https://www.socialeurope.eu/2016/09/inequality-can-done/

Inequality: What Can Be Done About It?

by Tony Atkinson, socialeurope.eu

September 14, 2016

Tony Atkinson, good morning and thank you very much for joining us today.

Good morning.
You have been working and researching the topic of inequality for a very long time and you’ve had eminent publications in the field. Just to get us going can you let us know again: what are the biggest problems with inequality? Why is it such a great social and economic problem?
Well I think there are two main sets of reasons why one is concerned about inequality, one is intrinsic that the kind of society in which we would like to live is one in which at least the gaps are not too big between the top and the bottom and that’s my regard as a very intrinsic reason why we feel that issues of social justice should be addressed. And then the second set of reasons are the consequences of inequality, which had quite a lot of attention recently in terms of their impact on all kinds of social and economic problems. But I think the consequences for me probably are the most serious when it comes to the relationship between two kinds of inequality; one is inequality of opportunity and the other is inequality of outcome.
And I’ve tended to focus on inequality of outcome because it seems to me that’s a necessary element in achieving something which virtually everyone seems to agree on – which is we should have a level playing field in terms of equality of opportunity.
Yes, of course, these two are linked, if I remember correctly, I think Anthony Giddens once wrote that this generation’s inequality of outcome is the next generation’s inequality of opportunity.
Exactly, I think that one sees this in all sorts of spheres from, as it were children going into education to access to jobs, all of these things have created a very uneven playing field. And I think that’s part of the resentment that’s felt by many people that they don’t, as it were, start off with the same chances in life. And that’s I think what lies behind quite a lot of the political movements that we’ve seen in the last few years.
You can also listen to the audio version of this interview
You’ve just mentioned this resentment and we’re living in very interesting times because we are living through what might be seen as a backlash against globalisation in general. Do you think that the development of inequality in recent decades has contributed to this backlash?
Well I think particularly through the lack of social mobility it certainly, I think, has done that. I think also of course one must recognise that inequality particularly of wealth conveys with it economic and political power, and that of course is another feature which is not just the elites. I think it’s the very influence of media and other parts of society which are controlled by a rather small number of people.
If that is such a big economic and social problem, and a lot of commentators would agree with that, and obviously the work you’ve done also over the years with people like Thomas Piketty and others, that has taken the centre stage in policy discussions in recent years.  The big question obviously is what can be done, and you’ve recently written a book about this summarising your ideas of how to rectify these problems. And I went through them and grouped them in four different sections and the fifth maybe is what you call the ideas that you think could be pursued on top of that.
So, if you dive into the potential solutions you seem to suggest institutional changes. You mentioned that public policy should aim at a proper balance of power amongst stakeholders; what exactly do you mean by this?
Well I think I should say first of all that my aim in writing the book was to try and dispel the sort of sense of inevitability about high inequality and therefore I was putting forward various ways of seeking to understand why it comes about and therefore how we can moderate it. And I think one of the things that has certainly happened is that institutions, like for example corporate institutions, companies, which used to have a broader view of their responsibilities, that they recognised that they had a responsibility in addition to that to their shareholders – also to their workers and to their consumers and their customers.
And I think it’s this broader notion of the social obligations of institutions and of course of individuals as well that we have responsibilities beyond both our own personal economic gains and losses. So I think that it’s part of a reaction that I have had to what seems to be a narrowing to a very much individual based self-interest which has come to emerge in the last two or three decades.
Okay, and then new ideas like Michael Porter’s shared value capitalism, they try to sort of, not revive the old dichotomy between shareholder and stakeholder models but try to align public and private interest in addressing some of the most pressing social and economic needs. Could that be one way of addressing these considerations?
Yes, I think in a sense part of the issues arise because we had in the post-war period some kind of balance of power between on the one side employers and the other side often trade unions or workers’ representatives. And that of course has shifted in quite a number of countries as a result of a number of things including, for example, the effect of privatisation resulting in reducing the power of trade unions to influence the behaviour of those institutions. So, I think we’ve seen a shift of power definitely away from workers towards capital, those who run firms.
So I think a number of proposals were designed to try and at least make sure that those interests of workers and indeed consumers should be represented. And a good example is provided by the negotiations with regard to trade agreements which seem to involve only one side as it were of that equation.
Well, unless there is the backlash that we now see…
Well the backlash is very much a reaction of those who are outside the negotiating room hammering at the door, yes.
Absolutely, you mentioned the role of social partners. The role of the trade unions in the social partnership has been diminished in recent years and sort of re-strengthening this part is a crucial step?
Yes, I mean of course I was writing a book sitting in the United Kingdom where social partners are probably weaker than they are in many other European countries. So some of my proposals were things which are already of course in place for example in Germany or in the Netherlands or other countries. But I think also I would want to add to this of course, I was trying to write for a 21st century labour market, not for a 20th century labour market, and the labour market has changed a lot and in important ways. We no longer have so many people who are doing a sort of Monday to Friday 9.00 to 5.00 job; we have people whose activities in the labour market are more a portfolio of activities.
And that does call for thinking or rethinking some of our institutions as well, not simply going back to how they were in the 1950s or 60s.
And rethinking in what way?
Well, I think that one has to recognise that people’s labour market engagement is now more varied, that we have to think more about the role of the individual’s part of a family context, so that it’s not just a one bread winner kind of view of the labour market. And that as a result of that one has to think about, for example, social transfers that are not so closely tied say to actually being in paid employment. Making provision for example for people who are only working part time or who have other activities like caring and so on to be able to qualify for the social transfers that they would get if they were (covered) under paid labour law.
We get to employment policy in a minute, but you also mentioned that there should now be an explicitly distributional dimension in competition policy; what do you mean by this exactly?
Well this one goes back to the origins of anti-trust in the United States. The bill was a Republican bill at that time, it was directed very much, not so much at monopoly power as at the fruits of monopoly power, the distributional consequences. And that was what they were addressing. Now, competition policy has moved to being only concerned with efficiency of markets and so on and doesn’t consider issues like for example the impact on employment or the impact on consumers.
And so you see things like for example enforced closure of bank branches which may from an efficiency point of view in terms of the way competition policy is run now seem right, but on the other hand not from the point of view of the consumer who loses an important service. That’s simply missing from the discussion at the moment.
Okay and you already mentioned employment and welfare, I mean these are areas that are not just suffering from sort of traditional problems of inequality but there are new dynamics coming into play here as well and especially technological change, the digital revolution as a shorthand for accelerated technological change. You say it should be an explicit concern of policy-makers and especially that increasing the employability of workers should be a focus of policy-makers. But how do you square this with some of the, let me say more dire predictions that maybe half of all the jobs might be susceptible to automation and might disappear in the long-run? So how would the policy be enacted in such an environment?
Well, I think it’s precisely because of that kind of concern that I was asking the question, who is it who makes the decision? And I noticed that there was a recent McKinsey report I think this week which discussed with a number of car manufacturers what they were doing in terms of driverless cars. And they say quite openly that this is all driven by us, the makers; this is not being driven by a demand from consumers. So it’s a good example it seems to me where in fact it’s not just the car manufacturers that are paying for this, it’s actually the European Union that is paying for this and the American government that is paying for this.
A lot of this development of this new technology and I think the European Union in deciding on where it allocates its funds for research and development should ask questions about whether driverless cars or driverless lorries is the priority. One can think of various ways in which robotic technology could be used, in fact much more easily I should say, in the home, for example to provide services for elderly people but also people with various forms of disability.
Now doing that would actually in fact generate jobs because it would allow people to stay in their homes for longer but they would of course need personal care so it would actually create employment in terms of personal care workers.  In fact my favourite example rather than driverless cars is to have what I call chef-less kitchens and robots that make your breakfast, which for many elderly people is actually a major problem and it’s a source of accidents and all sorts of things. And if they could simply press a button and have a robotic aid produce their breakfast that would actually allow them to remain independent and it would also create employment role and reduce it.
So the government should be more involved in, shall we say the direction of technological change?
I think one has to distinguish carefully between obviously the science, that isn’t the matter the government should be doing, but it should, I think, be giving priorities about what kind of technology we’d like to see in what areas, which industries, which activities. That seems to be exactly the kind of thing where governments should represent the views, not just of the manufacturers, which is what’s currently dominating it, but also the views of the potential customers and of the people who work in the industries that are affected.
On Social Europe we’ve run over recent months a rather large project on the implications of the digital revolution on labour markets, and you know, one of the common themes has been that this is a supply side revolution rather than a demand side revolution and that against the backdrop of already high levels of inequality with the potential macroeconomic impacts. A lot of people seem to be thinking about how a further polarisation as a result of technological change could be addressed, and one of the key discussions that comes up is that of a job guarantee versus a basic income. You seem to suggest basically a mixture of both, can you explain what you mean by this?
Yes, and the first point I would like to stress of course is that I think we’re not going to reduce inequality significantly unless we address market incomes. I mean I think that things like basic income and social transfers are important but unless we address what people actually earn in the labour markets or in other activities or the capital income they receive… unless we change that we’re not going to effectively reduce inequality to the kind of level that we used to have. So I think that’s the first thing for that reason. Obviously I attach quite a lot of importance to something which I’m afraid just doesn’t seem to get priority today which is full employment.
And I think when I was a student we had unemployment rates below 1% and we regarded 2% as horrendous. Now somehow we’ve got used to the idea of unemployment rates of 5,6,10%, whatever. And I think that’s of course partly a reflection of the macroeconomic objectives which the ECB has been given which are of course narrower than those that the Federal Reserve has in the United States, which has a responsibility for growth and employment. And I think we should go back to that and I fully agree with the macroeconomists that we need to have a combination of objectives which involves full unemployment as well as the concern about inflation.
Yes, but if you look for instance specifically at some of the ideas about a universal basic income, especially coming out of Silicon Valley, I get the impression that this is the libertarian version of the universal basic income.  The underlying idea is that obviously every product and service needs a consumer. Their idea is that if the technological revolution is a supply side revolution we need to make sure that there’s enough purchasing power amongst people that can consume our products and services. And they might not have jobs, so that’s again the basic income as a replacement for jobs rather than the other version that is sometimes talked about as a replacement for specific welfare provisions.
So we basically just hand out money, we fund this by basically slashing public services because then everybody has got their own money and can buy private health insurance, private unemployment insurance, private pension insurance and so on and so forth and they can still buy our products. Obviously from a European perspective where the welfare state is one of the key identity points of the European social market economies, that’s a highly problematic issue. So, do you agree with that or do you see that the basic income as a replacement for potentially lost jobs could work?
There are several debatable questions involved in that. I mean I think the whole issue about whether it makes sense to privatise services is something which we’ve had a lot of experience in the United Kingdom and I think the experience has been almost universally negative. So I don’t think we should go down that particular route. We’ve seen as it were the failure and now in many cases the withdrawal of the private sector from key areas because they can’t in fact make it work, so going back to having public provision of things like personal social services and so on.
But, leaving the downside, I think what I would say is first of all that employment in itself is actually not simply, as it were, a source of income. One has to recognise that in societies in which we live employment is an important part of people’s self-perception and their status in society. And therefore we shouldn’t I think simply accept that it’s only the cash that matters. So, that’s why I think full employment should remain and I think that is recommending doing what the American Congress voted to do in the 1970s which was to create a guaranteed employment scheme.
We should be thinking along those lines where I think on a sort of broader principle the state’s role should be that of, as it were, setting standards and getting the private sector to emulate those standards, rather than necessarily regulating. And in that way, I think the state by offering jobs which were of a certain quality that would actually make it harder for us to have very poor quality low paying jobs than we have at the moment. And that in itself I think would be an important role in dealing with the issue of in-work poverty which is simply returning to full employment.
The problem with that is that full employment with low paying jobs is not necessarily going to answer the problem about dealing with poverty.
No, I completely agree, I mean I’ve heard about this issue and I’m a big fan of the job guarantee, precisely because it preserves the social aspects of work in our society, and I’ve faced the criticism that people say, well that keeps the traditional dependency on wage labour and preserves bullshit jobs, as David Graeber called it. But I would disagree because if you have a job guarantee scheme, this is something that sits in between a traditional labour market and a basic income which is just a handout. Because as far as I can see what it basically does is it decouples the payment for the work from the content of the work. And if you then as a society determine the areas in which you want to incentivise activity creation, and you mentioned healthcare and elderly care before, I mean that is an area that is currently underserved.
But you could also imagine much more activity in terms of engagement in communities, arts and culture, so I don’t think societies will run out of ideas for how to spend people’s time wisely. But if you disconnect the content from this work from the payment which effectively takes away the market mechanism, I think that might be a much better way going forwards, also for social benefits than just handing out money as a basic income.
Yes, I agree, I mean I don’t think – we’ll take it on board, but I don’t in fact favour a basic income as such, what I favour is what I call a participation income. And this goes back to a longstanding disagreement I’ve had with the Belgian philosopher Philippe Van Parijs, who once wrote an article saying should surfers be fed and his answer was yes, and my answer was no. I mean I think we have to have some formal conditionality on a basic income.  I mean people tend to ignore that, but you can’t just pay a basic income to everyone because we don’t know, who is everyone?
Is it all German citizens? If so that violates the treaty in the European Union; you can’t do that, you have to treat everyone – this is in Germany or in France or wherever – the same. So you then have to decide who gets a basic income and then you get into rather difficult issues. So, the way I would approach it is to say well people do indeed have to qualify which doesn’t necessarily mean paid employment, I mean I think it would – clearly full time education, qualifiable people doing for example caring for children or for elderly relatives. A variety of things that would qualify people for it, but nonetheless would be a qualifying condition.
Well I was on the panel with Philippe I think two months ago and actually these points came up. As long as we have freedom of movement within the European Union and well mind you it might be under attack at the moment. As long as you have this and the non-discrimination rule, it’s very hard to see how you can implement it in any country individually. And also, you know, if it’s not means tested in any way and you pay it to everybody and try to reclaim it via the tax system, and knowing how leaky the tax system is, it’s just a waste of public resources.
Well no, I don’t fully agree with that, I think the participation income would work within the European Union, that’s the reason I suggested it. Basically if you’re a French citizen working in Germany then you would qualify for a basic income that was paid in Germany or vice versa. So I think that actually this condition which in fact is not very different from the kind of conditions under a number of social transfers would actually be possible to do that. And as for the question about means testing, of course we do give everyone a tax allowance which is exactly what this is, except that it’s the same for everyone rather than going up in value, higher marginal tax rate. I mean it’s essentially cashing out a tax allowance.
Yes, but I mean it would probably depend on the level you set it. I mean if anybody with the right of residence say in Germany gets a basic income that is a multiple of an average or a minimum wage in other country – I mean at the moment we don’t have welfare tourism, any evidence for this, but something like that would certainly set incentives for people just to move for that.
But they wouldn’t qualify necessarily.
How would you distinguish that?
Well because it will be a participation income, not a universal income; it won’t be paid – unless they were working or unless they were in education or unless they were caring they wouldn’t qualify.
Okay, so it’s based on participation rather than just being resident
Oh indeed, residence is not enough, as you say otherwise people can simply arrive at Heathrow and claim it and not set off again.
Okay, well that’s an important distinction then. But in this particular area I mean there’s a lot of need for fundamental rethinking and especially if some of the traditional work disappears of course one of the transmission belts is that – well not in the UK but in an insurance based system such as Germany for instance, the way the welfare system is financed is based on work; it’s based on the contributions of workers and employers.
Exactly, yes.
So there are a lot of problems on the horizon in this area, but let me get to group number four which you’ve also written a lot about which is taxation. And you made a series of proposals in this area as well, so what do you think in terms of taxation against the backdrop of inequality and these technological developments? What needs to be done in terms of a tax reform?
Well I think the first thing to mention or stress is that we need to rehabilitate taxation; I think our political leaders have done us a gross disservice by not standing up for the fact that if you wish to live in a society you have to pay for supporting the infrastructure of that society and providing all the needs of education, health and so on. And I think that it’s very illuminating to go back to the speech made by Joseph ___[0:25:26] in 1919 when he was contemplating clearly the competition between communism, socialism on one side and capitalism on the other. And he said basically unless capitalism has a proper fiscal system it’s not going to win this competition in the long run, and so I think again it’s something which we used to recognise.
I mean if you look at the Internal Revenue Service building in the United States, it’s on one of the buildings outside the main entrance, it says, “Taxation is the price we pay for civilisation.”
Not many people recognise that these days.
No, well I think that’s a failure of political leadership; I think the first thing we have to do is say well actually – I think many individuals are recognising this. I mean quite a number including very wealthy people are saying that they recognise that they wouldn’t be able to run their businesses if they didn’t have roads and so on. So I think that although there are some who don’t recognise it like some of the people in the newspapers recently, nonetheless I think there is recognition amongst many individuals that this is a necessary thing.
And then you have to ask the question of what kind of taxes to use in a world where of course we’re constrained particularly by the external effects of globalisation and mobility and trade and so on. So I think it means we have to rethink some of the things, but nonetheless, I think actually we are beginning to rethink for example the role of corporate taxation and beginning to realise that we have to have a multinational agreement essentially on this which we’re moving slowly towards.
Yes, obviously there are massive collective action problems when it comes to international corporate taxation isn’t there, so I mean how can you avoid the kind of transfer pricing that we’ve seen or just a sort of piling up cash in offshore tax havens, how do you get around this? How can you actually make sure that a proper amount of taxation is being paid? And it’s quite interesting in recent examples where you have had issues about companies not paying enough tax in certain jurisdiction. I find it quite stunning that some of the managers then basically say, “We pay our fair share”, as if they determine themselves what the fair share actually is.
Yes.
And the fair share was never the official tax rate, so…
No, and I think as Warren Buffet famously said it was wrong that he paid less tax than his secretary did. And yes, I think this is going to be hard to do it unless there is – it’s a shift but it’s also a return to some degree of broader ethical view being taken by people who are taking these decisions. But on the other hand it’s also the fact that I mean I think unless we resolve this it’s not clear we can continue. I mean I think unless we can fund for example basic provisions of education and health and public administration, which I think again has been grossly underfunded in recent years, unless we do that societies are going to collapse, and I think that Schumpeter was right.
It may take some time but nonetheless some of the things one is seeing like the political movements and so on, is a reaction to a system that’s broken.
And you mentioned in the book that you advocate a top rate of tax of 65% and a broadened tax space which would also include property taxes on up to date property prices; do you think this – how could you implement this?
Well, property tax is a scandal, I mean I know it’s particularly a UK scandal; we don’t do what any American small town is able to do which is to levy a property tax properly. This is a total failure of political will, not of feasibility, I mean as I said; every smallish town levies a property tax quite successfully. So that isn’t particularly difficult, it’s the fact that people are not willing to do this. And of course part of the reason I wrote the book was to say, well people can’t just wring their hands and saying, “Nothing we can do.” They can do things but they have to choose to do it and unless they do then I think one is calling their bluff about their concern about inequality.
So they’re not really serious about it if they avoid the sort of areas of reform effectively?
Exactly, and of course property tax is a good example where there’s no doubt that the imposition of what I propose would actually lead to a reduction in prices being obtained for properties at the top end of the market, and I think most people would welcome that.
Yes, most people would say that’s a good thing to do, yes.
Put it the other way around, there’s a lot of concern expressed about the fact that people are investing in this property as a way of making a lot of money, whereas if I was to return to that kind of tax system that would immediately wipe out quite a lot of the incentive to do that.
The investment in high value property leads us directly into the fourth and final group of proposals I would like to talk about which is saving and investment; one of your proposals is that the government should offer national saving bonds, at guaranteed positive interest rate. Do you see that as a problem because there is not enough personal saving for retirement around? Or why do you propose this particular reform?
Well it is rather staggering, I mean that for now getting on for ten years we’ve had essentially zero, or close to zero real interest rates. And I think many people are completely at a loss to know what to do because they are rightly wanting to save for their old age; our state pension system in this country is not particularly generous, but all countries I think are anxious about providing for example for the cost of personal care and in later ages. Now all of this is a good reason for saving but if you’re essentially saving at negative real interest rates, it is at the very least discouraging.
And I think that the government in fact in this country used to offer index-linked securities guaranteeing I think 1% real return, which most people today, small savers, would regard as a very generous rate of return. And the government can do this because the government can actually – it has the fiscal resources as it were to back paying that kind of interest rate. And it’s hard for me to understand why particularly conservative governments on the right aren’t more concerned about small savers who are at the moment baffled by what they’re supposed to do.
And I mean that’s a proposal for reforming personal savings but one proposal you put forward I’m particularly interested also in is your idea of a public investment authority, call it a sovereign wealth fund or public investment fund, there seems to be a lot of interest in this generally. Especially if the relationship identified by Thomas Piketty holds true that returns on capital on average are higher than the growth rate, that one way of preventing further increase in inequality is effectively re-socialising some of these returns and using public investment special purpose vehicles could be one way of doing that, so what would be the structure that you would favour?
Well I think you mentioned Thomas Piketty, and r>g which was emblazoned on t-shirts and so on, but a lot of people said to me, “Well, his r might be bigger than g but mine isn’t.” And there is of course a big gap between the rate of return on capital in a sense of what the rate of profit is and what gets paid on financial assets, and part of that gap is due to the financial services industry taking often quite substantial percentage of the return. And that means that it leads to the problem of the low rates of return for the favours when faced with – at the same time as a reasonable rate of return on capital as such.
So the way I’m thinking about it was in terms of, as it were, the state acting again as an intermediary and distinguishing carefully between, as it were, a beneficial ownership of productive assets and the control of those assets. I’m not advocating returning to nationalisation but to the state having minority holdings in productive enterprises. And we used to in the past have a British government used to own I think 49% of British Petroleum for example. I mean it doesn’t have to be 49%, less than they were a controlling interest would then mean that the government was able to derive the benefits in terms of technological change and growth of enterprises.
And that would provide a source of fiscal resources which could be used for example to fund guaranteeing a return to small savers or for other purposes.
So you’re basically advocating step one of the two step proposal that Giacomo Corneo, an Italian economist who teaches in Berlin, put forward.  So basically he actually suggested in the second step that in some key industries the public shareholding should actually exercise influence on management or take over management effectively in some cases as well. But I mean how would you fund such a scheme? What we did about 18 months ago or so I think is taking this basic idea and linking it to some of the reform proposals for the Eurozone.
One of the key elements that it’s apparent is missing – it’s often mentioned as missing in the Eurozone is a fiscal capacity. And rather than introducing Eurozone wide taxes which seems to be quite a significant way off, one of the things that I’ve written about was taking this idea of an investment fund or a sovereign wealth fund that could be debt financed with a one off emission of joint liability bonds that would be paid off over the maturity rather than being rolled over perpetually. And then splitting these returns between creating some sort of fiscal capacity for the Eurozone and increasing the size of the fund.
Would some vehicles like this – I mean I think what we do wrong in Europe at the moment is not using finance as a tool for a good society. We are very suspicious when it comes to finance even though finance as such is not positive or negative, it’s what you use it for. So I mean do you see also scope of action for reclaiming finance for these socially beneficial purposes?
No exactly, I fully agree with you, as you say that finance properly used is a very effective instrument. It’s obviously one of the things that allowed the world to develop in a number of ways, so yes I absolutely agree with you that one has to think creatively about what the nature of that finance is. What you suggested seems to me like a very good idea particularly given the very low rates of interest at the moment which governments can borrow and given the fact that the rate of return on capital remains quite high. Filling that gap or using that gap to begin such a sovereign wealth fund seems to me an excellent idea. In fact a number of countries such as Norway’s fund their siveriegn wealth fund largely out of receipts from the North Sea oil, but France has also I think started a sovereign wealth fund in recent years.
Yes, I mean some of the distinctions I’ve heard is that you shouldn’t call it a sovereign wealth fund because one of the determining factors is that as you said it’s basically created out of surplus sales of commodities or trade surpluses, whereas what we suggested here is a debt finance instrument so it should be an investment fund. Or it doesn’t matter about what you really call it but the question is effectively in these current market circumstances, and I think they are key, especially if you maybe involve the ECB in one way or the other in financing such an investment fund, you could basically raise capital for close to zero, and that could open up quite a lot of opportunities.
And another criticism that I’ve heard is that yes, it works fine in theory, but not on that scale. So you couldn’t do that on a Eurozone wide scale say you create a fund that might be 1% or 2% GDP and that the arbitrage effects that you use by effectively borrowing and then investing wouldn’t work on that scale. Would you agree with that?
No, I don’t see that as – I don’t follow that argument. I can’t see quite how it works. The point I would make though is of course that one of the problems is that we focus almost exclusively when looking at the fiscal position of governments or of the Eurozone as a whole, on only one side of the account. We focus basically on the debt side of the account. And therefore we don’t look at the asset side of the account. Whereas the right thing to look at is the net worth position and that seems to me as what in fact interestingly one of the students in Oxford has been looking at this.
It’s the net worth position that may be more relevant to determining the interest rate at which the Eurozone or national governments could borrow. Because that clearly determines the capacity to repay and if alongside your debt which may be quite large in terms of this financing is a block of assets which are in fact guaranteed-
That’s equally large…
It’s also large and guaranteeing the fact that repayments can be made and if you’re a lender that’s clearly what you’re concerned with. So I do think again our leaders have done a disservice by focusing so exclusively on the debt position.
Oh absolutely, there hasn’t been a balance sheet approach at all to policy making.
No, and I mean I was giving an interview for a German newspaper, what is the net worth position of Germany? I mean we know about the debt position but what is the net worth position? And I’m not sure we know the answer to that, whereas –
Well, we do know that Germany has had an investment gap for the last 15 years and that the national capital stock is depreciating…
Yes, well exactly, quite.
And that just goes to show again nobody takes a balance sheet approach to fiscal policy and people just look at the liabilities. I mean obviously being a German I find it highly frustrating that it’s basically a tool of public communications and PR that you basically wave a bank account statement in front of the public saying, “Oh we have zero new debt” but not mentioning at the same time that Autobahn bridges have to be closed because they become unsafe, school buildings are falling apart and so on and so forth, so it’s highly bizarre.
I totally agree with you, yes. And at an individual level I mean someone would just laugh at you if you said, “Let’s focus on the mortgage, not on the fact they own a house.”
Well on a personal level it’s almost the other way around isn’t it; you present a nice car but don’t mention that it’s completely borrowed…
Let’s come to the final part maybe, it’s a highly interesting conversation and obviously we could go on for hours. But if you were a European policy-maker or a leading policy-maker in one of the leading European countries, where would you start given where we are, what would be your top priority policy changes to be implemented in the short, medium and long-term?
Well I hesitate to sort of say of my 15 proposals that one is my favourite, because what I was trying to do was offer, as it were, a menu of choice, and so…
But maybe in terms of feasibility say, I mean we work with a lot of policy-makers who would like to get going but find the political process being a main obstacle for actually getting through, so maybe prioritising ideas that have sort of the least resistance against them.
Right, there’s one aspect which we haven’t covered so far in the discussion, again I tried to stress which is the intergenerational inequality.
Okay.
In the past I think we haven’t worried too much about it because there was a general presumption but I’m sure we’re going to be better off than we were and so on. So I think there’s a feeling that in some sense growth and rising living standards would offset whatever disadvantages we might be passing on. But I think that’s no longer true, I mean I don’t think we can be sure that our children and grandchildren are going to have a significantly higher living standard, it may well be a lower living standard if some of the environmental damage and so on that we’re doing is not offset.
So I think that this is now an issue and it’s an issue which, I think again, features to some extent in political movements and so on. So I think if I had to choose one thing I think it would be investment in children. And this is an idea which has had a certain amount of interest in discussions about social policy in the European Union of a Europe-wide, in this case basic income for children. That is guaranteeing each child would receive at least a certain fraction of the country’s median income as a payment or whatever form the scheme would take.
And that of course would be a rather straightforward way of putting a reflationary element into the budget, and it would almost certainly be… I think since the people receiving it are likely to spend it.
So reclaiming an active fiscal policy to actually set the content up and spur activity?
Yes, I mean its appeal would be partly that we’re investing in our future, which I think most people find that a fairly persuasive argument. It would also of course mean that in some countries it will be more important than others, depending on the size of the population and growth rate and so on.
And it should maybe also be focused on sort of reigniting or making believable again that we could end the problems of cohesion? In the European Union cohesion policy has not been as successful as promised. So, inequality between countries obviously is a political problem for the European Union as a whole.
Yes.
Okay great, so Tony I think we’ve covered quite a lot of ground here, well I’m sure this topic is not going to go away any time soon, and I hope we have the opportunity to come back to this at a later stage and sort of discuss a few more ideas in more depth. By that time hopefully also against the backdrop that some of the proposals that you put forward have already been implemented; that would be great. Thank you very much for joining me this morning.
Thank you it was a very interesting discussion. Thanks.
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