I had a discussion yesterday afternoon with a friend on where we saw capitalism going. The answer was neither of us saw it going very far at all. maybe we're getting older, and maybe we're just wrong, but we could not see what it was that capitalism could currently invest in that would create better outcomes for humankind than we could imagine might be available from public use of the same funds. The fact that multinational corporations are now sitting on so much case (running to trillions of collars) that they seemingly have no idea what to do with simply confirmed, in our view, that they shared our belief but were not yet ready to admit it.
That conversation framed the way in which I read Martin Wolf's article in the FT this morning entitled 'Enslave the robots and free the poor' in which he argues that the future prospect for capitalism is increased use of robotics, the elimination of much unskilled and middle management labour and a consequent potential polarisation of incomes, with the risk of massive increases for a few and hardship for many.
Now, Martin Wolf is older than me. He may suffer the same lack of vision that I do. Or, like both me and my companion from yesterday afternoon, he may have read Keynes and his belief that a time would come when rising income would liberate us all to work less. That has not happened yet. But Martin Wolf rightly asks what the purpose of this new wave of wealth that robotics could supposedly supply might be if it is not to achieve that goal?
Of course, enforced unemployment would be one form of such 'liberty from work', but on the basis of current trajectories it would be an increasingly miserable existence. This is not Wolf has in mind. He believes, and I share his view, that growth of the sort that technology might now create (but isn't at present) is only worthwhile dependent solely upon our ability to redistribute the gains it realises or it is a gain not worth having.
At this juncture Martin Wolf becomes a little more vague as to the necessary mechanisms. He espouses a universal income, as I do. And he also proposes land value taxation, which undoubtedly would be of benefit. But most of all he says, by implication, that in the future we must tax rents, and of all these rents he suggests that intellectual property rights might be the one that will require most attention.
This is fascinating, because this is at the forefront of the current battle on international taxation. Google shifts the 'rent' it can earn from its (state funded) technology from the states where it should be taxed through Ireland into Bermuda. We all know other technology, pharmaceutical and similar rent earning companies (and most multinational corporations are now of this sort, for varying reasons) do similar things. And they are fighting very hard to defend their right to do so at the OECD, which has already backed off from making changes to tackle tax abuse in the digital economy.
But this is, if Martin Wolf is right, no minor issue of technical tax. It is as I and colleagues in the Tax Justice Network and elsewhere have long argued, about the future of society, the sustainability of our way of life and the future of capitalism itself. If capitalism can adapt (and it has before) it may defy Marx, again. If it can't whether Marx was right or wrong will in one sense be pretty inconsequential; the consequences will be too torrid to afford much time for reflection on the issue.
In that case though taxing rents - and most especially those rents that big business captures for itself and the elite that run them (as Barclays more than adequately prove to be the case this week) - is the battlefront on which the survival of society will be fought. And that brings the issue of tax havens, used to harbour those rents, into even closer focus than before.
If you thought the battle for tax justice was over, think again. It's hardly begun.
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Nice article Richard. I blogged on this topic a few months ago here: http://henrygeorgedevon.wordpress.com/2013/09/13/earth-sharing-and-the-destruction-of-the-middle-class/ . Are you aware of the recent work done by Prosper Australia which estimated the total value resource rents that could be tapped for the public purse? It found that about 52% of rent revenues in Oz concern land rent – more than half which indicates Martin Wolf grossly underestimates this source. Do you agree with this assessment? The report in question can be found here: http://www.prosper.org.au/2013/12/03/total-resource-rents-of-australia-2/
I’ll take a look
There is huge abuse of IP rights going on – often by the same companies who are abusing the tax system. They see these as equally good methods to “create wealth” rather than making stuff or providing services.
I share the view that, due to productivity and technological advances, we should have a shorter working week if crippling debt and the greed for ever greater profit didn’t prevent everyone in sharing these gains.
Cutting the working week to 20 hours and granting a citizens dividend for all regardless of income would allow people to live freer, more fulfilling and certainly healthier lives.
Exactly Stevo!!
What you are describing is The Jetsons Economy where we enjoy a high standard of living while working 9 hours a week with the robots doing all the difficult stuff. Back in the 1950s this seemed like the logical future in 2050, but we’re halfway there and its not panning out as expected. A citizens dividend would be a big part of getting things back on track but the only right way to fund it is out of resource rents, as these are commonly created values. Land is the biggest such source of rent in the UK. In my comment above I noted the 52% calculation in Australia. But land in the K is probably at least 75% of the total as it is in higher demand here and mineral wealth is a much less than in Australia. this is a topic that could do with a lot more research.
Richard,
You’ve read and heard the following before a number of times, but I keep trying. I hope sooner or later, you will ‘engage with what i am trying to say. I hpe that happens before you decide to edit me out!
We are all familiar with the seemingly inexorable increase in economic inequality. Keynes’s ‘wealth of nations’ increases, but the increases are ‘enclosed’ by an increasingly-wealthy elite. The wealthy elite have a lower marginal propensity to consume than those less fortunate. They have run out of ways in which to consume their wealth, and simply get richer. The ‘trickle-down’ effect simply fails to materialise. The less fortunate are excluded and marginalised.
Taxation is (or ought to be) the primary mechanism for equitable (re-)distribution of ‘the wealth and income of nations’. Democracy is (or ought to be) the primary mechanism for promoting measures to (re-)form taxation in order to deliver that equitable (re-)distribution. Unfortunately, the secrecy, obfuscation and (spurious) complexity built in to the current accounting and taxation processes pre-empts democratic ‘engagement’. The rich and powerful (and their agents in the accounting and taxation professions) have ‘enclosed’ the debates by default and by FUD (Fear, Uncertainty and Doubt).
I argue that, irrespective of the administrative alignment of current tax processes, all taxes are already levied in economic terms out of a comprehensive definition of Gross Enterprise Profit; the profit gap between the consume value of the utility created/added/enclosed by enterprises (for which read gross prices), and the disutility of the labour input to enterprises (for which read net wages). However, taxes are levied out of that Gross Enterprise Profit in one of two different ways:
1. In the UK at the turn of the millennium, Payroll-Uplift Taxes (on Gross Enterprise Profit) included Income Tax on employee earned income, employee National Insurance Contributions, employer National Insurance Contributions, and Value-Added Tax on the value added through payroll costs. Payroll-Uplift Taxes are levied in proportion to payroll costs, irrespective of the profitability of those payroll costs. Indeed, for an enterprise to break even, that enterprise must be able to charge almost £2 as the gross price for the value added by each £1 of net wages. Thus, Payroll-Uplift Taxes pre empt propositions which cannot create/add/enclose almost £2 of utility for every £1 of net wages, and impose a (relatively) penal rate of tax, and risk of tax-induced loss, on high-employment enterprise.
2. In the UK at the turn of the millennium, Non-Payroll Taxes (on Gross Enterprise Profit Net of Payroll-Uplift Taxes) included Corporation Tax, and Value-Added Tax on the value added through Gross Enterprise Profit Net of Payroll-Uplift Taxes. For the purposes of this paper, the concept of Non-Payroll Taxes also extends to include Capital Gains Tax, Capital Transfer Tax, Inheritance Tax, Income Tax on un-earned income, and Income Tax on super-normal earned income. Non-Payroll Taxes do not distort economic activity. Profitable enterprise remains profitable.
Unfortunately, without global cooperation, productive nations have to compete with tax havens for the divertable tax base (i.e. Gross Enterprise Profit net of Payroll-Uplift Tax), in a downward beggar-thy-neighbour spiral to the point where Gross Enterprise Profit net of Payroll-Uplift Tax becomes virtually untaxable. In order to maintain tax revenue to fund social (re )distribution and communal spending, socially enlightened nations find themselves in a further downward spiral as they have to increase the punitive burden of Payroll-Uplift Taxes on the utility added by a working population shrinking as a proportion of the total population. Thus, contrary to all natural justice and economic efficiency, the effective rate of Payroll-Uplift Tax is almost invariably far higher than the effective rate of Non-Payroll Tax.
However, regardless of global cooperation, each tax regime could implement a revenue-neutral and distributionally-neutral ‘inversion’ of all taxes into the enterprises which create/add/enclose the gross profit from which those taxes are levied. Then, with global cooperation amongst the powerful nations on an increasing minimum effective rate of Non-Payroll Tax, and on measures to exclude tax avoidance and tax havens, each tax regime could implement a revenue-neutral ‘rotation’ of the tax base within each enterprise from Payroll-Uplift Tax to Non-Payroll Tax; to bear more directly and more fairly on the gross profit from which both such taxes are levied.
I go on to argue that the campaign for reform must develop and maintain a strategic focus on the need to build a global critical-mass agreement to the following:
1. A rising global minimum effective rate of Non-Payroll Tax. By default, implementation in each tax regime should be combined with decreases in the effective rate of Payroll-Uplift Taxes; to be zero-sum in revenue and distributional terms. Eventually, the rising global minimum effective rate of Non-Payroll Tax should rise above the falling rate of Payroll-Uplift Taxes in all tax regimes. Indeed, in many tax regimes (particularly third world regimes), Payroll-Uplift Taxes could be set to zero.
2. Practical measures to allow complying regimes to exclude diversion of tax bases through non-complying regimes:
a. All cashflows (no questions asked) from a bank in a complying regime to a non-complying regime should be taxed as ‘profit’ by the sending bank (at the rising global minimum rate of Non-Payroll Tax).
b. All cashflows (no questions asked) from a non-complying regime to a bank in a complying regime should be taxed as ‘profit’ by the receiving bank (at the rising global minimum rate of Non-Payroll Tax).
Thus, cashflows diverted through non-complying regimes would in fact be double-taxed (at the rising global minimum rate of Non-Payroll Tax) in complying regimes, without challenging the ‘sovereignty’ of the non-complying regimes. If there was no potential to reduce taxes by diverting cashflows through non-complying regimes (and indeed, if there was a certain and substantial increase in taxes in such diversion), the incentive for such diversion would be stopped ‘at source’.