Taking notes 3

There are many lines that need to be crossed for things to be made better. For some it is daunting and means ‘crossing the Rubicon’. Recently, it was the attempt to cross the ‘Buffett line’ (or impose the ‘Buffett rule’) which the corporate-owned American congress stopped Obama from doing. The US is predictably prevented from even a token stance of doing what is right by its political system that actively stymies the interests of the people. It has lost the chance to ensure that those making over a million dollars annually pay a minimum effective tax rate of at least 30 per cent. This would result in the reasonable situation arising where the average American would not pay more taxes than millionaires or billionaires.

Even then, this measure would have only raised about US$47 billion over a decade which is an inconsequential amount compared to the estimated US$7 trillion in federal deficits for the same period. What is significant here is not that this would in any reality tame the leviathan US national debt, but that the act of passing such a bill would have been an act of moral courage and recognition of the need to heal a shredded national social compact.

According to intelligent and socially responsible economists, given the terrible depression of the 1930s and the war that followed, whatever laws passed by President Roosevelt to create a new deal for the American people and the mega wealthy in the form of a compact, have been systematically eroded. Lines Roosevelt transgressed to push his deal through have been erased by corporate interests since.

It is said that after World War II, for each dollar paid to Washington in individual income taxes, corporate profits’ taxes came to US$ 1.50. Today, however, for each US$1 paid in individual income taxes, corporations merely cough up US$ 0.25. Moreover, for that same period, the top rate of the federal individual income tax instituted by Roosevelt fell from 94 per cent to 35 per cent: The rich today are given a humongous tax break which effectively shifts the massive tax burden from them onto, yet again, the heads of honest labouring men and women.

We need to remember that due to the great crises of Roosevelt’s time, these measures were needed to help create what became the social security system for millions over 65 years of age; initiate an unemployment compensation system for those millions without work; and produce over 12 million federal jobs.

There were no economic theories as such that were needed to justify this but common sense and implicit employment of the intuitive understanding of what is just and fair. You do not need to go to an elite school to grasp this. Notwithstanding, this whole situation is more than about an academic subject called economics; it is about politics.

There is another line that can be labeled the ‘Gini line’ that is better not to reach, though Singapore has come close to it. The so-called Gini-coefficient index measures income inequality. And a Gini-coefficient of 0.5 is usually considered a dangerous line to attain; so crossing it must mean something. And it seems Singapore has underachieved by creeping too close to that worrisome threshold by hitting the 0.47 mark.

That is why Singapore’s ex-National Wages Council chairman Professor Lim Chong Yah applied some radical thinking, in trying to get to the root of things, by announcing his proposal that:

  • There be a substantial pay hike for workers earning below S$1,500 over three years.
  • A cumulative 15 per cent pay rise for the first year, the next 15 per cent for the second year, and 20 per cent for the third year.
  • These increases would be equally channeled into the worker’s take-home pay, his CPF (retirement account), and a skills development fund.
  • A three-year wage freeze for those who earn $15,000 or more a month.
  • Low-income workers have been underpaid by more than 100 per cent of their pay when compared with counterparts in other countries.
  • A wage freeze for ultra high income earners would help avoid raising taxes.
  • This is better than have the voiceless low-income group solely rely on government handouts.
  • These ideas are to be implemented as temporary measures.

As an economics teacher once said, ‘You need to understand that economics and politics go hand-in-hand. If you do not understand that, you do not understand economics.’ Quite so.

The issue of whether Singapore should look seriously into, and adopt in some form, Professor Lim’s suggestions is an economic and political one. It is important to understand that.

One concern is that we end up giving, perish the thought, a pay hike to undeserving people who are not productive. We read of angst driven concerns that a bell-hop or road sweeper may be paid more than they should get since how much more productive can you be in their line of work anyway?

Meanwhile, no sleepless nights are experienced by that minority of decision-makers over wage increases for super high income groups. No anxious hours are spent wondering how productivity is measured in the case of those who manipulate and lose vast amounts of fictitious capital and bankrupt peoples and nations. No apprehension is felt on how to determine productivity for business deals that benefit the few over the many, as corporate top dogs improve their golf handicaps along the way; nor fretting over how productivity is measured when assessing national policies that repeatedly disadvantage citizens by yet another lot of sanctified bureaucrats.

While not exactly comparing this situation with what Obama was trying to do, it is not difficult to see that Professor Lim’s suggestion is right on the money. What is needed here is not to get caught up in the fear of what might happen if, in the most unlikely scenario, the rich were to run off somewhere else that is apparently free from challenges and where they can continue to run riot with untrammeled wealth accumulation.

But then, who knows, North Korea might be their next stop for cost of labour there is probably next to nothing, thereby making it arguably-potentially the most ‘competitive’ labour market on earth. To boot, they can also give nuclear sanctuary for those who want to hoard their wealth.

Yet from a sense of human decency alone, there should be some concern on what happens if/when you have a large and growing underclass of those who simply cannot make ends meet without handouts of some sort no matter how hard they work, and even then barely manage.

It is not always understood that government handouts, while sometimes formulated with good intentions, tend to ignore a few things. First, given the current economic debacle of collapsing capitalism there are sometimes not enough jobs available for those who want them. Handouts do not solve, nor can they permanently counteract, the problems arising from the innate instability and destructive nature of capitalist forces.

Second, even government workfare assistance when it has become institutionalized tends to take jobs away from other workers. That is, employers need only re-cycle workers coming off workfare by dumping them back out again under the disingenuous rubric of ‘structural unemployment’. It may simply be convenient for firms to rely on such coming-off-handouts short-term and lower paid staff as stop-gap labour measures — it is a means of being ‘cost-effective’ by replacing full time workers with temporary, and less paid ones.

There is always what Marx calls the massive ‘industrial reserve army’ of the unemployed who are the resource pool that sustains the fantasies of profit mongers: Who gleefully replace labour that might demand a reasonable and stable wage. Today this pool has widened and deepened thanks to low cost labour obtained via the grand design of globalization.

So the productivity of such ‘cost-effective’ employers is measured by how they throw workers out again so as to let them rely on handouts, then charitably bring some back in again: And repeat the process, based on desired profit margin.

This downward path of handouts also helps justify lower pay all round since there is now, ironically, a government subsidized workforce that allows unscrupulous bosses to keep lowering wages — it is then rationalized as economizing and optimizing by the misguided and the unethical.

When workers are thereby weaned perpetually on handouts due to the absurdity and viciousness of the economic system, then inevitably the issue of raising taxes in all its ugly guises comes alive.

Additionally, when you bring in even lower paid exploited globalized labour from overseas, then as some duffer from business school will say, you finally have even lower and truly ‘competitive’ salaries paid to all workers. It is an unforgiving lose-lose situation for the masses.

Moreover, this situation could also lead to many workers not only slogging overtime, but their overtime pay being cut too. After all, the government is there to bail these companies out indirectly through subsidizing a workforce on crutches. In effect, you have a system of forced labour in play with government support. In other words, the majority of human beings lose out every time to the few who ride their backs all the way to the bank.

This is not to say there must be no government assistance at all, but the obverse is true in that rather than use handouts as a strategy it is better to pay higher wages that were due to the workers in the first place: And freeze capitalist profit handouts for those grabbing at astronomical salaries.

The response needed, temporary or otherwise, to problems we face require political will, courage and commitment. Not more of the same old economic theories of the damned who have led us to this disastrous situation worldwide. Obama is no Roosevelt. And Roosevelt only woke up because the people organized themselves and got ready to really give him something to think about; but being a smart man – he did something constructive about it. Obama may be a nice guy and even a good man, but it would be interesting to see him display leadership once in awhile.

So in many cases, as in Singapore, the line of principled and pragmatic decision making has been reached and it remains to be seen how it is crossed. Many of us have come close to being unceremoniously chucked over the ‘Gini line’. Furthermore, yet another line: That of national solidarity and social compact is the next one that must be reached to ready for a smooth transition into the next phase of social evolution.

But people everywhere must also realize that waiting for someone else to save them will not amount to much. We must organize and come up with ways to solve our own problems. The Net is a great way to connect and lead to meet-ups and to come up with ideas that help us support one another. No great and worthwhile change ever comes from anyone at the top. It always comes from those who resist self-interestedness and obsession with keeping one’s comfort zones at the expense of others, and above all: It is grounded in moral courage.

There will be those who will continue to do great service by having the integrity to raise important and necessary issues that need national attention.

But the rest is up to us.

Philosophers for Change