26 August 2014

Calling the bluff on "we must compete in the global marketplace"

The soul-numbing mantra "we must compete in the global marketplace" is much heard these days. Conservative politicians and business groups toss it out tirelessly as an argument to reduce taxes, and weaken labour and environmental laws. Unfortunately, their argument is valid. Trade agreements have so reduced the ability of national governments to tax and to provide legislative protection for workers and the environment, or indeed to act in way that might reduce corporate profits, they are now largely at the mercy of corporate whim.

Governments have seen their power slip away, turning democracies into plutocracies. Indeed, that and not trade often seems to be the primary goal of these agreements. One answer to this challenge is global agreements on worker rights and environmental policy. Another is global taxation.

Movement in this direction is showing signs of life. For instance, 11 members of the European Union have agreed to create a financial transactions tax (FTT), sometimes called a Robin Hood tax, to be levied on trades of shares and some derivatives. The FTT is popular among the European public because it generates new revenue from the under-taxed financial sector. It may also dampen speculation that contributes to financial crises. The tax is expected to have only marginal effect on economic growth. Other countries may join later although the U.K. is opposed to an FTT (as is the U.S.).

In his best-selling book Capital in the Twenty-First Century, French economist Thomas Piketty goes much further, arguing for a global wealth tax. He refers to the tax as “the only civilized solution” for avoiding capitalism’s "endless inegalitarian spiral.” It must be global, he argues, because it has become too "difficult for any single government to regulate or tax capital and the income it generates.”

Piketty admits the idea is utopian, but the idea is in itself useful. It can serve as an effective challenge to the conservative argument that government taxing power is limited by our need to compete in the global marketplace. We can counter by pointing out that that is a choice, not an act of nature as they seem to imply. We can liberate ourselves from corporate blackmail by matching global trade with global taxation. If they reject the idea, then they are choosing to undermine democracy. We can, in other words, call their bluff.

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