It’s a not so funny old world

by michael roberts

We wait to see what misery the Greek parliament agrees to inflict on its people now that its prime minister Papandreou has been forced to backtrack on his referendum vote designed to force the electorate to back the austerity package – or else.   It’s not so funny to realise that just about the only people who have been paying tax in the ‘black’ economy of Greece have been public sector workers (where tax is deducted at source, unlike businesses) and yet the group bearing the biggest burden for the weaknesses and corruption of Greek capitalism are those very public sector workers (along with the wage slaves in the private sector).  They must see their jobs, pensions and livelihoods go, so that the bankers can be repaid (or at least part repaid now – see my post, Greece going under, 2 November 2011).

According the EU Commission, the total receipts from taxes and social contributions in Greece amounted to 32.6% of GDP in 2009.  That compared to the euro area average of 40.1%.  Of that 32.6% of GDP, employers and corporations contributed just 7.1%; the rest came from VAT, import taxes, employee social security contributions and personal income taxes.  In Ireland, capitalist businesses contributed only 5.7% of GDP out of 29.4% in total.  Revealingly, capitalist businesses in the UK and Germany contributed little more than Greek businesses, just 7.2% and 7.4% respectively out of a much larger overall take than in Greece of 36.3% of GDP in the UK (still pretty low) and 40.8% in Germany.

It’s even worse in the US according to a new report by the Institute on Taxation and Economic Policy.  They found that between 2008 and 2010, that 78 of the 280 most profitable American corporations paid no federal income tax at all in at least one of those three years.  And 30 companies actually received rebates, although they had made $160bn in profits during that time (see www.ctj.org/corporatetaxdodgers).

The official corporate tax rate in the US is 35%, but the average effective tax rate was less than half at 17.3%.  That’s because the US government paid out $223bn in tax subsidies to these corporations.  Indeed, Pepsico actually had a negative tax rate of 57.6% – so the American taxpayer was subsidising the production of cola drinks.

But while we wait for Greece’s political leaders to come up with another farcical ‘solution’, there are a few other salient and often ironic items worth bringing to your attention.  First, it seems that the facts on the level of government debt in some Eurozone countries must be questioned.    It was revealed earlier this week that the Irish public sector debt level was actually €3.6bn lower than previously thought.  It seems that economists/accountants in the Department of Finance had double-counted the debt of the Housing Finance Agency. Once this elementary mistake had been corrected, it reduced Irish government debt from €148bn to €144.5bn, taking the debt ratio down from 94.9% of GDP to 92.6%.  That sounds like not very much, but it is actually quite a lot for a small economy like Ireland’s.  Ireland, of course, like Greece and Portugal, is tied into a ‘bailout package’ drawn up the dreaded Troika of the EU Commission, the IMF and the ECB.  However, it is doing better in meeting the fiscal targets set by the Troika, even though the unemployment rate is at 15% and living standards are still falling.  Tax revenues are rising because of the big multinationals based in Ireland (on the lowest corporate tax rate in the OECD) are selling more exports, while the government prepares more tax hikes and public spending cuts in its budget next week (because economic growth is still weak).  But it would help if the economists got their figures right too.

But it is not only the Irish that mucked up their own data.  The efficient Germans did an even worse job.  Germany’s Financial Market Stabilisation Agency, FMSW, was set up to use taxpayers money to bail out the banks.  Apparently it has not done its sums right when measuring how much the public purse was liable for in bailing out failed German banks.  Indeed, the FMSW inflated the debts of Hypo Real Estate bank by $76bn!  Again, that’s worth about 2.5% of German GDP in debt.  It shows once again that you cannot be sure that you are getting the truth about public sector debt when the ‘experts’ can make mistakes like this.

Second, the financial crisis and the ensuing slump have produced more noises from the most unlikely sources in Germany that maybe, after all, their countryman Karl Marx may have been right.  The co-publisher of the ultra-conservative German daily newspaper, Frankfurter Allgemeine Zeitung, Franck Schirrmacher wrote in his paper that “I’m beginning to believe that the Left may have it right…The doubts are growing about whether I’ve been holding the correct views all my life.  It now looks like the assumptions of my greatest opponents were right all along..  A decade of unchecked financial markets has revitalised leftist views.  They’re back now and they are needed!”  The finance spokesmen of Die Linke, the leftist party in the German parliament, said that the mood in Germany about taking over the banks had shifted.  Four or five years ago he was ridiculed, but “now people are eager to hear the message”.

In the UK, the Archbishop of Canterbury, head of the protestant church of England, the state’s recognised church, wrote in the conservative magazine, The Spectator, that “what we have been witnessing is not just the product of a couple of irresponsible decades… trading the debt of others without accountability has been the motor of astronomical financial gain for many years”.  He went on, “the crisis exposes the basic element of unreality in the situation – the truth that almost unimaginable wealth has been generated by equally unimaginable levels of fiction, paper transactions with no concrete outcome beyond profit for trades.”  The Archbishop makes it clear, of course, that making a profit is a “legitimate motivation for people”, but there is no guarantee that it “will alone secure stable and just outcomes everywhere.” Indeed, “Marx long ago observed, the way in which unbridled capitalism became a kind of mythology, ascribing reality, power and agency to things that had no life in themselves; he was right about that, if about little else”.

These grudging admissions by the conservative media mogul in Germany and the head of the Christian church in the UK, have not, however, been echoed by the leaders of our much-maligned economics ‘profession’.  A new row has broken out in the US, where at the bastion of mainstream economics and financial leadership, Harvard University, students of the basic economic class EC 10, walked out of the class being taught by the most influential economist in the world, Greg Mankiw.  Mankiw gets that accolade because his economic textbooks are read and used in virtually every university course in the US and globally.  His interpretation of what economics is about and what the newest students should be told dominates.  A section of Harvard students have now questioned his approach.  Just read this piece (http://www.criticaltwenties.in/uncategorized/in-support-of-the-harvard-stude) to get a flavour of the issues involved.  Mankiw himself is unapologetic and so are his peers in the leading universities about the failures of modern mainstream economies (for my critique on the role of mainstream economics before, during and after the crisis, see my paper The causes of the Great Recession).  For them, the mythology that the Archbishop of Canterbury referred to, is still expounded as truth, while heterodox or non-mainstream views about economies and economic processes are ignored, especially radical Keynesian and Marxist analyses.

While the likes of Mankiw and other mainstream economists continue with their unrealistic models of perfect competition, efficient markets and equilibrium analyses of the capitalist economy, the reality of how the capitalist economy is structured was revealed this week by an extraordinary piece of research by non-economists.  Three complex systems theorists at the Swiss Federal Institute of Technology in Zurich used their mathematical models to map ownership among the world multinational companies.  They used a database of 37 million companies and pulled out 43,060 multinational and the share ownerships linking them.  They found that 1318 companies had deeply interlocking ownerships (no perfect competition there).  On average, each of these companies was linked by share ownership to another 20 companies.  Indeed, just 147 companies worldwide controlled 40% of the total wealth of all 37 million companies in the world!  A truly staggering concentration or centralisation of economic power.  The 1318 companies controlled 60%!  The researchers argued that this was what you would expect to happen when an economy becomes ‘self-organising’.  So it’s a natural result of the so-called ‘invisible hand’ of capitalist competition and markets that competition and free markets should disappear into oligopoly – something Marx predicted before it happened.  We can see how out of touch mainstream economics is.