Economics of Happiness – An Alternative to the Crisis?

First published Oct 6, 2010. Updated July 5, 2013

University of Leicester first ever World Map of Happiness

The US Declaration of Independence of 1776 states that “the pursuit of happiness” is an “inalienable right”. The economics of happiness aims to reconsider the traditional measurements of well-being, by identifying the variables influencing private well-being in order to implement public policies more susceptible to satisfy the aspirations of citizens. The macroeconomics of happiness reveals that from a certain level of attained degree of development, the possession of capital does not intrinsically entail happiness. Therefore, a reduction of marginal utility occurs. Similarly, the microeconomics of happiness reveals that social and environmental quality has an increasing impact on the durability of human satisfaction.

Public policies derived from the economics of happiness currently encourage the debate for a new remedy to the ongoing crisis, characterized by an economic crisis and a democratic deficit of representation. This new debate sustains the need for greater state intervention and for considering social problems as constitutive of the concern of the political sphere. The state must implement institutions and rules able to form a legal frame in which intense competition is less valued, because of its alienating and destructive long-term effects on the community’s organic character. Policies able to act in a transformative approach upon human nature are valued. For instance, policies instituting a progressive consumption tax or a progressive income tax, should allow individuals to pay less attention to the issue of capital accumulation. This would benefit both the state (higher fiscal income) and the individual (more cooperative and altruistic).

In conjunction with it, the economics of happiness provides an answer for the macroeconomic orientation states should take with regard to the unemployment/inflation issue. Empirical studies highlight that unemployment is worse than inflation for the degree of happiness. Employment provides essential intrinsic satisfaction. Because the current crisis is all-embracing an economic and democratic crisis, states should be aware of the importance of intrinsic satisfaction when implementing policies, provided by the realization of personal aims and perseverance (Spinozian conatus). States should increase the number of subsidized jobs and offer aid for structuring the unemployed free time.

In the end, the positive school of psychology put the accent on the importance of procedures and norms in the achievement of happiness. The utility of procedures appears as a key for the achievement of subjective well-being. It follows that the answer, for lightening the democratic deficit of representation, is the increase in the participation inside the political sphere. The increasing accountability and transparency of political institutions is therefore expected to revitalize citizenship, by empowering it. Hence, new public policies should implement a new agora for a vox populi, within which hierarchical relationships between semi-opaque state institutions and politically powerless citizens, dissolves into a comprehensive and participatory arena.

However, the implementation of this new type of policies does not consider the very nature of preferences, by not capturing the preference satisfaction in a given situation: there is no characteristic or appropriate purpose (i.e. contextualization). These policies pass over the fact the preferences are mostly adaptive, external and contingent, influenced by socialization. Owing that adaptation might be a form of resignation, if the current crisis persists – as it seems to occur – and reformative policies are not implemented, citizens might tend to have decreasing expectations and a less critical attitude towards the state. Hence, if policies derived from the economics of happiness were applied, they would provide citizens with only a minimum minimorum of happiness satisfaction. Another objection is that such public policies are unable to capture the variety of subjective preferences determining happiness. Without presenting a Huxleyan totalitarian risk, these public policies still do impose a universal regularity careless of particularities. These policies are by their very nature ethnocentric and impose some sort of paternalism. Indeed, as earlier mentioned preferences are adaptive, furthermore, in the case of the economics of happiness, preferences are no longer part of the private sphere. As politicians try to modify citizens’ preferences, they interfere in a more insidious manner with the traditional private sphere.

In conclusion, public policies derived from the economics of happiness – by being founded on realist grounds – provide elements of answer to the global crisis. However, in order to soften the effects of the crisis, such policies should have a more eudemonist dimension (1). They should focus more on the utility of the moment and not on the overall retrospective satisfaction.

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(1) Eudemonism, theory that states the highest ethical goal is happiness and personal well-being

Related Posts:
· The Ideology of Economic Growth
· The myth of GDP – 1. GDP questioned
· The myth of GDP – 2. Measuring progress
· Economics in the nude

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Negative externalities and taxes: a contribution to the debate on “junk food”

First published Aug 16, 2009. Updated June 13, 2013

>> Haga clic aquí para la versión en castellano

Alcohol and cigarette products are usually subject to high taxes. This occurs because the economic theory acknowledges that the price of these products does not reflect the true social cost of consumption.

Thus, a Pigovian tax [1] is applied to neutralize the externalities [2] caused by these products in both consumers and society.

Barcelona · Mercat de la Boqueria [Sant Josep]

Barcelona · Array of fruits and vegetables at La Boqueria Market

In this regard, developed countries have begun to consider the option of raising the tax burden of the food low in nutrients and high in saturated fats and carbohydrates, also called junk food as a way to lighten the deficit and in turn combat obesity [3]. If implemented successfully in the case of tobacco or alcohol, why do not tax the junk food and improve the way consumers make decisions about their diet?

In return, during the first half of 2009, interesting reports have been published focused on discussing the aspects of the issue. Thus, Engelhard, Garson and Dorn (July 2009) [4] put the junk food as a major cause of obesity, with direct consequences for the economy through a decline in productivity per worker and increased costs for medical care. United States estimates that medical costs of obesity are $ 700 higher than the costs of a thin person.

However, Yaniv, Tobol and Rosin [5] argue that the implementation of taxes on junk food has technical shortcomings. For example, there are too many possibilities of interpretation to decide what products should be considered within that tax. A hamburger has high levels of fat, protein and calories but these are also necessary for metabolism. In addition, unlike the case of cigarette or alcohol, consumption of junk food does not produce a direct negative externality on the welfare of someone other than the individual’s. Therefore, we must ponder the results of these surveys further to soon begin the implementation of tax measures that directly affect the purchasing decision of consumers.

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[1] A Pigouvian tax is a duty charged on a market activity to correct the market outcome, if there are negative externalities associated with the market activity.
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[2] In economics, an externality or spillover of an economic transaction is an impact on a party that is not directly involved in the transaction. In such a case, prices do not reflect the full costs or benefits in production or consumption of a product or service.  A negative externality occurs when an individual or firm making a decision does not have to pay the full cost of the decision. If a good has a negative externality, then the cost to society is greater than the cost consumer is paying for it. Since consumers make a decision based on where their marginal cost equals their marginal benefit, and since they don’t take into account the cost of the negative externality, negative externalities result in market inefficiencies unless proper action is taken.
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[3] An individual is classified as obese based on his body mass index (BMI), which shows the relationship between weight and height as an indicator of body fat. An adult is classified as “overweight” if his BMI is between 25 and 25.9. If his BMI is greater than 30 he’s classified as obese.
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[4] ENGELHARD, Carolin; GARSON Arthur; DORN Stan “Reducing obesity: Policy strategies from the tobacco wars”, Urban Institute. July 2009.
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[5] YANIV, Gideon; ROSIN Odelia; TOBOL Yossef. “Junk-food, home cooking, physical activity and obesity: The effect of the fat tax and the thin subsidy”. Journal of Public Economics. June 2009.

The political economy of networks

AN « EXCESS »  OF DEMOCRACY  (2/3)

Networked forms of the 1960s/70s were distinctive because essential to their origin, character and sustainability were values of solidarity, equality and democracy. Consciousness of these origins could help us now, when networked organizations are everywhere, to distinguish between the instrumental use of the concept of network in essentially undemocratic organizations (i.e. within states and corporations) and, on the other hand, as a way of connecting distributed activities based on shared values of social justice and democratically agreed norms.

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The latter possibility is radically enhanced through the new information and communications technology in its non-proprietorial forms. The new possibilities of systems coordinating a multiplicity of autonomous organizations with shared values, through democratically agreed norms or protocol, can help upscale economic organizations based on non-capitalist – collaborative, P2P (peer to peer organizations such as The Pirate Bay) co-operative or other social and democratic – forms of ownership, production, distribution and finance.

What enables us to make this apparently surprising dive from the forms of organization shaped by the consciousness-raising groups of the women’s movement (or indeed other civil society initiatives of the same period, such as the factory shop stewards’ committees combining against multi-plant, multinational corporations and developing alternative plans for socially useful production is the importance they give to practical, experiential knowledge and the need to share and socialize it.

The political economy of knowledge

The reason why this is important for the development of a political economy beyond capitalism is that behind the imposed choice between capitalist market and the state is the polarization between scientific, social and economic knowledge on the one hand and practical knowledge on the other. While the former was regarded as the heart of economic planning and centralized through the state, defenders of the free market sustained the latter as being held individually by the entrepreneur, capable of coordination only through the arbitrary workings of the market, based on private ownership. The relevant step forward of the women’s and other movements of the 1960s/70s was to make the sharing and socializing of experiential knowledge – in combination with scientific forms – fundamental to their focused, but always experimental, organizations. And to do so through consciously coordinated (networked) and self-reflexive relations between autonomous (distributed) initiatives.

Translating this into economics in the age of information and communications technology – a project requiring much further work – points to the possibility of forms of co-ordination that can include and help to regulate a non-capitalist market. A regulated, socialized market, that is, in which the drive to accumulate and make money out of money is effectively inhibited. It also provides a base for democratizing and, where appropriate, decentralizing the state, within the context of democratically agreed social goals (such as concerning equality and ecology).

It is over these issues concerning the sharing of knowledge and information and the implications for the relationship between autonomy and social co-ordination that the ideas coming from the Occupy movement can creatively converge with those of earlier movements. It is interesting in this context to read the economics working group of Occupy London describing in the Financial Times how Frederick von Hayek, the Austrian economist and theorist of free-market capitalism, with his ideas on the significance of distributed knowledge, is the talk of Occupy London. No doubt this was partly a rhetorical device for the FT audience. But the challenge of answering Hayek and his justification of the free market on the basis of a theory of distributed practical and/or experiential knowledge does provide a useful way of clarifying for ourselves the importance of the networked social justice initiatives of today and the anti-authoritarian social movements of the past for an alternative political economy. (http://www.tni.org/archives/books_arguments)
There is a point at which Hayek’s critique of the ‘all knowing state’ at first glance converges with the critique of the social democratic state made by the libertarian-social movement left in the 1960s/70s. Both challenge the notion of scientific knowledge as the only basis for economic organization and both emphasize the importance of practical and experiential knowledge and its ‘distributed’ character. But when it comes to understanding the nature of this practical knowledge and hence its relation to forms of economic organization, these perspectives diverge radically.

Whereas Hayek theorizes this practical knowledge as inherently individual and hence points to the arbitrary, unplanned and unplannable workings of the market and the price mechanism, the radicals of the 1960s/70s took, as we have just explained, a very different view. For them, the sharing of knowledge embedded in experience and collaboration to create a common understanding and self-consciousness of their subordination and of how to resist, was fundamental to the process of becoming a movement. In contrast to the individualism of Hayek, their ways of organizing assumed that practical knowledge could be socialized and shared. This led to ways of organizing that emphasized communication and shared values as a basis for co-ordination and a common direction. It provided the basis for purposeful and therefore more or less plannable action – action that was always experimental, never all-knowing; the product of distributed intelligence that could be consciously shared.

At the risk of being somewhat schematic, it could be argued that the movements of the 1960s/70s applied these ideas especially to develop an unfinished vision of democratizing the state. This took place both through attempts to create democratic, participatory ways of administering public institutions (universities and schools, for example) and through the development of non-state sources of democratic power (women’s centers, police monitoring projects and so on). It involved working ‘with/in and against’ the state, such as in the early 1980s when Madrid was handled by Enrique Tierno Galvan and the Greater London Council was led by Ken Livingstone.

Today’s movements are effectively focusing their energies especially on challenging the oligarchic market, and the injustice of corporate, financial power. Here the development of networked forms are increasingly linked to distributed economic initiatives – co-ops, credit unions, open software networks, collaborative cultural projects and so on. In this way, today’s movements are beginning to develop in practice a vision of socializing production and finance and creating an alternative kind of market, complementary to the earlier unfinished vision of democratic public power.

What they have in common, more in practice than in theory, is an assertion of organized democratic civil society as an economic actor, both in the provision of public goods and in the sphere of market exchange.

From social rebellion to transformation

AN « EXCESS »  OF DEMOCRACY  (1/3)

As we become increasingly dominated by the pursuit of economic growth, what campaigners can learn us from #occupy as well as previous radical movements in our attempt to forge a new kind of political economy based on a framework of equality, mutuality and respect for nature.

occupy-everything2The philosophy and experience of radical movements in the 1960s and 70s are complementary to the ideas of the direct action movements today. It is here to examine the possibility of forging a new kind of political economy by assimilating the best of both of them.

The Occupy movement’s ability to create platforms out of our closed political system to force open a debate on inequality, the taboo at the core of the financial crisis, is impressive. It is a new source of political creativity from which we all have much to learn.

One cannot fail to be impressed by the similarities between the late 1960s and 1970s and the current movement. There are both within the same strong feeling of power “from below” that comes from the dependence of the powerful on those they dominate or exploit. There’s the creative combination of personal and collective change, and proper rapport between resistance and experiments in creating alternatives here and now. There’s the repulse of hierarchies and the creation of organizations that are today described as ‘horizontal’ or ‘networked’ – and that now with the new technology tools for networking (Twitter, Facebook …) have both more potential –but it should also lend to greater distortion…

Here come back the same old problems: informal and unaccountable leaderships, tensions between inclusion and effectiveness. The Tyranny of Structurelessness, a strong assay of American feminist Jo Freeman inspired by her experiences in the 1970s in favor of the liberation of women and addressing, in particular, those unforeseen difficulties from the perspective of the movement women’s liberation, may be well read.

But that was 40 years ago – even before the widespread use of faxes, not to mention personal computers and mobile phones. Reflecting on these marginalized earlier movements possibly take forward the debates opened by Occupy and the Indignados.

From social rebellion to capitalist transformation

The fate of the energies and aspirations of that rebellious decade is a long and complex cluster of stories. Considering their relevance today, I want only to point to a historical process that was not generally anticipated at the time and still is not fully understood today. This was the ability of capitalism, which sought a way out of its stagnation and crisis, to feed opportunistically on the chaotic creativity and experimental culture-restless of the movements of the 1960s and 1970s.

For example, in the 80s while attacking unions, corporate management was also dismantling the military-style hierarchies characteristic of many leading companies and decentralizing the production process. A new generation of managers, especially in the innovative industries, assumed that more tacit knowledge by workers would infer a valuable source of increased productivity and higher profits – as long as workers have little or no power on their real redistribution.

Another prime example is how, in the endless pursuit of new markets, marketing experts were able to identify and anticipate business opportunities in the broad perspective and wants of a growing number of women with own income.

The key underlying feature of these and similar trends is that much of the innovative nature of capitalism’s renewal in the 1980s and 1990s – strengthened by the credit expansion– came from external sources to both the society and the state. In fact, frequently its origins lay in the resistance and the search for alternatives to both.

In other words, capital proved very much more agile in responding and appropriating the new energies and aspirations stimulated by the critical movements of the 1960s and 1970s than did the parties of the left – for which these movements could have been a force for democratic renewal.

Counter-movement

Now, with the credit that supported the social turmoil of this particular period of capitalism having become toxic, the search for alternatives is back again. Even the Financial Times, much to our astonishment, insisted in a series of articles on the crisis of capitalism to conclude that “at the heart of the problem is widening inequality”.

Are we witnessing in the combination – not necessarily convergence – of unease within at least the cultural elites, the growth of sustained popular resistance and public unhappiness, the emergence of what Karl Polanyi called a ‘counter-movement’ to the socially destructive consequences of rampant capitalism? And to what extent might the ideas of the movements of the 1960s and 1970s influence the character of that counter-movement?

A fundamental break

To answer this we need briefly to remind ourselves of the essential nature of the original social critique driven up by the 1960s/70s movements and in particular the nature of its potential break with the institutions of the post-war order: their paternalism, their exclusions, their narrow definition of democracy and the assumption that production and technology were neutral values.

Essential to the character of this assessment was its aspiration, more in practice than in theory, to overcome the deleterious dichotomies of the Cold War between the individual and the collective/social; freedom and solidarity/equality; ‘free’ market versus ‘command’ state – dichotomies that were refrozen through neoliberalism and the conditions in which the Berlin Wall fell.

The ideas and practices of the feminist’s movement are particularly explanatory. This movement arose partly from the gender-blind inconsistencies and from unfulfilled promises of radical movements of the time. It deepened and extended their transformation, adding ideas emerging from women’s specific experiences of breaking out of their subordination.

Especially important here was an emphasis on the individual as social and the collective as based on relationship between individuals: a social individualism and a relational view of society and social change. After all, the momentum of the women’s liberation movement was encouraged both by women’s desire to develop as individuals and their determination to end the social relationships that blocked these possibilities of progress. This required social solidarity: an organized movement.

The nature of its organization was shaped by a constant attempt to create organizational forms that combined freedom and autonomy – what every man struggles for– with solidarity, mutuality and values of equality. The result – cutting a complex and tense story short – was ways of relating that allowed autonomy, coordination and mutual support, without having to go through a single center. It’s what might be called an early solution, pre-ICT (*), a form of network organization.

Multinational Corporations (& 2)

II. How does multinational conduct affect the human backdrop

Once considered dangerous and untrustworthy by governments, corporate enterprises are now the key players in the globalized economy, exerting substantial influence over governments and international organizations the world over. Their financial success seems endless; despite a widespread economic downturn in recent years, corporate profits are at an all-time high, with the largest banks, oil, pharmaceutical and retail companies regularly reporting record turnovers. A significant proportion of these profits are reinvested not only in influencing politics and economics, but ensuring that people continue to consume their products.

Economic and Political Influence

Despite employing less than one percent of the global work force, 200 of the largest multinational corporations (MNCs) have sales equivalent to almost 30% of the world’s GDP. Given their sheer economic might it is unsurprising that, in a period where economic growth is considered a panacea for development success, governments increasingly adopt pro-market policies and facilitate commercial activity. The result is a firmly established mutual-interdependence between corporations and governments, a phenomenon which is most evident in the United States which increasingly undermines a truly democratic representation of public interest.

While corporate-friendly policies of privatization, government downsizing and market liberalization continue to be propagated, large swathes of the public in both the North and South are suffering.  As a result, there is now a significant worldwide backlash against many of the principles and effects of economic globalization. Transnational corporations, in their relentless drive to maximize profits and bolster share prices, have been re-locating their production facilities to developing countries where tax, labor and environmental restrictions are negligible – creating large-scale unemployment in the industrialized countries.

Many argue that this is a necessary sacrifice in order to secure economic growth and opportunity in the developing world, but in many cases the result is merely a glut of labor force working in inhumane factory conditions for comparatively miniscule pay. These workers often give up their families and rural life to migrate en masse to overcrowded cities, inadvertently buying into an economic state of play which promotes unsustainable over-consumption in already wealthy countries.

At the same time, food security has sharply declined in many developing countries as large-scale agribusinesses out-compete local farmers, exporting cash crops and not growing food for those who need it locally. Consequently, communities are no longer able to grow the food they need to eat, must import food instead, and are therefore at the mercy of increasingly volatile international markets – a factor at the heart of the current food price crisis.

Influencing the public

Far from supplying public demand, corporations actively dictate cultural habits and create demand by influencing the public through a sophisticated and well-funded combination of research, marketing, advertising and media manipulation. The result is the subtle, but quite apparent, alignment of public and corporate interest. This cultural homogenization of society both nationally and globally is fertile ground for maximizing profit. Whilst levels of unnecessary and unsustainable consumption increase globally, corporate longevity is secured.

The sophistication and effectiveness of advertising and marketing methods is well understood. The ubiquity of the television and the increasing number of hours it is watched, especially by children, is particularly disturbing. In the US, watching TV is the third most time-consuming pastime after sleeping and working.

As domestic markets become saturated, or public opinion turns against a particular product, corporations – using the same aggressive marketing tactics – shift their attention to developing countries with devastating effect. Nestle is notorious for its aggressive marketing of infant milk formula in poor countries in the 1980s. Because of this practice, Nestle is still one of the most boycotted corporations in the world, and its infant formula remains controversial. In recent years, as public awareness of dire health consequences of smoking tobacco have come to light in industrialized nations, tobacco giants have also had to shift their focus to increasing demand in developing countries. The WHO has reported that 84% of an estimated 1.3 billion smokers live in developing and transitional economy countries. A 1994 WHO report estimated that the use of tobacco resulted in an annual global net loss of US $200 billion, a third of this loss being in developing countries which consequently hampers development efforts.

Corporate Greed or Public Good?

The battle for control of the democratic process is clearly being won by those with the greatest financial and economic leverage, and the phenomenon of market forces is becoming more entrenched in every aspect of public life. As many industrialized nations call for democracy to be spread abroad, the economic ideologies they have vested our future in are cancerous to these same democratic principles. True democracy can only be established if the global public is empowered to make decisions that favor cooperation and economic efficiency over competition and self-interest.

After 30 years of economic globalization and the decadent rise of multinational corporations, almost half the world is still denied even the most basic of goods and services such as clean water, basic food, energy and medicine. Whilst small to medium-scale business is crucial in a thriving and interdependent society, the commercialization of all resources and their distribution through a tiny number of oligarchic corporations will never supply the most essential resources to those who need them most. Small-scale, localized industry combined with international economic sharing is likely to play a significant role in creating a sustainable future.  This will only be possible, however, when corporate rights are scaled down to a level where corporations act in a limited and regulated capacity to serve the public’s economic needs.

Multinational Corporations (1)

Multinational Corporations are the main actors driving economic globalization which thrives when market forces are de-regulated, allowing essential goods and services to be allocated by commercial activity, not human need. The result is a world economy that favors affluent countries and their corporate interests whilst neglecting those living in extreme poverty who the market fails to reach.

I. Key Facts

Size and Income

Many corporations have a greater turnover than the GDP of most countries. Of the 100 largest economies in the world, 52 are corporations and 48 are countries, and these corporations have sales figures between $51 billion and $247 billion.

Seventy percent of world trade is controlled by just 500 of the largest industrial corporations, and in 2002, the top 200 had combined sales equivalent to 28% of world GDP. However, these 200 corporations only employed 0.82% of the global work force.

In the US, ninety-eight percent of all companies account for only 25 percent of business activity; the remaining two percent account for nearly 75 percent of the remaining activity. The top 500 industrial corporations, which represent only one-tenth of one percent of all US companies, control over two-thirds of the business resources in the US and collect over 70 percent of all US profits.

According to the International Finance Corporation (IFC), inflows of foreign direct investment to the emerging markets have grown by an average of 23 percent per year between 1990 and 2000. The combined value of stock markets in emerging economies is set to exceed $5 trillion in 2006, and has more than doubled in the past decade.

Chevron’s CEO received $37 million in total compensation in 2005, whilst Exxon’s CEO received a $400 million pay and retirement package. In the meanwhile the minimum wage in America (£5.15 per hour) is at a 50 year low.

Corporate growth is around four times as high as global economic growth.

In 2005 the number of millionaires globally swelled to 8.7 million, 5.7 million of whom are based in North America and Europe. Forbes reported a 15% rise in the number of billionaires since 2005, who now have a combined worth of $2.6 trillion.

Job Losses

Between 1980 and 1993, over four million jobs were shed by the largest 500 industrial corporations in the US. Since President Bush took office, two million have lost their jobs and in 2004 nearly one in ten could not find a full time job.

The International Labor Organization (ILO) calculates that global unemployment rates are at an all-time high. Of the 2.8 billion workers in the world in 2005, nearly 1.4 billion still did not earn enough to lift themselves and their families above the two dollars a day poverty line – the same proportion as ten years ago.

Health

Nestlé’s fierce marketing of powdered milk in the 80’s caused the deaths of an estimated 1.5 million children through the contaminated water used to make the infant formula.

Nestle is still one of the most boycotted corporations in the world, and its infant formula is still controversial. In Italy in 2005, police seized more than two million liters of Nestle infant formula that was contaminated with the chemical isopropylthioxanthone (ITX).

In recent years tobacco giants have had to shift their focus to increasing demand in developing countries. The WHO has reported that 84% of the estimated 1.3 billion smokers live in developing and transitional economy countries. A 1994 WHO report estimated that the use of tobacco resulted in an annual global net loss of US$ 200 billion, a third of this loss being in developing countries, stumping development efforts.

Human Rights

Chevron and Coca Cola have been indirectly involved in the violent killings of workers and union officials in developing countries in attempts to suppress workers’ rights. Instances of kidnappings, torture, discrimination, health violations, fuelling conflicts, privatizing and contaminating local water sources, using child labor and even sex trafficking have all been documented as occurring under the responsibility of the largest corporations.

Sweatshops are often used in developing countries by the apparel industry which usually pay negligible wages to under age workers who often work long hours in terrible conditions.

Corporate Welfare

Government support to farmers in OECD countries came to $283 billion in 2005, representing 29% of total farm income. The majority of farmers who own small to medium sized farms do not benefit from these subsidies. 30% of farmers in the US do not receive any of the $26 billion of US subsidies, and over 85% go to only 20% of the largest farms, a pattern repeated in the EU.

The number of small farms in the US has decreased from 6.8 million in 1935 to 1.5 million in 1998. In global commodity markets these subsidies mean that producers in developing countries, many of whom produce their goods with more efficiency and less cost than the US and EU, cannot compete with agri-business suppliers.

The US Government Accountability Office (GAO) reports that 95 percent of corporations paid less than 5 percent of their income in taxes, and 6 in 10 paid nothing at all in federal taxes from 1996 through to 2000. The corporate share of taxes paid fell from 33 percent in the 1940’s to 15 percent in the 1990’s. The individual’s share of taxes has risen from 44 to 73 percent.

Externalities

Every year corporations are fined hundreds of millions of dollars as their externalities create serious environmental catastrophes, neglect employee rights and even cause deaths. Examples include Chevron, guilty of some of the worst environmental and human rights abuses in the world such as the dumping of 18 billion gallons of toxic waste into rivers used for bathing water in the Amazon, devastating the health of the local community.

Taking the cost of these externalities into account, Ralph Estes estimated that the public cost of private corporations was over $3 trillion in 1995. His externalities included “workplace injuries, pollution, employment discrimination, consumer rip-offs, corporate white collar crime, tax abatements and all the other instances of corporate welfare, government contracting fraud and creative accounting”

The World Bank

Foreign direct investment now exceeds $1 trillion per year for World Bank projects such as privatization of public utilities and creating banking systems. 1% of all multinationals own 50% of the total stock of all foreign direct investment.

IMF

When these corporations made bad loans to developing countries, the IMF provided multi-billion dollar bailouts. For example, it bailed out foreign investors in Russia with an $11 billion package and orchestrated a massive bailout of the big banks that made bad loans to Asian countries. In 1995, the IMF gave almost $18 billion to Wall Street investors who stood to lose billions with the peso devaluation.

WTO

WTO rulings have often resulted in national governments being sued by corporations simply for placing national interests above corporate profit. The overall effect is the harmonizing of international regulations and standards to their lowest denominator.

The success of corporate influence on the global economy is measurable, as 70% of global trade is now controlled by just 500 corporations

The developing world, where 75% of people’s livelihoods depend upon agriculture, is the source of 90 per cent of all biological resources. Yet transnational companies based in developed counties hold 97 percent of global patents. Since 1985 there have been 10,778 patents on plants registered in the US. Overall, patent applications at the World Intellectual Property Organization have soared from 3,000 in 1979 to 67,000 in 1997.

Influencing Governments

Eighty percent of all corporations reside in the US and EU. Over 30,000 corporate lobbyists are based in Washington and Brussels, vastly outnumbering the US Congress and European Commission staff that they lobby.

The vast majority of lobby groups represent business interests who spend billions of dollars annually advocating their main cause, which is currently market access in emerging economies. In the US, corporations and their agencies spent $9.7 billion lobbying Congress between 1997 and 2000, about $4.5 million per year per member of Congress.

In his book Captive State (2000), George Monbiot lists 43 individuals who, since the 1997 elections in the UK, have been appointed as ministers, heads, chairmen, and advisors to as many government departments and independent committees. In each case their previous corporate positions (mostly as directors, chairmen or chief executives) and existing links to industry present a direct conflict of interest with their governmental roles.

The President, Vice-President, Commerce Secretary and National Security Adviser all have strong ties to the oil industry. The Bush family had strong ties to Enron-which was President G. W. Bush’s largest corporate source of funding.

Vice-President Dick Cheney amassed some £50m-$60m while he was chief executive of Halliburton Oil Company. Condoleezza Rice was a director of Chevron. Secretary of Commerce Donald Evans held stock valued between $5m and $25m in Tom Brown Inc, the oil and gas exploration company he headed.

Influencing Society

In the US, watching TV is the 3rd most time consuming pastime, after sleeping and working. In the US, 75% of commercial television time and 50% of public television time is paid for by the 100 largest corporations. Projected global advertising expenditure for corporations in 2006 is over $427 billion dollars.

Public Relations

All major corporations, particularly those which have the greatest negative impact upon the environment, have repackaged themselves recently as having ‘green’ credentials to great effect. The oil giant BP’s new green, flower-like logo and recent PR campaign is an excellent example. As a result, BP has successfully managed to shift public focus away from the fact that is one of the world’s foremost polluters of the environment and considered by many as one of the top 10 corporate lawbreakers.

The Need for Radical Change

THE FUTURE OF MONEY (4/4)

Proposed solutions to the financial crisis tend to involve more regulation and the break up or separation of banking activities, but these merely scratch the surface. The financial sector is not only too big; it embodies massive contradictions. In particular, the social role of finance makes it impossible for monetary authorities to let the system fail. This creates moral hazard on an epic scale, ‘Wall Street socialism’ with massive benefits for the financial elite and costs and liability for the many.

Given that the public nature of money makes the financial system a public liability, there is no case for its private ownership and control. As bank credit issue is the main engine of money creation in modern societies, how that money is issued and circulated is a crucial question. The allocation of that credit determines economic priorities.

Under free enterprise system the only priority is private profit. On this basis global speculative ventures are supported while local, particularly social, businesses are marginalised.

The allocation of credit is only part of the problem, however. The main question must be why the private banking system should have control of the monetary system at all. Historically this was developed through the link between trading money, promissory notes and bills of exchange, which were exchanged for bank credit notes designated in the national currency (legal tender). More recently the system has shifted to ‘sight accounts’, money records rather than cash in hand. The question that needs to be asked is: why is the private issue of notes and coin (counterfeiting) punished by law while the private creation of sight accounts is seen as a natural function of banking?

Capitalistic control of the financial system has played a major trick on the public. Given that bank credit is created out of fresh air, like fresh air it should be a public resource, not a private horn of plenty. Decisions about the allocation of that credit should be made democratically. Private profit should not be the only criterion for money issue.

Nor should all money be issued as debt with the interest charged accruing to the issuing financial institution. Debt-based money builds in a growth dynamic that prevents the emergence of a more socially and ecologically sustainable economic system. Instead money could be issued without debt as grants or interest-free loans. The only reason this is not done is that capitalism has ideologically captured economic reasoning. The right of banks to issue money for profit is not challenged.

If people demand to issue money themselves or demand that social and ecological priorities come first they will be told that ‘this cannot be afforded’. The trick is that the market puts some kind of brake on money creation and allocates it most efficiently. The recent crisis shows that neither of these claims is true. Any money creation by the public is decried as inflationary, while massive inflation of the capitalist financial system was given the euphemism ‘capital growth’. The public were to be grateful for the few portions of taxes that were reluctantly extracted from the financial sector.

In fact, there is no reason why money should be issued through the private banking system. It may be that with money under democratic control the public would vote to give financial resources back to the private sector, but it is more likely that social expenditure would be prioritized. The private sector would then have to re-orient its activities to serving public needs. This could form the basis of an economy in which growth would occur in response to social need, rather than the demand for ever expanding profits. Money circulation would return to the production of goods and services and not the never never land of perpetual financial growth. The idea that the whole of society could secure itself on constantly inflating financial assets is a total illusion.

The financial crisis has revealed the financial system’s enormous power and lack of democratic control. Money and finance, nationally and internationally, must be socially and politically re-embedded to enable socially just and ecologically sustainable economies to emerge. Rather than asking ‘can the financial crisis be the basis of radical change?’ the crisis must be the basis of radical change if we are not to continue on the capitalist financial merry-go-round until we all fall off.