In the past year, $50 trillion has been wiped from the value of global stock markets, real estate and commodities. Half the world’s wealth has disappeared. “Just like that!” as the late Tommy Cooper might have said. The wine has turned back into water.
To talk about wealth redistribution at a time when wealth is contracting faster than the Amazon rain forest and the Arctic ice cap combined might sound slightly off key, like asking the boss for a rise just as the company is about to go into liquidation.
But when a patient is stricken down with the serious illness, the first step to recovery is to understand what caused the damage. The global economic meltdown has its roots in runaway economic inequality, which has galloped out of all control over the past two decades.
One of the grating background noises to this crisis is the sound of hypocritical politicians from all the mainstream political parties whingeing about greedy bankers. Whenever any serious proposals were ever put on the table to curb the greed of the free market, these same politicians sneered with derision.
A local case in point. In 2000, the Scottish Socialist Party initiated the idea of an income-based, nationally set Scottish Service Tax to replace the Council Tax. It involved the creative use of the limited powers of the Scottish Parliament to redistribute wealth from the elite of top earners to millions of low income households. Under the plan, the top rate of taxation in Scotland would, in effect, have risen from 40 per cent to 63 per cent.
Based on his £650,000 pension, Fred Goodwin this year would have paid 50 times more in local taxes than he will pay in Council Tax for his mansion in Edinburgh. The extra £100,000 generated would have been used to slash bills for low and medium income households.
Overall, the scheme would have transferred the equivalent of around £1.5 billion a year in today’s money from the richest three per cent in Scotland to the poorest 50 per cent. If rolled out in England and Wales, it would have created a fiscal stimulus across the UK of up to £20 billion annually, directed towards those who are most likely to spend. It would have generated and sustained local economies without notching up a penny of national debt.
Just as importantly, it would have curbed casino capitalism. Extra taxation on Fred Goodwin would have no negative impact on his local pub or corner shop. The wealthiest elites already have more money than they could ever dream of actually spending. When you have more money than you need, you start to play real life monopoly. Idle, superfluous wealth became the fuel which powered the soaring speculative rocket, which has now fallen back to earth like a burned out stick.
So what was the response of the politicians to what in retrospect now like a moderate proposal to redistribute a bit of wealth? Derision and hysteria. It was as though they had been asked to personally march into their local High Street banks brandishing shotguns. This was robbery, they shrieked – especially Labour politicians. “It would lead to a haemorraging of wealth,“ the Scottish Labour Party’s briefing paper said of the Scottish Service Tax proposal. Haemorrage – it sounds like a cruel joke now. We only wanted them to donate a few pints of blood. They decided instead to slash their own arteries.
The same principles apply globally. In 2005, under pressure from the Make Poverty History Campaign, G8 leaders produced a package worth a total of $50 billion to relieve starvation in Africa. That was as far as the world’s wealth could stretch, we were told. Now we discover it was just crumbs from the table – exactly one thousandth of the wealth that has vanished in the past year.
If the reasonable demands of the Make Poverty History had been implemented, then at least some of the wealth that was squandered by rampaging gamblers could have been redirected instead towards building real economies in some of the most impoverished parts of the planet. The world today would be fairer, more stable and more optimistic.
“Bankers need to demonstrate to the public that they’ve learned lessons from recent events,” said Alistair Darling this week. It’s not only bankers who need to learn some lessons. It was never implemented, but one element of the old Labour manifesto from 1974 is even more relevant today than it was then. At national and global level we need “a fundamental and irreversible shift in the balance of wealth and power towards working people and their families.”