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  • Nov 11, 2011

A review of Robert Wade's (LSE) recent lecture on 'decent capitalism', an innovative approach leading up to a possible abolition of the G20. Points on the list include the concept of a 'universal basic income', global governance and abolishing tax-havens for the purpose of achieving 'economic emancipation'. Is this a utopian model or an actual alternative?  

It’s early afternoon at London School of Economics. It has been a long day and the university reading list is slowly choking me into a mid-term crisis, but a vague recollection of a lecture keeps me from squeezing myself onto the first train back home. I hurry back to the lecture theatre and slip quietly into a vacant seat. I’ve felt somewhat misplaced in LSE lately, as everything I learned evolves around a highly ‘economized’ world view. I have never really studied economics, and

yet newly purchased books are stacked up on my desk with the idealistic terms: ‘re-thinking’, ‘revising’ and ‘enlightening’ economics, giving me newfound strength to tackle the discipline, maybe with a hidden hope of finally understanding these mystical numbers and concepts that invisibly permeate our social reality.

As the engaged voice of professor Robert Wade quiets the murmuring and seat-shuffling of the audience, I snap out of my own reflections and confusion and look up at a glowing power point screen with the words ‘A Decent Capitalism Agenda,’- what protesters should be protesting for. We are at the moment facing the potential of yet another financial crisis.

Wade explains how protests and protesting are important for critical analysis of any issue, but lately these have not been as constructive as he has hoped. He argues that the left has not come up with a coherent response to the crisis that is looming in the shadows. With fragile international organizations and non-reliable information on the financial nightmare, the project ‘decent capitalism’ has to be created through national governments and inter-state collaboration. Wade further explains that since multilateralism is decreasing, we should be shifting toward multipolarity instead of greater integration. In the hope of instigating what seems to be a solutions-oriented process of ‘economic emancipation’, he—with colleagues—has created a list of components that will be integral to a relative success:

Curbing the influence of money on politics will be important. Plutocracy (…) should be eased up, which I believe requires illuminating visible and invisible power-relations within the global community. Wade notes how we should prevent political campaigns from escalating to extreme proportions in the media and give each initiative the same chance of representation.

Challenging the conservative ideology of capitalism will also be critical. Freedom is not only possible in a near laissez-fair regime. Self-interest does not only have generally benign social consequences and governance interference does not necessarily reduce economic welfare. By introducing a new notion of solidarity, capitalism can take a ‘softer’ form.

‘Green’ growth is another component. Rich nations and people must “dematerialize” consumption patterns in line with new notion of a “good life”. Through a higher percentage of intangible goods such as health, and a higher percentage of durable intangibles such as longer-lasting hardware, we will create a more sustainable society with less focus on what can be called the materialistic ‘arms-race’. Production should also be closer to consumption, where food is produced around cities instead of imported from each corner of the world, thus reducing energy usage. As the population rises to 9 billion by 2050, Wade explains that consumption everywhere rises, and the global economy presses against global ecological constraints. Will ecology-saving innovations occur in time to avoid a great disruption?

By 2013 all tax havens and loop holes should be restricted. These mechanisms facilitate tax evasion, regulatory avoidance and inequality. Although there have been positive developments, deals such as the UK/Swiss deal signed in October 2011 is full of loopholes and can be escaped as e.g. all trading and commercial operations are outside the scope of the deal.

We should also push towards regulating/breaking up/nationalizing systemic banks, as Paul Volcker forecasted this year: If national and international regulation does NOT righten regulation on big banks, including cutting their size, the world will experience “increasingly frequent complex and dangerous financial breakdowns”. Since the end of Bretton Woods, we have experienced four waves of multi-country crashes, and the EU and the USA will be next. In all cases, tight regulation have been difficult because the financial sector has captured relevant parts of US and UK states, in the ‘plutocracy’ noted above. What can be termed ‘crony capitalism’ is back, and this is why structural reforms must be a major part of the solutions of the International Monetary Fund (IMF). Wade further argues that post 2008 attempts at great re-regulation of the system has morphed into a ‘great escape’ for the affected countries and that the world economy’s to cut dependence of debt. This means preventing and not allowing the banks to grow to the point where they seem ‘too big to fail’. If the banks cannot be strictly regulated and broken up they should be nationalized.

Further down on Wade’s list is the concept of ‘Universal Basic Income’ (UBI) for all citizens. This is a main pillar of ‘decent capitalism’ and will ensure that everyone in a society has sufficient resources to participate fully whether they work for cash or not (e.g. un-paid child rearing, old-age caring). Everyone should be eligible for the UBI, which entails that individuals can align their lives their their own situation rather than for testing policies and further, that the state gets of out choosing “deserving” from “un-deserving” poor.

A tax economic return on capital/wealth. In order to allow the tax-base to become as wide as possible, the tax rates should be as low as possible. The biggest source of any form of inequality is wealth, not income. By introducing a comprehensive capital tax (CCT) on the value (economic return) of ALL capital stock (land, building, plants, equipment, ships), we would see taxes at flat rate, the consequence being putting tax planners out of business. The universal basic income combined a integrated single tax rate permits the lowest rates, improves equity and improves efficiency.

Predictable exchange rates coordination will be in line with real costs, proving more important for international trade and investment than international rules for trade policy. We have elaborate trade rules (WTO) but no exchange rate rules. Floating exchange rates are subject to huge “carry-trade”-capital surgery in and out, which means that financial markets are systematically misplacing foreign exchange. This needs to be coordinated better, as it is a fundamental weakness in the architecture of the world economy. In the case of Greece for instance, nominal exchange rates should have been devaluated so as to offset the increase in wage costs. In order to keep the real exchange rate(s) stable, governments should have adjusted the market exchange rate so as to offset inflation/interest rate wage differentials. In the future, the floating rate change can be managed by one state, regional groups or even global foras.

This lead Wade into the final point on regional or global governance. There is a clear governance deficit in today’s system, manifested through the conjunction of the facts that markets are global and that regulation remains at national level, making states the main locus of legitimate regulation. Apex economic and financial bodies such as the G7 (1970s) and the G20 (since 1999) represents improvement, but are considerably flawed in terms of representation. Wade explained how the G20 was put together in a trans-atlantic telephone call, constituting its very genesis in a non-democratic nature. The structure of the G20 with permanent membership excludes 89.7% of the 194 UN states and cannot provide a long-term solution. Wade is currently working on a blueprint with a Danish colleague which abolishes the G20 and replaces is with a ‘Global Economic Council’ with around 25 seats. Each seat represents a constituency of cities and all cities are represented. Representing someone else too, not just your own interest will make up a greater balance of priorities.

In a final pulling-together of strings, Wade presented a disruptive picture of the future. Between now and 2030 we will be crossing a wide set of blood-red lines on issues from population and climate change to scarce resources and income concentration. Traditional capitalism is a conservative ideology. With its celebration of free markets it provides a poor guide to the rapid changes and challenges faced by humanity. Through a de-plutocratization of global politics, social compacts between citizens and states should be reinvigorated and then ‘decent capitalism’ will not be an oxymoron.

Questions raised in the end included practical enquiries such as what Wade thought were fair wages, to what extent flexibility in the world council would be possible, if there would be a cap on maximum income, etc. The audience seemed to be impressed with Wade’s ideas although they were new to many and perhaps utopian to others.

Although this research might be ground-breaking at LSE, the above ideas have existed for several decades already. Scholar and activist Prabhat Sarkar developed ‘progressive utilization theory’ in 1959. This theory is based on universal values which recognizes the rights of all beings within a dynamic, incentive-based, multi-tiered economy. At its core are locally- and cooperatively-employee-owned enterprises. Similarly, Lloyd Dumas writes about ‘the peace-keeping economy’ which would be of great interest to students of conflict and conflict emergencies. Jaques Fresco argues for a ‘resource-based’ economy, incorporating sustainable cities and values, energy efficiency and a ‘purpose’ rather than ‘profit’ motivated economy. In a way, these approaches can be seen as much more progressive than ‘decent’ capitalism, but in the short-term perspective Wade’s suggestions are definitely more feasible to achieve.

As international communication increases, space-time realities decrease and information moves faster between opposite paradigms. Capitalism has always had its counter-parts, but the speed of the changes in the system are now limiting the differences between them. I am hoping that innovations in academic research can accelerate fast enough to adapt to this reality. At the moment the prospects are slim as endless discussions at conventions, competitions for book-deals and spending months arguing for and against various ideas in one-sided journals are still prioritized. The students however are reacting to these structures and asking – where are the solutions? We want action now. Give us a real problem to work with so we can transform it. Yes, it is important to learn from history, but the usual conclusion is that everything is context dependent and requires context-fashioned solutions. Teach us alternatives. Teach us practice.

Further Reading

 

Written by Caroline Hargreaves. Read more about Caroline here.
Photo: Creative Commons/Feral78

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