November 15, 2011 At the Brink of Recovery or Conflagration: The World at a Tipping Point © Enrique Woll Battistini 2011 The world the baby boomer generation’s grandparents knew as children has been obliterated by a century of recurring monstrous wars, concurrent with exponentially increasing revolutionary scientific and technological discoveries and inventions, and massive economic, social, political, and legal changes which for many signify development. These changes have occurred in a stark and pervasive moral and ethical vacuum, in the context of unconscionable, unsustainable, and monotonically increasing welfare disparities between the rich and the poor. The world as we know it now is at the historical fork between the threshold of recovery and the brink of a new conflagration, indeed at a very promising and very threatening tipping point, and begging for drastic global financial, economic, and social redress, which only the most comprehensive multilateral and national governance reforms that would redefine the social contracts in the East and the West, the North and the South, and between them, could satisfy. Some of the more evident issues in need of holistic attention are the following. The failure of post World War II governance paradigms It appears that the world has reached a point where the paradigms of national and supranational government in the fields of finance, industry and commerce, justice, and security, at both levels, established at the end of World War II through global institutions such as the United Nations, the World Bank and the International Monetary Fund, have on the one hand reached a certain level of philosophical irrelevance, and on the other, a level of practical incompetence, a la Peter Drucker. In this situation would also fall, under their own weight, sooner rather than later, the old British Commonwealth of Nations, the Organization of American States, the Commonwealth of Independent States created by the Russian Federation after the Soviet Union’s demise, with its recent Eurasian Economic Community, the North Atlantic Treaty Organization, currently without any counterweight, and even the European Union, preceded by its Euro Zone and nascent fiscal union, and the probably hundreds of dependent organizations, treaties, and multinational projects. This will be so, of course, if the pernicious global socio-economic disorder, a historical ball and chain legacy that is being dragged about in this new century, and millennium, to common loss, and which is now focused on by new global protest organizations such as Avaaz and Los Indignados, and Occupy Wall Street, in a climate of neglected global warming and pollution, is sufficient indication of the incompetence of these mammoth and very expensive governance organizations to solve the serious problems facing humanity at large. This global disorder, which at the end of last century and the millennium operated somewhat below the radar of the great majority, which still accepted with some hope each day as it came, suddenly became visible, to all, as of the abominable event of September 11, 2001, and the resulting advent of new, frightful, and costly wars in the Middle and Near East, always fratricidal, and increased terrorism, and is frontally contravening the ambitious objectives of the fight against poverty of the United Nations for this new Millennium. This world disorder has been widening at an accelerated pace since the Lehman Brothers bust in 2008, with the recent repeated threats of insolvency by the U.S. Government, because of the blind political and fiscal disagreements between Democrats and Republicans, with the 2011 Arab Spring of unpredictable consequences, which may well be worse than terrible, and with the near term threat of chained bankruptcies in European Union countries. No one is exempt from this without large, and in some cases enormous, sacrifices. There remains, then, only the Organization for Economic Cooperation and Development, whose high principles and achievements deserve generalized attention, as an ideological and practical resource, and forum, for the democratic reformulation of the purpose of the current supranational and national entities, and their reorganization, or for the design and development of better institutions to replace them. The much-quoted New World Order, candy bait that led the G8 to the wars against Afghanistan, and Iraq, by the nose, is now, clearly, the manifest of the New World Disorder. The definition of a nation in the wider global context Whether or not a Global Financial Authority that would, for instance, constitute a World Central Bank having as voting members the two hundred or so existing National Central Banks, or simply regulate them, is on the horizon, and it very well might, no nation can today afford to define itself, its citizens, and its objectives within the sphere of its current or even future domestic concerns and interests, and must do so in the wider global context, as is very obvious to all. This is especially true of the USA, the sole remaining superpower, the lone leader of the West, if not the world, especially in the context of domestic and foreign poverty, whose resolution is mutually dependent, and without which real and meaningful long term world peace based on justice, and not arms, will never be had. This happy ending, I fear, will not happen spontaneously as a result of economic and social growth, and will require Global Private-Public Partnerships for Development, with Multilateral participation. But Government plans for domestic action of any kind, moreover against domestic poverty, and Government plans in the multilateral context for hemispherically articulated action against poverty in the Americas, or worldwide, if ever really considered, are hindered and defeated by commonplace political realities in the USA, such as those which beleaguer President Obama. Given the paradoxical reality that warring is a known quantity, ever present in the American folklore, and a recurring phenomenon in practice, whereas large scale Private-Public Partnerships for Development, and peace, are simply not, I believe that movements such as the Ninety-Nine Percent Declaration should take into account the wider global economic and social protest context. This threatening groundswell, which must be addressed, is exemplified by the “Los Indignados” of Spain, begun on May 15, that has spread not only to the USA, in the form of Occupy Wall Street, begun on September 17, but to the UK, is being amplified by other movements, in the First World, in the context of the European crisis, and is widening its reach to very many other countries in it and in the Second, Third, and Fourth Worlds, echoing the current global revolution begun earlier this year in the Arab Spring. The XXI century tax reform This topic is of obvious world importance in this century of growing confrontations between the rich and the poor, in which general social peace will be attained only if we can fast establish a privately led Private Public global articulated system for sustainable development: That is, a system for comprehensive, fair, and environment friendly development. It is also fitting to note that the development and dissemination of an effective proposal for such a system would necessarily require and include a proposal for a complementary major global tax reform through which the public sector could perhaps make its greatest contributions to development in the XXI century. Taxes should not be an instrument of envy, of punishment, or of forced economic or social leveling of the peoples. Most persons, no doubt, would agree with this. But taxes should also not be used by the State as instruments of manipulation, nor of indirect management or prosecution of the national economic activities, because the health of the economy should result, primarily, from the activities of the private sector. Rather, the State can and should preserve the health of the economy, at the macro level, essentially through the Central Bank, and by means of the Treasury. These institutions must act with independence, and coherence, within the general and specific regulatory frameworks applicable to the activities of the public and private sectors. The former, by controlling inflation by means of variations in the discount rate, and performing purchase and sale operations of Treasury Bonds in the open market, and the latter, by complementing, exceptionally, the funding of the comprehensive State budget by responsibly incurring debt, issuing and retiring its Bonds as may be appropriate. Thus, taxes should not only be the source of State funding, in order that it may fulfill its constitutional ends, but must also be its source par excellence, almost exclusive. In addition, the constitutional ends of the State and its consequent activities must constantly aim at the direct search for tangible citizen welfare through the provision of services within its exclusive competence, in the areas of Environment Food and Health Security, Energy Education and Comprehensive Development Security, Social and Internal Security, and National Defense Security, drastically limiting the supplementation of State tax revenues through indebtedness, or complementary activities, or entrepreneurial ventures, particularly those in which it would compete with the private sector, something with which the great majorities would also agree. Moreover, when State interventions in private sector activities are socially necessary, accepted, and extant, they must not be conducted by the State as entrepreneur, as stated, save in rare exceptions, and must always be done directly, through the comprehensive State budget, targeting the pertinent strategic sectors and actors, without neglecting the most impoverished social strata, and without resorting to special tax regimes. Now therefore, having linked the tax issue with the constitutional ends of the State, in its natural context, which is the comprehensive State budget, the heart of the State fiscal system, and a fundamental instrument of governance, it should be noted that the State fiscal system in the XXI century must gather certain essential characteristics for the State to be able to comply in the most effective and efficient manner with its central objective, the direct search for tangible citizen welfare: 1. Conceptual simplicity 2. Administrative simplicity 3. Fiscal divorce 4. Absolute transparency The indicated conceptual and administrative simplicity requirements would demand the existence of a single tax, or unique tax, which would be a unique consumption tax, or UCT, applicable exclusively at the consumer product level without exception, and would have a flat fixed rate, say of less than 20%. That is, the UCT would be applicable to the goods and services produced wholly or partially in the country, for direct personal consumption, acquired by natural persons, or by legal entities, regardless of the purposes or uses intended or given, including as inputs, or for resale, or for export. This tax would be paid by the natural persons and legal entities at the time of purchase, in a similar manner to the current payment of the general sales tax, IGV, segregating its amount, in the invoice, from the total price of goods and services concerned, with the natural persons or legal entities selling, that would collect it, regardless of their nature or size, incurring the obligation of immediate payment to the Tax Authority, as allowed by the information and communication technologies in existence at the time. The conceptual and administrative simplicity required would also demand, as already stated, the absence of special tax regimes, that is, the absence of tax credits of any kind, or deductions, or exemptions, or reductions, or fragmentations, or waivers, or any distinction in the tax rules applicable to different legal entities or different natural persons, or between these categories. Thus, having only the UCT, there would be no taxes on income, or property, or inheritance, for example, and it would per force have to be collected and administered at the central level by the Tax Authority and the Treasury, respectively. The required fiscal divorce within the State would consist of and require the total and irreversible separation and independence of the category of revenues from the category of expenditures in the comprehensive State budget, that is, of UCT collections from the category of uses or applications of funds to public expense and to public investment, without exception, beyond the correspondence that they must keep to maintain a reasonable fiscal balance and the national debt from Treasury bond issues at a minimum level, and under control. Therefore, the comprehensive State budget must consider and include a National Prosperity Reserve Fund (NPRF) which would allow for the growth of public spending and investment in line with the historical growth of the national GDP in times of Economic Recession, and even of Economic Depression, that is, that would enable the State to perform compensatory counter-cyclical economic stimuli whenever convenient. Furthermore, in the absence of the referred traditional instruments of manipulation through taxes, in order for the State to be able to comply fully with its primary purpose, which would be the direct search for the tangible citizen welfare, as pointed out, there would per force be cases of socially necessary and accepted State interventions in private sector activities, that it would not perform as an entrepreneur, but rather would be made directly, targeting the pertinent strategic sectors and actors, without forgetting the most impoverished population strata, by means of nonrefundable contributions, or of loans, or of complementary capital stock, by the Treasury according to the referred comprehensive budget. These interventions by the State in the activities of the private sector, through the Treasury, would be subject to private and public oversight, to satisfy the requirement of absolute transparency, by publishing the details of each case in the corresponding Web page, as part of the fiscal accountability of the nation. This new instrument of economic stimulus, and of social justice, would eliminate the deceptions and errors to which the more complex elements of the current tax system are subject, by individuals and legal entities, as well as the armies of private sector lawyers constantly confronted with the armies of public sector lawyers that produce a zero-sum economic result. In addition, this instrument would simplify the State function, allowing its reorganization, reform, and consequent reduction and public savings, and would eliminate tens of thousands of lawsuits of all types related to tax issues and the consequent futile efforts of and at the Judiciary to make or undo justice, resulting in savings and increased productivity in the private sector. A fiscal system of this kind, under equal internal and external economic environments, in comparison with the current, traditional system, would not only facilitate but would encourage the establishment of a socially acceptable minimum standard of living for the most impoverished, by aiming to achieve, for the poorest population strata that would together generate 1% of the national GDP, a monotonically increasing average per capita GDP relative to the national per capita GDP, over time, that, in a context of national per capita GDP growth, would constitute an objective, and realistic, economic and social growth and inclusion index, according to the economic possibilities of the nation. Given time, this fiscal system would, at the micro level, achieve this goal and the wider national objective of economic and social inclusion, by allowing the financing of all manner of regular and emergency social support programs, including a program of supplementary liquid income, and their monitoring in a scheme of comprehensive zero-based State budgeting by results, with the necessary transparency to effectively combat corruption in the public and private sectors. Crucially, a fiscal system of this type would enable the citizen determination, in a democratic and direct manner, of the percentage share of the various categories of expense and investment in the comprehensive State budgets, at least for the aforementioned broad categories of Environment Food and Health Security, Energy Education and Comprehensive Development Security, Social and Internal Security, and National Defense Security. ***
Posted on: Thu, 23 Jan 2014 23:45:59 +0000
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