Monthly Archives: March 2021

solutions to current political dogma 2 – Iceland

Katrin Jacobsdottir, of the Left-Green Movement, Prime Minister of Iceland since December 2017

So there are problems with modern democracy, especially for those governmental systems that have congealed into a two-party race to be top dog for the next election cycle, with each new winning party tending to dismantle the policies of the previous government. There are also major problems of money in politics, especially in those nations, like the US, in which the rich-poor divide is problematic and worsening.

Of course these problems pale into insignificance as we witness the attempt to snuff out democracy altogether in Miyanmar. The democratic world watches this as if helpless, as if the matter shouldn’t be dealt with urgently and internationally. The only country that seems to want to do anything about the situation is China – to lend a hand with the butchery, in order to protect its business interests there. We need to strengthen international forces against those who ride roughshod over human rights in such a flagrant, corrupt and arrogant way.

After that venting of spleen I’ll return to the comfort of our lucky country and those like it. The fact is that these modern democracies and capitalist nations have a dynamism that traditional governing systems, laws and work practices are unable to keep up with, and the increasing concentration of wealth and power in the hands of financial elites is leaving behind a demoralised sector of society, formerly known as the working class. Traditional jobs are gone or transformed, leaving many feeling outcast, bewildered and defeated. But of course many of the young, or young-at-heart, in this sector have ideas and energy to spare, and are seeking a like-minded community.

The examples of participatory democracy and community action that follow have been introduced to me by Jess Scully in her book Glimpses of utopia: real ideas for a fairer world, and I will do my own research to follow up areas of interest and new developments.

  1. Iceland

As a person not well-versed in global finance, I always wondered how a failure of regulation in the US banking system led to a global financial crisis, where national governments felt obliged to bail out banks outside of the USA. The Reserve Bank of Australia (RBA) has an explainer on this, citing ‘linkages in the global financial system’, which I kind of guessed. But does the financial system have to be linked up in this way, and what if a particular government refused to bail out their nation’s banks?

The RBA mentions Iceland as one of many countries in which excessive lending, encouraged and facilitated by banks, was happening in the pre-GFC boom years. All of this was a result of lack of foresight (booms are always followed by busts), greed (the loans were sold on to investors as ‘mortgage-backed securities’ (MBS) which became increasingly opaque and complex) and corruption (due to lack of regulation, fraud in the form of overstating borrowers’ income and lying about the safety and value of MBS products). The international linkages included the facts that the housing boom was more or less worldwide, that US banks had an international presence, and that foreign banks were large-scale investors in MBS and other higher-return products.

So it’s likely that the major problem here was and is lack of regulation and independent oversight. I might go into the Australian situation in another post, but the situation of Iceland is unusual because the GFC led to a massive re-evaluation of its political and economic structure.

Iceland’s banks were deregulated in the early 2000s, and in the following years, its banking system went more than a bit crazy, creating paper billionnaires almost overnight. Clearly the dodgy deals were more flagrant than elsewhere, and when the crash came, many bank CEOs and some government officials were tried and jailed. But there was no bail-out. As Gudrun Johnsen, a member of the special commission set up to learn from the collapse, put it, ‘The banks were 10 times the GDP of Iceland; 20 times the state budget. They were too big to bail out’.

What did occur was a change of government, a rewriting of the Icelandic constitution, and an unprecedented period of financial and political reform, set off by the Pots and Pans Revolution. Much of this involved participatory democracy, including online crowdsourcing (in the case of creating a new constitution), the building of an online platform, Better Reykjavik, later rebranded as Better Neighbourhoods, and the encouraging of ideas and systems transcending political duopolies. All of this was quite unusual in Iceland, a nation not given to revolutionary activity, and it has only been partially successful. In 2013 a more conservative government was returned, but the political landscape has been altered, and political sensitivities have heightened. These comments from two analysts after the 2013 elections give a sense of the new situation:

While the grassroots movement that overthrew the government after the crash remains disillusioned and disappointed, its impact should not be under-estimated. One important development in its wake, and an important emerging theme for further research, is a series of experiments with direct democracy and social media. Soon after the crash, a crowd-sourcing company drew upon social media to prepare for a National Meeting (Þjóðfundur) of 1,000 participants for outlining a new constitution. While the end result of this work remains unclear, and much depends on the formal, indirect democracy of the Parliament, it seems safe to say that the public has been sensitized to new avenues for democracy and alerted to potential signs of corruption.

It may not seem like much, but the protests and what followed from them were something of a revelation for Icelanders – apparently the biggest show of public dissatisfaction with its leaders in a thousand years, together with positive, participatory action to improve the political and social situation there, using new technologies and social media. As we all know, social media is very much a double-edged sword, but it is here to stay (until something else comes up), and we can’t really afford to ignore it.

Next I will look at how Taiwan is dealing with its new democratic freedoms.

References

https://asia.nikkei.com/Spotlight/Myanmar-Coup/Myanmar-coup-Week-from-Feb.-20-to-March-18-UN-team-urges-whistleblowers-to-report-illegal-orders

https://asia.nikkei.com/Spotlight/Myanmar-Coup/Myanmar-crisis-drags-China-into-chaos-after-factories-torched

https://www.rba.gov.au/education/resources/explainers/the-global-financial-crisis.html

https://www.bbc.com/news/business-35485876

https://en.wikipedia.org/wiki/2009_Icelandic_financial_crisis_protests

Jess Scully, Glimpses of utopia: real ideas for a fairer world.

solutions to current political dogma 1: the problem

the tedium of it all

Back in 2012, Joe Hockey, later to become Australia’s Treasurer, delivered a controversial speech to the conservative think tank, the Institute for Economic Affairs, in London. The speech, titled ‘the End of the Age of Entitlement’, was delivered as the world was still suffering from the after-effects of the global financial crisis caused by the bail-out of rogue, aka deregulated, financial enterprises such as Lehman Brothers, Citibank and Bear Sterns, whose sub-prime mortgage lending practices had become exposed. The bail-out cost the US government hundreds of billions of dollars and affected financial markets worldwide.

The GFC led the Rudd Labor government in Australia to institute a Keynesian stimulus package which averted a recession, and was praised by Nobel Prize-winning economist Joseph Stiglitz as one of the best-designed of any country (and was attacked relentlessly by the conservative opposition). Other countries chose to, or felt obliged to, follow a similar path, and so many government surpluses became deficits, and those in deficit saw those deficits balloon disturbingly.

Hockey’s speech mentioned the GFC in passing, without commenting on the dodgy banking practices, for which none of the major players were ever held to account. One would think that the term ‘entitlement’ might be applied to these wealthy rogue operators, but Hockey’s target was in fact the welfare system, though the term ‘welfare’ was nowhere mentioned in his speech. It was substituted everywhere by the term ‘entitlements’, a term we would usually associate, naturally enough, with the titled.

Hockey’s argument was that developed economies could no longer afford the generous welfare payments provided by governmental taxes, and that this was proven by increasing deficits in spite of what he would have described as punitive taxation systems in some countries. Unfortunately, Hockey’s speech was short on solutions, at a time of increasing automation and the closing of factories, the casualisation of the workforce and the gig economy, beyond referring to Hong Kong and its apparently supportive and self-sacrificing extended families, as if the developed nations are ever likely to revert to that spread-the-poverty-around model, if it ever really existed (I would recommend reading Rebecca Skloot’s excellent documentary work The immortal life of Henrietta Lacks as an account of the benefits and limitations of extended families in the context of African-American poverty and disadvantage). And of course, Hockey advocates good old hard work which, as well as being its own reward, will inevitably result in a climb up the greasy pole to monetary success. This would have been news to the slaves of the Greeks, Romans and Conquistadors of earlier times, the coal miners and chimney sweeps of Britain and the asbestos factory workers of Australia. Arbeit macht frei indeed.

I could go on about the problems inherent in Hockey’s speech, but I noticed that, in referring to the inevitable right-left swings that democratic elections have devolved into (though these political swings formed the backbone of Livy’s History of Rome, written nearly 2000 years ago), Hockey prefers the terms ‘socialist’ and ‘conservative’, thus, it seems, deliberately emphasising and revelling in the divide. As a person intent on finding solutions, I find this sowing of division unhelpful. The aim here is to recognise problems – of poverty, of energy, of well-being, of health, of the environment we inhabit, and so forth. And I’m not sure if endlessly ‘working’ is the solution, at least in the narrow sense of ‘work’ that Hockey was using.

In fact, considering all these problems we need to solve – and more problems will inevitably arise (life would be pretty boring without problems to solve) – work is not simply a solution, it’s another problem. What constitutes work? Cultivating your garden? Looking after your children? Beautifying your neighbourhood? Attending conferences? Encouraging your students? Having sex with your partner?

All these activities provide value to human social life – and we are the most socially constructed mammals on the planet – in a way that can’t be easily monetised. And it would be silly to do so.

Anyway, all of this is preliminary to looking at solutions to a human world in which so much work is providing entertainment and diversion to our fellow human beings – for what are dining out, attending arts festivals and soccer matches, watching netflix, shopping, searching for extra-terrestrial life, decorating the house, and so forth, but forms of adult play? To which whole industries and technologies are devoted. And I’m not denigrating play – far from it – it marks the difference between life and mere existence. Just ask our dog.

Finally, as a person brought up in a working-class environment (the town of Elizabeth in South Australia, created as a hub around the General Motors Holden factory and ancillary businesses in the late fifties), I experienced life there during the economic downturn of the mid-seventies, when unemployment became a major problem, leading to a palpable sense of demoralisation. Kids like myself, living in the chasm between school and work (of which there was precious little) hung out at shopping centres, smoking and selling dope and trying to act tough. Most of our parents were separated or about to be. The number of dilapidated and derelict homes multiplied almost before our eyes. I got and lost three or four factory jobs, making washing machines, mobile homes and iron tubing. I remember weeping quietly on the six o’clock bus on my way to one of these workplaces. How could I, with a mind the size of a planet, be reduced to this?

At other times, I got dole money, which I recall jumped from $7.50 to $21.50 per week when Whitlam’s labor government came in. Maybe I could use this windfall of filthy lucre to educate myself out of the bind I found myself in? The main point I’m making here is that, as part of a migrant family separated from the extended family 12,000 miles away, with no role models in business, academia or any of the more lucrative professions, and being generally introverted but profoundly anti-authoritarian, I hated ‘working for the man’ but felt I had boundless energy and capacity that I had little idea what to do with. What I lacked was a community of like-minded types. A community of two or three would do.

And that brings me to some of the ideas and practices described in Jess Scully’s Glimpses of utopia. More of that next time.

Reference

Brian Donaghy, Cents and Sensibility, 2014 (see appendix for Joe Hockey’s speech notes)

universal basic income 2: how to finance it





Imagine this highly unlikely scenario. The current conservative Australian government loses the 2022 federal election in a landslide, due to widespread financial corruption, inaction on addressing global warming – brought into relief by another devastating summer in 2020-21- and the rise of a young, charismatic leader of the leftist Labor opposition, who has managed to sell voters on an Aussie version of the Green New Deal, as well an ambitious Basic Income policy.

It’s okay to dream, but we have to get real. How do we make such a policy work?

I will rely on the ideas and calculations of finance journalist and author of A basic income for Australia, Brian Donaghy, for the following. First, based on the Australian Council of Social Services (ACOSS) campaign of March 2020 which advocated a rise in what’s now called Jobseeker to $755.70 per fortnight (of course, the Covid19 pandemic has caused the current government to raise the previous payment, with obvious reluctance, to a figure which is still well below the ACOSS recommendation), together with an increased rent assistance payment of $158 per fortnight, the Basic Income payment should be set at $913.70 per fortnight, for every adult. Children would be given a percentage, depending on age. The total cost of such a package would be about $526 billion per annum. Alternatively, the payment could be set at the aged pension rate, plus supplements – $944 fortnightly – totalling about $544 billion per annum. The OECD takes the poverty line to be about $1000 per fortnight, and Australia’s minimum wage for the 2019-20 year was around $1481 per fortnight.

So, how do we find, let’s say, $544 billion dollars a year to finance this scheme? According to Donaghy’s costings, savings on welfare payments and administration would bring the figure down to about $415 billion. Next, Donaghy looks at ‘individual tax offsets and deductions’, which he claims the government should scrap. I can’t pretend to understand this, but scrapping these perks would, he claims, bring the basic income cost down to $377 billion.

All of this should simplify the tax system, making tax evasion and avoidance more difficult, and increasing revenue to the ATO, though putting a dollar amount on this might be difficult. However, tax avoidance task-forces have been in operation for some years and have collected billions of dollars. Their job would be made easier by a a more simplified system.

Another factor which would increase tax revenue by a hard-to-calculate amount would be the increased spending power created by the basic income. Remember, its universality would provide lower and middle income earners with the opportunity to spend more on dining out, home improvements, internal tourism and the like. Australia’s corporate profits would increase, according to economic modelling, enough to bring the cost of the UBI down to about $282 billion, though Donaghy has chosen to be more conservative, lowering the cost to around $320 billion.

The UBI goes to everyone, so that for many taxpayers it would be additional income at the top marginal rate. Without going into detail, this would bring in further tax revenue, totalling almost $81.7 billion, and bringing the cost of the UBI down to somewhere around $240 billion – with nobody suffering since that extra tax would only be a percentage of the extra income provided to the wealthy.

One could go on tweaking the system and working out theoretical savings, such as a restructuring of the government subsidies paid to particular industries, often described as business or corporate welfare. Australia’s Productivity Commission estimated that government ‘budgetary assistance’ to corporations totalled approximately $12 billion in 2018-19. Arguments as to whether such assistance constitutes sound government investment will run the gamut, and will of course depend on how much potential each corporation has – prediction about the future being particularly tricky. However, as Donaghy points out, modern companies have become increasingly technocratic and international, tending to shed rather than increase workers, and if they need hands-on work, may be able to source it from developing countries with cheap labour rates. Government handouts end up mostly if not entirely at the top end of town. Our federal government apparently subsidises the fossil fuel industry to to the tune of $12 billion annually, always using the ‘jobs jobs jobs’ mantra, but these industries are shedding jobs and are not major employers.

Other ways of tweaking the system include taxing multinational tech companies such as Google, Apple and Facebook – always risky, as they tend to respond with ‘big money muscle’, threatening to limit services. the Goods and Services Tax can also be looked at. Many European nations impose a higher GST on luxury items. Even raising the basic rate by one percent will bring in an extra $7 billion. Since the UBI would lead to greater spending, much of the money raised would be recirculated through the system.

Again I should emphasise that this is a very rough guide, largely based on Brian Donaghy’s rough guide to funding a UBI. However, I’m not optimistic enough to believe that anything like a UBI will operate in Australia in the near future. Meanwhile, with the current jobs crisis and shutdowns caused by the pandemic, the Australian government is operating with an online compliance system for jobseekers which is near-criminal in its stress-inducing incomprehensibility, and touting an increase in jobseeker payments, which, as mentioned, will keep these payments far below any reasonably projected UBI. The current government’s support of those most damaged by the pandemic – for example, those, like myself, who work in the international student sector – has been as minimal as it feels it can get away with. Of course the current government has essentially prided itself on its ‘if it isn’t broken, don’t fix it’ lack of innovation, so we clearly need to look elsewhere. The 2022 election is one source of hope, but there are other options besides a UBI (and of course there also many options within UBI). In her recent (2020) book, Glimpses of Utopia , Jess Scully, arts entrepreneur, curator and Deputy Lord Mayor of Sydney, has promoted the idea of Universal Basic Services as a less ‘libertarian’ and more community-oriented approach to reducing disadvantage and improving inclusivity. I’ll explore this concept further next time.

References

Brian Donaghy, A basic income for Australia, 2020

Jess Scully, Glimpses of utopia, 2020