Catalyst

"Read my lips: Higher taxes will rescue globalization."

Recently, pro-globalization advocates from both sides of the political spectrum (including both economist Matthew Slaughter, who recently left President George W. Bush's Council of Economic Advisers, and Larry Summers, Clinton’s Treasury Secretary, to name a few)  have started calling for heavier taxes on the rich. And reports have shown that their views are in sync with not only the feelings of the US public, but also with the top levels of corporate America.

Shocked? Don’t be. Lest you believe that these recent views represent a sudden awakening to the reality of inequality and the ethical implications for those in a position to give more, think again.  The comments, at all levels, actually seem to be responding to a range of surveys and research that show the severity of the backlash against globalization. In essence, the globalization promoters are calling for higher taxes as a defense—a tactical concession, if you will—against the rising angry sentiment as the world’s citizens experience the negative effects of globalization.

The IMF, in the last World Economic Outlook, admits that due to globalization the place of the unskilled worker has diminished and so, comparatively, have his/her wages. This is not only a recent trend--the report admits that “there has been a clear decline [of unskilled labor in labor share] since the early 1980s across developed economies.” In advanced countries (primarily the United States, Canada, Europe, Japan, and Australia) the gap between the earnings of a skilled worker and an unskilled worker has grown, with the unskilled worker receiving 25% less income than a skilled worker.            

A study released by the OECD a few months ago highlighted that globalization could "permanently increase" job insecurity for workers and that salaries had been shrinking as a proportion of national income in the US, Japan and Europe, perhaps reflecting the weakened bargaining position of workers in pay negotiations. In 16 out of 19 OECD member countries for which data were available, the earnings of the best-paid 10 per cent grew faster than those of the lowest-paid 10 per cent between 1994 and 2005.

A study released by Merrill Lynch and Capgemini last June showed a growing gap between the super-rich and those who would normally consider themselves wealthy. In other words, a relatively very small number of people is controlling an ever growing amount of wealth globally, a fact closely associated to the financialization of the global economy. According to the report, for instance, the assets of those with more than $30m dollars to invest expanded by 16.8 per cent while people with assets of $1m-$5m saw their wealth grow by 6.4 per cent. Economist Alan Blinder, a longstanding “free trader,” predicted recently that in America, some 40 million jobs may be lost to offshoring.

In the context of renewed fears about globalization, calls for more progressive taxation seem to be a tactical concession, rather than a dramatic change of mind. This concession is bluntly summed up by Larry Summers, who says that addressing income disparities will be critical in winning support for further liberalization of free trade.

In a society everyday more familiar with the concept that “government should get out of the way,” the calls to ensure that the rich pay their share of taxes by those regarded as the most eminent voices are undoubtedly a welcome development. But it is also one case of good outcomes for the wrong reasons. In this case, the discussion around taxes attempts to prevent discussion of the dubious value of globalization. Once one removes the thin veil of novelty, what is below this support for progressive taxation is the old and familiar defense of the theory underpinning economic globalization while continuing to refuse an open dialogue on the empirical evidence.

The globalization supporters want to talk about taxation. Why not question free trade and free capital flows? Why not question privatization and deregulation? Why not question the well-demonstrated impact that these processes, themselves, have on making taxation more difficult? After all, these issues have just as equal a claim to being a source of inequality as the lack of a more progressive tax system.

Aldo Caliari is Director of the Rethinking Bretton Woods Project at Center of Concern.

Fairness and the Farm Bill Cano

As every American farmer probably knows, the U.S. House of Representatives passed their version of a new farm bill a couple weeks ago -- the “Farm, Nutrition and Bioenergy Act of 2007” (as the House Ag Committee titled it). If most other Americans were not paying attention, my guess is that the rest of the world did take note. And they’ll continue to pay attention as the Senate takes up the bill in September. Canada, Mexico, the EU, Brazil, China – the list continues around the globe – know that U.S. ag policy tremendously affects world grain supply and world food prices. My question is: did the rest of the world agree with House leadership that the new farm bill was “a critical first step for reform” in U.S. commodity subsidies? Or did they see this as a sham – as did sustainable ag and rural development groups here in the States?

Commodity programs and support payments represent the molten core of the farm bill. If you mess with that, prepare for the heat. In the beginning (1930s), there was good reason for such supports – a “farm safety net”. But in recent decades (1970s onward), U.S. policy is blatantly set to export major commodities at below our cost of production. Subsidies are not the cause of that; subsidies partially compensate farmers who get caught in that policy trap. The truly subsidized beneficiaries are the corporate buyers of corn, soybeans, wheat, cotton and rice who get dirt-cheap prices on every bushel and pound.

Farmers around the world complain – heck, farmers in the American heartland complain – about this sham. But corporate agribusiness profiteers spin it as efficient, competitive and the workings of a free market. Somehow our House of Representatives, who should know better, let another opportunity go by without correcting the price problem of our basic farm commodities.

An opinion piece in an Iowa paper (Iowa has its mix of big commodity producers and populist farmers – you’ll readily guess which one this represents) posed a key question for the presidential candidates now touring the state: “Do you favor selling our farm products at below cost of production, exporting at a loss in order to destroy farmers around the world, and continue subsidizing multinational corporations and foreign countries that buy our grain?” That’s a mouthful, but it’s a better question than the usual one: “Do you support our farmers?”

Here’s the rub: The U.S. still needs to support our farmers. When some good intentioned social justice groups call for switching support payments out of the Commodity Title and into conservation, rural development, food assistance and the like, they may not realize how tightly the farm subsidy system is wrapped around the cash-flow cycle of farm production. Banks only loan to farmers with back-up government supports; that’s how the system works. So until we fix the price problem, we still need the subsidy fix. A critical first step for reform, then, is setting a tight payment limit of no more than $250,000 for a farm operation per year. That’s what some Senators are proposing. The heartland populist in me says make it $50,000.

Posted by Robert Gronski, Policy Coordinator with the National Catholic Rural Life Conference (www.ncrlc.com)

No End in Sight—and Spiraling toward a Black Hole

Friday was opening night for the Sundance Prize-winning documentary, No End in Sight. Written and directed by Charles Ferguson, a former senior fellow at the Brookings Institution, the film is one that can’t be discarded by critics as “one of those liberal anti-war films.” In fact, by interviewing an impressive array of high-level government officials, military personnel, academics, and journalists, the film uses the words of the very people who were involved in post-invasion policy to build the case for his main point: that bad U.S. policy during the post-invasion period caused the Iraqi insurgency that has since plunged the country deep into an abyss of chaos, death, and destruction.

Some highlights from the film:

• ORHA administrator General Jay Garner and Ambassador Barbara Bodine, tasked with reconstruction efforts and the creation of a new Iraqi government, tell of looted offices, scandalously insufficient staff, and nonexistent funds which, from the beginning, ensured their efforts would end in failure.
• Director of Strategic Policy for the U.S. Occupation Col. Paul Hughes describes how, after the invasion, Iraqi military commanders were literally knocking on his door offering the services of tens of thousands of Iraqi troops. Days later, Paul Bremer announced the dismantling of the Iraqi military and de-Bathification. Hundreds of thousands of young men were left without work. The Defense Department had not consulted anyone in making this decision.
• Robert Hutchings, Chairman of the National Intelligence Council, tells how, soon after the insurgency began, his Council produced a National Estimate on the State of the Insurgency, offering steps and suggestions for how to deal with the insurgency. He described his feeling of disappointment when the president did not read even the one-page summary on the report, calling it “guesswork.
• NGO Manager and Georgetown University Lecturer Ray Jennings illustrates the filling of green zone positions with inexperienced political supporters by telling a story of running into a recently graduated undergraduate student in Iraq. Upon expressing surprise at seeing her, she shared that she couldn’t believe her luck—just out of school, he had been put in charge of creating Baghdad’s entire traffic plan.
• Marine Lt. Seth Moulton describes how he and a fellow soldier worked with Iraqis on some rebuilding projects—while U.S.-funded contractors’ projects nearby were built shoddily and at a snail’s pace—for ten times the cost.

Despite the fact that the film assumes that with different policies, the war might have succeeded (which is debatable), it’s a film worth seeing. One compelling reason is for the simple fact that remembering and owning up to the mistakes of history is certainly necessary if there is any chance of things ever turning around. It is often said that the policymakers who make the biggest mistakes are the ones who forget history—who somehow begin acting as if current events happen in a vacuum, unconnected and removed from the context and history of the situations about which they are making policy. Identifying what has gone wrong and how it went wrong is an essential step in figuring out how to make things go right.

Some policymakers are urging our leaders to return to the assessments and recommendations that have long been available but largely ignored. This move to return to the Iraq Study Group report and recommendations is a positive step forward. Others are seeking out new experts. Some are calling for new words of wisdom from moral leaders. On June 28, fourteen Democrats sent a letter to the U.S. Catholic bishops urging them to speak out about Iraq anew. (They published previous messages in November and January.) The bishops have agreed to meet with the letter’s authors and have also requested a meeting with the Republicans, emphasizing that ending the war must be a bipartisan effort.

I hope that the Democrats and Republicans who meet with the bishops will be overwhelmed by a new sense of moral responsibility to end the war—quickly and responsibly. But I also hope they’ll watch this film. Putting this quagmire in context can’t hurt—and it might even help.

Posted by Jill Rauh, Education for Justice Project, Center of Concern