Unequal world: But is doesn't have to be this way Image: UNSPLASH, Ben White
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- Radical action could transform inequality in the next decade.
- Policies could include slashing fossil fuel subsidies and protecting the global commons.
- A more equal society would cut stress and mental illness.
It is 2030, and I still marvel at how it happened in mid-2020, when the new government came to power, having promised to address the three scourges of the economy – chronic and growing inequalities, chronic economic insecurity and an ecologically unsustainable form of capitalism. They promised to build a feasible efficient market economy as well. It all seemed too good to be true.
To move in that direction, they phased in the most transformative fiscal policy ever envisaged. First of all, they slashed the huge subsidies that had been paid out in favour of the rentiers and fossil fuel users, and they began a strategy of shifting, in relative and absolute terms, from taxes on labour, production and basic consumer goods to a system of levies on all interests that had been gaining from the commons.
They argued that the land, air, water, landscape, natural resources, the social amenities that society inherits, the data we produce and our cultural institutions all belong to everybody and belong in nature to nobody. They are not state property and they are not private property. All this was quite hard for people to understand at the time. The perspective worried businessmen, since it suggested it was code for taking away private property.
The government began with a conventional move, putting a 1% levy on all wealth, recognizing the enormous increase in wealth relative to GDP and the much greater wealth inequality than income inequality. It was also justified on ethical grounds, in that wealth partly reflects society’s investments over generations. The government also converted inheritance tax into a Wealth Transfer Levy, which was fairer and cut tax avoidance. It also introduced a Land Value Levy, for similar reasons, with reference to past advocates, including Milton Friedman and Henry George.
It put the revenue from these levies into a new Commons Fund, modelled on the Norwegian Pension Fund that had become the world’s biggest national capital fund. The government made the fund democratic and independent, governed by a stakeholder system, and decreed that it could make investments solely in ecologically sustainable activity. But what made the fund transformative was that it was required to recycle the returns on the fund’s investments in the form of equal Common Dividends for all resident citizens, a sort of basic income. That gained popular support for the fund and the levies.
Other levies introduced were more explicitly ecological in character. The most easily justifiable one was the Carbon Emissions Levy, made politically easier by the fact that thousands of economists, many in the United States, had advocated it. What had impeded it was powerful lobbying and the realization that by itself it would be regressive, which is why it was opposed by the Gilets jaunes in France in 2018-2019. The government overcame that by assuring everybody that the revenue would be recycled as part of the Common Dividends, making the levy progressive.
That levy also helped reduce the three scourges – inequality, economic insecurity and ecological decay – in that the Common Dividends started to look likely to be sufficiently large to give more people basic economic security while the levy was forcing fossil fuel users to take more seriously the need to cut back their usage.
The government also introduced a Minerals and Mining Levy, to recognize the public commons nature of those resources, something the Alaska Permanent Fund and the Norwegian Pension Fund had done. And recognizing the rising problem of water shortages, a Water Use Levy was introduced, levied on heavy water users. There were also levies on the commercial use of the urban commons, including a Planning Permission Levy, an Empty Property (Speculation) Levy and a POPS Levy, the latter reflecting the spread of “privately-owned public spaces” in our cities and towns.
A Frequent Flyer Levy was introduced, justified by the realization that excessive flying was a major cause of toxic air. This had redistributive effects, since the wealthy used airlines disproportionately while those living in low-income communities suffered most from the toxic air, with rising morbidity and lower life expectancy as results. Researchers had shown that about one-third of all deaths from strokes, lung cancer and respiratory disease were linked to toxic air, and the victims were mainly the poor.
The Frequent Flyer Levy was complemented by a Luxury Cruise Liner Levy, justified by the fact that those giant vessels used the most toxic diesel and kept their engines going while in port, which caused a substantial rise in throat cancer in surrounding communities. The revenue went into the Commons Fund, while the cruise liner owners started to refine their business model, so cutting their negative impact on the air and sea.
Then there was the Skyline Billboard Levy, justified on the grounds that unsightly billboards were an incursion into the landscape commons. Much bigger sources of revenue were the Intellectual Property Levy, the Digital Data Levy and the Apps Levy.
This system of levies marked a radical shift in favour of a free market economy because they focused on rentier incomes and illegitimate incursions into the commons. But the genius lay in what was done with the revenue. In effect, the primary revenue for the Commons Fund came from levies on three types of commons – exhaustible natural resources, replenishable commons and non-exhaustible commons.
The first covers resources such as oil, natural gas and minerals under either the ground or the seabed. These are, in effect, capital assets, and the treatment of revenue from their production and depletion should respect the Hartwick Rule of Intergenerational Equity, formulated by the American economist John Hartwick back in 1977. This states that future generations should benefit as much from the commons as current generations, so that the latter cannot just take it all. The value of a capital asset should be preserved as far as possible. So, as the World Bank recognized, only the “resource rents” should be recycled to today’s commoners, while the capital value should be preserved in the fund.
Based on the experience of Norway’s Fund, the net return on the investment of the revenue from the relevant levies was more than 4% per annum, after management expenses. That became a base of the income needed for the Common Dividends.
Fortunately for much of the population, most of the revenue for the Commons Fund came from non-exhaustible and replenishable sources, for which the Hartwick Rule did not need to apply. In the end, it turned out that about three-quarters of the value of the Fund could be distributed in equal Common Dividends. This allowed the fund to keep on growing from year to year even though the anti-pollution levies were having the desired effect of inducing the polluters to reduce their negative effects and consequently saving themselves some payments on levies.
Over the past decade, the Common Dividends have built up to being equal to about 50% of per capita income in the country. The government is committed to maintaining that, and is now devoting more of the revenue from the still growing Commons Fund to reviving the commons – parks and waterways in particular.
An unappreciated gain from the fiscal strategy, the Commons Fund and the Dividends has been a new enlightenment era in which increasingly numbers of people have been inclined to do more work and less labour. This has freed up greater time for care work for families and neighbours as well as more community work. Historically, this wasn’t compensated and was therefore carried out in a less optimal manner.
I can still recall that in several countries before 2020, national statistical offices had calculated that the economic value of unpaid care work was greater than the equivalent value of all paid labour in manufacturing, construction and non-financial services. Because people could not afford to do it, there were big “care deficits”. Now, due to the Common Dividends, more people can afford to do such “unpaid” work.
The dividends have also encouraged more people to refuse to do unpleasant jobs or to demand higher wages for doing them. Although some employers grumbled, welcome changes happened. Wages rose for those unpleasant jobs until enough people were prepared to do them, more of those jobs became automated and others were found to be unnecessary. Surely, that is what we are as a society should have wanted.
There is one unanticipated effect. Crime rates have fallen sharply since 2020. Economic security helped, but research had shown that rising air pollution was a significant cause of rising violent crime. So, the levy system, by improving air quality and with it mental and physical health, not only resulted in lower public and private spending on healthcare, but also reduced violent crime.
Best of all, we have recovered our balance with nature. Most of us devote time and energy to reviving the commons and to rebuilding our connection with nature.”
What we have today is a society in which people are are less stressed, less frenzied and less likely to support populist demagogues (from the left or right) playing on their fears and insecurity. Businesses that make goods or provide services that people want are thriving in a more free market economy, and the “rentier capitalism” that had poisoned globalization has been overcome. What John Maynard Keynes had wanted and wrongly predicted for the 20th century – “the euthanasia of the rentier” – has largely happened.
Some of the social effects we take for granted these days, notably the reduction in stress and mental illness, the existence of more quality time for maintaining our relationships, the re-integration of our elderly into the lives of younger generations and the willingness of many of us to use time to care for others.
There has, however, been an important change that was desperately needed back in 2020. Many of us now devote more time and energy to learn about and participate in political activities, such as the activity of scholé that the Ancient Greeks had regarded as the duty of the true citizen. In 2020, too many people felt they did not have time to think about real politics, let alone become engaged with it. This allowed some politicians to play on people’s ignorance and prejudices, a situation that we see far less now.
Best of all, we have recovered our balance with nature. Most of us devote time and energy to reviving the commons and to rebuilding our connection with nature. One inspiring figure from the past would have appreciated our recovery, Alexander von Humboldt. We have slowed down and we have renewed our connectivity with nature, reviving the human and other natural species. Nothing is perfect, but it is a lot better than how things looked when some populist politicians were leading policy astray. It was a close run thing.
Oh, I forgot to say what country we are in. It is yours.
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The views expressed in this article are those of the author alone and not the World Economic Forum.
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