I happened across a paper by someone called Vincente Navarro, who is professor of public policy at John Hopkins University. He brings an added dimension to consideration of the european debt crisis, because he believes that the post war political history of those nations which have been targetted is a significant factor in their economic situation. His paper considers Greece, Ireland, Spain and Portugal. This is a dimension I had not thought of and it seems to me to be important.
Mr Navarro reminds us that three of those nations were under military or other dictatorshop for a fairly long period (Greece, Spain and Portugal); or under authoritarian right wing political regimes (Ireland) for much of the period 1930's to 1970's. I do not know enough about the Irish governments during that period but that is undoubtedly true for the others.
What I had not thought about is that right wing regimes do not tax rich people as much as other kinds of government do. Of course that is obvious as soon as it is mentioned: but the implications had escaped me.
Navarro says that this lack of taxation has improved since those regimes fell: but that the legacy is still in play. According to his paper state revenue (tax) is much lower in those countries than the EU average. I was aware of that in the case of Greece and have pointed to tax evasion on the part of the rich as a major component of the Greek debt problem: Navarro widens that perception to include the other countries subject to bail out so far. The EU average share of GDP which goes to tax and therefore to state revenue is 44%. But in Portugal it is 39%; Greece 37%; and Ireland and Spain both 34%. This is a result of regressive taxation policies in place for many years.
Far from being profligate in public spending these countries spend very little on welfare compared to the rest of the EU. This confirms my impression when I had my little rant about the fact that "bloated public sector" being all one word when applied to Greece. Navarro gives examples of this: he says, for example, that in the EU the average adult employment within the public sector social welfare sector is 15%. That compares with 14% in Greece; 12% in Ireland; 9% in Spain; and 7% in Portugal. These figures are unlikely to be directly comparable given differences in ways of counting: but any revision will not be all one way: for example 3% of the greek figure is due to services for the army which is not included in all countries.
The significant point here is that once again there is no evidence of the feckless regimes in power now, and spending too much on public sector services: the picture is precisely the opposite. It is true that those populations have been trying to catch up: but the demands of a lazy and feather bedded people have nothing at all to do with it: and the privileges of the rich are certainly in play.
Navarro acknowledges that the right wing regimes are long gone in those countries: and so they are. But economic decisions have a long lag, as I have noted before: and entrenched interests are persistent. In country where the right wing have been in power for a long time and have privileged the rich with tax exemption, those rich people will wield influence by virtue of being rich: we know that this is true everywhere and these countries will be no different.
Again, preparation for entry into the eurozone had consequences for how income was distributed in all four countries, according to the paper. The share of GDP which went to labour fell substantially. Navarro again attributes this to the influence of right wing forces consequent on an undemocratic history: he may well be right. I am inclined to see this as rather the consequence of the wider neoliberal hegemony: though I do accept that their impact will be greater in a country with limited democratic history and an already right wing tax regime which is regressive in its nature. Redistributive policy does not work against that background nearly so well as it does in social democratic states such as Scandinavia: that is hardly a surprise. All 4 countries are more unequal than the EU average if measured by the GINI co-efficient. Navarro does accept that the Brussels consensus, and in particular the treachery of the erstwhile social democratic and left leaning parties has contributed t the problems as well, so my perception is not at odds with his, though I had not taken account of the wider background.
The upshot is that these countries adopted the prescriptions of the hegemony and cut taxes. The tax was already far too low, and it is false to say that there was a boom in public expenditure: there was not. It is an axiom of the those who are in charge of economic policy that cutting tax is a good thing and that cutting public expenditure is a necessary thing,. It does not matter what the evidence shows, for this is faith based. Navarro shows that the reduction of tax is the source of the deficit in all of these countries. I would go further and suggest that low spending on public service hampers genuine economic growth and that is also in part responsible for the troubles now seen. In at least two of those countries the overvaluation of assets was mistaken for economic growth (Ireland and Spain): but it was not real. I could not have happened but for an increase in the money supply predicated on high debt secured on those over valued assets: and by more money around through tax cuts, arguably. Tax cuts for the rich are particularly apt to cause asset balloons: because they "invest" in such things. Poor people may have to buy houses at inflated prices: but they do not do so encouraged by tax cuts: the kinds of cuts they get are not really noticeable: they spend them on things they need.
Navarro comprehensively refutes the mainstream assertion that these countries have been living beyond their means by spending too much on public services. Tax policy and tax fraud are the main problem in Spain, for example. If the Spanish state collected tax at the same rate as its per capita GDP ratio vis a vis the EU average it could easily finance its welfare provision: but it doesn't. That enormous tax avoidance/evasion figure is not unique to Spain: it exists in Spain and in this country: I have not checked other places but I doubt it is different: the rich believe that tax is for little people and the many "tax havens" around the world rely on that belief for their prosperity.
The government relies on tax for its income. If it founds on property tax then its income falls when the asset boom stops. If it founds on taxing wages then its income falls when the economy falters and unemployment rises. If it founds on taxing the rich then this does not happen. The asset boom is less likely in the first place: and while the rich do get a lot of their money from wages they are a lot less likely to be laid off in bad times. As we have seen, they don't suffer pay cuts, either. So state revenue derived from that source is a lot less volatile than other kinds of tax income.
Navarro then goes on to consider alternative solutions and since they are much in line with my my views as already outlined, I will not reiterate them here. The paper is available here:
www.vnavarro.org/?p=6073While I like this paper because it agees with me it is not content or fact free, and I think it helps to make the case that this is class war perpetrated by the rich: but whether you accept that or not, it is clear that TINA is a lie and, indeed, is likely to make the situation worse
