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You Can't Become Rich In Your Pocket Until You Become Rich In Your Mind | ||||
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Indigenous peoples believe that the flow of money to these projects has had a damaging effect on tribal culturesBen & Jerrys is a favorite of the soulful capitalism crowd. Unfortunately, as its own social auditor, the soulful catalog merchant Paul Hawken, admitted in the firms 1994 annual report, reality didnt support the claims that the Brazil nuts used in B&Js Rainforest Crunch were harvested by indigenous people for their benefit: The label on Ben & Jerrys Rainforest Crunch Ice Cream gives the impression that the harvest of the nuts benefits indigenous forest peoples. In fact, the nuts are not harvested or sold by indigenous peoples but by the rubber tappers of Brazilian and Portuguese ancestry who have worked the forests for a century. One might ask what constitutes indigenous status and this might be a minor point if not for the fact that some experts on indigenous peoples believe that the flow of money to these projects has had a damaging effect on tribal cultures. The influx of cash has created inequities, rivalries, and an appetite for western goods while reducing the attention paid to the real issue; land ownership. Quoting Indian Unity: Our communities independence is weakened as our well-being is made dependent on western markets. Selling products is meaningless if we ourselves do not control the marketing projects and the natural resources, if we ourselves do not control our lands and have the right to say what we want. A second point regarding label accuracy is that the bulk of the nuts used in Rainforest Crunch have been commercially rather than alternatively sourced.5 These failings are emblematic of the weakness of SI in general: it too easily becomes just another marketing gimmick, while doing little to address inequities of wealth and power. In the Third World, similar small-scale lending schemes are proffered as cures for poverty in places where conventional development has failed.6 The favorite example, the South Shore of the alternative development crowd, is the Grameen Bank of Bangladesh, which offers tiny loans only to women, who supposedly build businesses with the proceeds and exit poverty. Grameen has earned glowing reviews, based mainly on its own testimony and citation of previously published glowing reviews; in fact, hardly a negative word about the bank appeared anywhere in the press until Gina Neff investigated Grameen for Left Business Observer (Neff 1996). Despite claims of poverty reduction, over half of Grameens long-term borrowers cant meet basic nutritional needs. Despite claims of commercial viability, the enterprise is kept going only by philanthropists subsidies. Despite claims of empowering women, Grameen loans formalize womens informal household labor (while blocking their entry into potentially more liberating with all the appropriate qualifications waged work), typically without increasing their autonomy within the household (well under half have significant control over the businesses held in their names). By contrast, the Self-Employed Womens Association of India (SEWA) offers credit, but as part of a package of education and political organizing. With Grameen, male lending officers really call the shots. The appeal of microcredit schemes like Grameen which have been adopted enthusiastically by the likes of the World Bank, Hillary Clinton, and Citibank is that they are a low-cost, nonthreatening substitute for real self-organization, like SEWA, and for expensive public programs like education, health care, and infrastructure investment. It may be that the lesson of the World Banks experience over the last 50 years is of near-universal applicability: its very difficult, if not impossible, to borrow your way out of poverty. rethinking property More promising than New Age banks are strategies that alter the nature of property relations. For example, community land trusts (CLTs) are democratically controlled non-profit corporations, with open membership and elected boards. The purpose of a CLT is to acquire land and hold it permanently for the benefit of the community. The land is then made available through long-term leases to individual families, cooperatives, and other organizations who may own buildings on the land. Resale restrictions in the ground lease keep the property available for future purposes (Community Investment Monitor 1995). CLTs were developed by the founders of the Massachusetts-based Institute for Community Economics (ICE), Ralph Borsodi and Bob Swann, in the 1960s. Lessors on CLT land can be compensated for improvements they make to their building, but they cannot sell it on the open market; the idea is to remove the parcel of land from the property market forever. A similar concept, limited equity co-ops, can be used in cities; residents can buy an apartment from the co-op, and sell it back when they leave with appropriate compensation for any improvements they might have made and general inflation, but with no possibility of significant trading profits. A former director of the ICE, Charles Matthei (personal communcation) argues that increases in property values are claimed by individuals, but, aside from improvements made by the occupant, are typically the result of social action like public infrastructure development or general economic growth. Its fundamentally unfair, Matthei says, that these social gains should be captured mainly by private individuals especially unfair if they contributed little or nothing to their neighborhoods upscaling except having been there at the right time. Still, CLTs are a speck on the horizon; as of late 1995, there were only 90 of them in the U.S. The ICE, a leader among leaders, according to the newsletter of the National Association of Community Development Loan Funds (Community Investment Monitor 1995) had equity capital of $531,000 and had lent a total of $26 million between its founding in 1979 and 1995. With the total value of land, buildings, and other tangible assets in the U.S. nearly $20 trillion in 1994, according to the Feds flow of funds accounts, CLTs have a long, long way to go. One of the reasons to be skeptical about institutions that dont alter property relations is that institutions and people that start out with noble goals often end up reproducing the ills they were meant to correct. The U.S. is full of community organizations and nonprofit housing developers that now seem indistinguishable, except maybe in matters of style, from conventional real estate developers and banks. It is no accident that the Ford Foundation has embraced community development schemes; no institution in America is better at spotting potential troublemakers and domesticating them (not only in the U.S., but around the world). taxes: soak the fat boys! Many of the approaches Ive just discussed are attempts to craft marketfriendly responses to social problems. Theyre often represented as fresh approaches to old problems, when in fact theyre really convention tarted up as innovation. Im reminded of Karl Krauss comment about psychoanalysis that its the disease of which it purports to be the cure. If old thinking can be successfully passed off as new, why not revive some better old ideas than the ones now being re-animated? Capital controls, for example, once a cornerstone of social democratic thinking, are now dismissed as hopelessly obsolete. But why? Why not require government approval of inbound and outbound foreign investment? It worked quite well for Japan and South Korea; why cant capital controls be put in service of an agenda more humane than the rapid growth in GDP and exports? To those who say that modern technology makes it easy to evade such restrictions one can easily reply that it also makes it easier to impose them. The principal obstacles arent technical, but political (not that the political obstacles are minor). Perhaps the most unfashionable idea of all is taxing the rich or soaking the fat boys, as Jack Burden, the journalist turned political consultant, put it to Willie Stark, the Huey Long-ish hero of Robert Penn Warrens All the Kings Men. Seriously boosting the income tax rate on the richest 12% of the population could fund all manner of public programs, from free education and childcare to public jobs programs. And taxation of wealth itself, along with income, would be a wonderful way to raise funds for, say, the upgrading of the public physical and social capital stock financing urban reconstruction, mass transit, alternative energy research, and environmental repair. Both forms of taxation would also have the lovely side-effect of reducing the wealth and social power of the very rich. Income taxes are familiar, but wealth taxes arent. Washington taxes wealth only on the death of the very wealthy, and even then estate taxes are quite porous, and are often referred to as voluntary, because anyone with time and a clever lawyer can pretty much dodge them. As of 1990, eleven OECD countries, all in Europe, had some form of wealth taxation in effect, although the burden on the well-off was in general quite light. Simulations by Edward Wolff (1995, chapters 8 and 9) show that adopting the Swiss system of wealth taxation would have raised $34 billion in 1989; the German system, $68 billion, and the Swedish (since repealed by a conservative government), $329 billion in a year when total revenues from federal income taxes were $446 billion, and the muchbemoaned deficit was $152 billion. All three models exclude household effects (though not owner-occupied housing) and pensions from wealth taxes, and the German and Swedish versions also spare life insurance. So all three leave the poor and the middle class largely unscathed. Only a Swedish-style tax would bite the upper middle class; those with wealth in the $75,000-100,000 range (in 1989) would face a new tax equal to about 15% of their present income tax; those in the $100,000-250,000 range, 39% of their income tax, and those above $250,000 would take a hit close to or larger than their present income tax liability. Obviously such a tax would have very dramatic economic, fiscal, and distributional effects, unlike the other two national models. A Swiss-style system would be barely noticeable to non-millionaires, and German-style system would hardly touch those with wealth holdings under $250,000. Even so, the amounts of revenue raised would be more than notional in an era where public services are starved for funds. There are few serious arguments against wealth taxes except the preservation of privilege. Wealth taxes would tend to hit older families harder than younger ones, even though some older families may have lower incomes than their more youthful fellow citizens, but careful design of the tax could mitigate these effects if that were desired.7 But of course, a wealth tax by definition would hit only those with a lot of commas in their bank balance. Rich folks and their hired pens would no doubt claim very damaging effects on saving and investment, but the U.S., which taxes wealth and income very lightly, has one of the lowest rates of saving and investment in the First World lower than Sweden in the days of its tax. More generally, there appears to be no strong evidence that the presence of a wealth tax inhibits savings (Wolff 1995, p. 54). And, as Wolff points out, the fact that Switzerland taxes wealth makes capital flight arguments a bit hard to sustain, since that country is the target, not the source, of a not insignificant share of the worlds flight capital. Another levy, designed more to change behavior than to raise revenue, would be to tax securities trading. The idea of a transactions tax to cut trading volume goes back at least as far as Keynes (CW VII, p. 160), who drew a contrast between Britain, where brokerage commissions and trading taxes were high, and the U.S., where both were low: The introduction of a substantial Government transfer on all transactions might prove the most serviceable reform available, with a view to mitigating the predominance of speculation over enterprise in the United States. Keynes further argued that the purchase of a security be made permanent, and indissoluble, like marriage, except by reason of death or other grave cause. Nowadays, of course, marriages are dissolved for reasons other than death or grave cause, and few civilized people would argue that divorce be made as difficult as it was 60 years ago. But if you believe that heavy trading increases the volatility of asset prices and encourages all manner of pointless or malignant financial hyperactivity, then transactions taxes are a simple but potentially powerful remedy. Its not the euthanasia of the rentier exactly, but its the first prick of the fatal needle. Stock trading costs in the U.S. for large institutional investors are the lowest of any major market by a considerable margin. According to 1992 data from Frank Russell Securities (cited in Campbell and Froot 1994), U.S. traders paid 0.30% of the value of a transaction in commissions and fees, or 30 basis points (bp) in market jargon; next-cheapest was Britain, at 50 bp; in other markets, the figure was 60 bp or higher. In addition, eight of the 10 countries imposed taxes or other fees on top of the brokers take. British taxes were equal to another 50 bp, making the cost of moving a share of stock from one set of hands to another more than three times as expensive as the U.S. So, not only does the U.S. have the worlds largest capital market, it also has the cheapest. |
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