fast.
China overtakes the U.S.
Meanwhile, China has overtaken the United States and now has 594 billionaires compared with 535 – and every three days a new millionaire is born. There is even an exclusive club of Chinese billionaires, the China Entrepreneur Club, which admits members only by the unanimity of its current 64 members. Together they possess 300 billion dollars, 4.5 percent of the China’s gross domestic product (GDP). As a norm, Chinese wealth is a family affair, which means that in ten years they will leave a heritage of 1 trillion dollars and the amount of inherited wealth will rise to three trillion dollars in 20 years.
We know from a major study by French economist Thomas Piketty covering 65 countries during modern times that the bulk of wealth comes from inherited money. And this because, as we all know, money begets money.
Let us recall however that Ronald Reagan started his presidential campaign with the slogan: “Misery brings misery, wealth brings wealth”, with the implication that the rich should be taxed less than the poor.
It is worth noting that US President Donald Trump’s recently adopted tax law cuts taxes for companies, which will increase the US deficit by an estimated 1.7 trillion dollars over ten years, while nobody notes that the US deficit already stands at 18.96 trillion dollars or about 104 percent of the previous 12 months of the country’s GDP.
This tax reform will have a deep impact on Europe, by shifting many of the costs of the reform towards Europe through balance of payments and trade. The five most important finance ministers of Europe, including UK Chancellor of the Exchequer Philip Hammond, have written a letter of protest, obviously much to the glee of Trump, who perceives the United States as the only winner, with all others losers.
Returning to staggering amount of money in a few hands (eight individuals possess the same wealth as 2.3 billion people) throws up three questions: a) what is happening with the world’s debt; b) how are governments helping the rich avoid taxes; c) what is the relationship between injustice and democracy. None of the answers gives space for hope, and least of all trust in our political class.
The world’s debt
Let us start with the world’s debt. I do not remember having seen a single article in the news media on this issue as 2017 closed. Yet the International Monetary Fund (IMF) has warned that the gross debt of the non-financial sector has doubled in nominal terms since the end of the century to 152 trillion dollars. This is a record 225 percent of global GDP. In fact, the respected Institute for international Finance has estimated that by the end of 2017 global debt (private and public together) would have reached a staggering 226 trillion dollars, more than three times global annual economic output. This does not appear to interest anyone.
But let us consider the state of the US economy, with a proud president boasting about the growth index, now estimated at 2.6 percent. Well, this shows the inadequacy of GDP as a valid indicator. Growth is a macroeconomic index. If 80% goes to a few hands, and the crumbs to all the others, who pay most of taxes, it is not an example of growth, it is a time bomb waiting to explode.
What is more, nobody is thinking about the increase in deficit. Total private debt at the end of the first quarter of 2017 was 14.9 trillion dollars, with an increase of 900 million dollars in three months. While salaries increased from 9.2 billion dollars in 2014 to 10.3 billion dollars in the second quarter of 2017, the debt of families rose from 13.9 to 14.9 billion dollars, an increase of one billion dollars, in just four months.
Which growth are we talking about? In fact, we have 86 percent of the world’s population facing an increasing debt, but poorer at the same time because of the concentration of wealth in just one percent of the world population’s hands.
Tax havens
A favourite way of avoiding taxes is to place money in tax havens, where between 21 and 30 trillion dollars are ensconced. The Tax Justice Network reports that this system is “basically designed and operated” by a group of highly paid specialists from the world’s largest private banks (led by UBS, Credit Suisse, and Goldman Sachs), law offices, and accounting firms and tolerated by international organisations such as the Bank for International Settlements, IMF, World Bank, Organisation for Economic Cooperation and Development (OECD) and the Group of Twenty (G20).
The amount of money hidden away has significantly increased since 2005, sharpening the divide between the super-rich and the rest of the world. And this is why there was a lot of pressure to oblige banks to open their accounts to fiscal inspection, and pressure on the Bahamas, Hong Kong, Panama and other Third World countries.
Now take a look at another good example of the reigning hypocrisy: the last meeting of European Union finance ministers (ECOFIN) was unable to take a decision on something heinous: several member countries (Luxembourg, United Kingdom, Ireland, the Netherlands, Malta and Cyprus) host tax havens on their territories, and two US states, in particular Delaware, have tax havens that are impenetrable even to the CIA and FBI.
According to researchers, tax havens such as the Cayman Islands, Jersey and the Bahamas are far less permissive than states such as Nevada, Delaware, Montana, South Dakota, Wyoming and New York. “[Americans have] discovered that they really don’t need to go to Panama”, said James Henry of the Tax Justice Network.
ECOFIN ministers have decided they will continue to bang Third World countries until they have decided what to do at home. Apparently, the West proclaims principles of transparency and accountability, as long as it can impose these on others. However, since a lion’s share of the deposits in tax havens comes from the West, their closure would benefit the treasuries of the West. To take just the case of the United States: Reed College economist Kim Clausing estimates that inversions in tax havens and other income-shifting techniques reduced Treasury revenues by as much as 111 billion dollars in 2012.
While tax havens are not the sole cause of this shift, it is worth noting that the share of corporate profits reported in tax havens has increased tenfold since the 1980s.
According to a new US Congressional Budget Office projection, erosion of the corporate base will continue to cut corporate tax receipts over the next decade. It must be clear therefore that if governments let their revenues from the corporations and high earners shrink, they are not acting in the interest of the average citizen.
And now here comes the giant tax gift for companies from Trump.
Increasing beyond control
So, let us draw our conclusions. Nobody is paying attention to the world’s debt. It is increasing beyond control, but we are leaving the problem to the next generations, hoping that they will address it. We are mortgaging them with debt, with climate change and whatever else is possible, to avoid any sacrifices on our part now.
Our motto seems to be: Let us protect the rich and expect less from them and more from the others. This policy, hidden to citizens, and never legitimised by any formal act of law, is now becoming evident because of the giant increase in inequality, which has no precedence in history. According to Oxfam, the United Kingdom will have more social injustice in 2020 than at the times of Queen Victoria.
The world is moving faster towards financial investments and transactions, and not towards the production of goods and services, which do not fetch instant rewards. It is estimated that one trillion dollars can buy the world production of a day of goods and services. That same day, the financial transactions will have reached 40 trillion dollars. Which means that for every dollar generated by human hands, there are 40 dollars created by financial abstractions.
Capital not human beings
Globalisation is obviously rewarding capital, not human beings. Well, this is having an impact in politics, and not the best one. Everywhere, there is an increasing number of losers, especially in rich countries, also because of technological development and shifts in consumption.
A classic example is the coal mines that Trump wants to resurrect, to “make America great again”. But coal is inexorably being phased out because of climate concerns (even if not fast enough), and automation reduces the number of workers to be employed considerably.
By 2040 robots will be responsible for 42 percent of production of goods and services, up from the present 16%. Which means around 86 million of new unemployed, in the West alone, according to the International Labour Organization (ILO). Those left out from the benefits of globalisation look at the winners, whom they see well connected to the system.
How to de-globalize
This results in the globalisation of resentment and frustration, which in a few years has led to the rise of the right-wing political parties in all European countries, and triggered Brexit and Trump. Once upon a time, the left was the banner-bearer of the fight for social justice. Now it is the right-wing political parties!
Globalisation has finally lost its shine – but not its power. Now, the debate is about how to de-globalise, and what is worrying is that the debate is not about how to bring the process to the service of humankind, but how to deploy populism and nationalism, and xenophobia, to “let us make America great again” in the words of Trump, and to an increase in clashes and conflicts.
International organisations like the IMF and the World Bank – which have been claiming for two decades that the market is the only basis for progress, that once a totally free market is in place the ordinary man and woman would be the beneficiary – have switched into reverse gear.
Now they are all talking about the need for the state to again become the arbiter for regulations and social inclusion, because they have found out that social injustice is a brake not only for democracy, but also economic progress. But despite all the mea culpas, they are rather late in the day. The genie is out of the bottle, and the powers that be are not even trying to put it back. Utter hypocrisy, vested interests and lack of vision have regrettably replaced policy. [IDN-InDepthNews – 03 January 2018]
Photo: Roberto Savo, the author. Credit: Opera Mundi.
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