Subverting the Global Economy through Local Action Part 2

[part 1 here]

For a while, I had intended to write this post all by myself and make it a masterpiece of bloggery, so I started looking around for inspiration and links.

And I found others have already mastered this topic.

So I'm not going to write an article, post, diatribe, or paean: I'm going to stop right here and link to others' works that cover the topic far more thoroughly than I could in a single article. The overriding thesis: we don't need to do anything particularly organised to overturn the current economic order. All we need to do is reduce our overall need for money. That can be done through sharing, gifting, cooperation, crafting, making, and swapping - all of which is fun and builds community, which is far more useful than money. But don't take my word for it:

The concept of Earthship Village Ecologies links ecological concepts by creating work and resource flows rather than currency flows, and creating community instead of economy.

This is a good core article on the economic underpinnings of the Sharing Economy, and how we can resuscitate it for the modern age.

The Creative Commons is a global open-source style movement that gives a legal basis for sharing IP without giving corporations or individuals the opportunity to monetise or acquire the rights to an idea, product, or piece of work. A good example is this website for the sharing of free designs for 3d printing, in this case featuring designs for how to print an entire flying quadcopter. It's quite simply a fact that IP stifles small-scale economic development and in many cases is counterproductive. The people who realise this can share their concepts and code through these above movements so that their ideas serve the greater good of the community and allow small-scale economic development to expand.

The anti-colonial and anti-enclosure movement rising in (primarily) the third world seeks to defend cultural legacy from corporate patents.

The Transition Towns movement seeks to create regional and local economic autonomy and development from the "great powering down" that is starting now. The link is a practical primer on how to get local research to assist in economic development on a local level.

This is just the tip of the iceberg, but countless groups are looking at a less cash-intensive future that is more community-based, sustainable, and happy. Less money can mean less security in these cash-intensive times, but less need for money means greater security, more community, and in the end, more happiness for all concerned (except the bankers, who might actually have to learn to work for a living).

Subverting the Global Economy through Local Action, Part 1

It's a common and nonetheless sad story that, no matter where or who we are, we assume that the only way to change our lot in life is to rally behind a figure who, inevitably, betrays his or her ideals once in a position of power. The politicians who win elections can bend but won't act, and those who won't bend and would act: don't win. Leaders are, on the whole, incapable of NOT doing what the system is set up to make them do. In a democracy, politicians appeal to their base with stirring rhetoric to get elected, and once in power, must compromise and please the majority. That's the democratic system. On the other hand, authoritarian concentration of power comes greater need to offer power and wealth to the people who support you, and no matter how benevolent the despot, his innate sense of entitlement and ability to rationalise make it impossible for him to resist the trappings of power and reject its substance. So much for leaders.

So what have we got to rely on? First, we must take power over ourselves. Power over oneself is the greatest of powers, but we just happened to have become acculturated to giving this power up to authority to the point that we don’t know that it’s gone. Next, realise that there’s a lot more in this society than just governments and individuals. We're not only talking about ourselves, but the communities that we left behind to inhabit our soulless suburbia. Building on a few of my previous articles, I wanted to talk about how to use your personal power to make the world a better place. No, this isn't intended to be some kind of self-help or inspirational article. This is a blueprint for a peaceful and insidious revolution that just happens to be inspiring.

The global economy has made many goods very affordable. The more globalised we become, the cheaper everyday items seem to get. Economies of scale, container ships, and big box stores are efficient: they are able to produce the most amount of widgets for the lowest price. Efficiency is exactly what the global economy is about. Companies can move production of widgets to the countries with the lowest-cost workforce, countries that provide the most favourable tax laws, or countries that subsidise corporate inputs. Given the smorgasbord of potential options for cost externalisation (fancy language for how corporations make other people pay for the stuff they use) and arbitrage (fancy talk for simultaneously exploiting the margin in price between two regions for profit), companies can naturally make their homes in locations that offer them lowest cost for their operations.

The problem with this efficiency is that it means one thing: concentration. Profits become concentrated when corporations operate in an environment where they are free to reduce or externalise their costs. As much as I believe in the free market, I believe that everything from lower salaries and cheap electricity to favourable tax legislation and undervalued currencies are externalities naturally produced by the current way of doing business. My definition of a truly free market is as free of these corporate advantages as it is free of hindrances. All externalities must be internalised to create a truly free market. Economies work best when all actors have an even playing field. When the field is uneven, groups can effectively arbitrage (for example) the high-currency consumer power of country A with the low currency and tiny salaries of country B. There are plenty of multinationals that would be unable to survive if it wasn't for these arbitrages and externalities. In my opinion, they shouldn't survive: they are poster-children for unfair business practices and unsustainability... but I also understand that, when the only goal of a corporation is to expand share value, they will naturally act amorally to achieve these ends.

The WTO (formerly GATT) has facilitated a kind of corporate wonderland where corporations (through their governmental proxies) can take countries to court for throwing up trade barriers. Trade barriers, in this case, can mean even something as simple as health legislation (where the US forced the EU to accept hormone-laden beef that has been linked with increased risk for cancer) or environmental protection legislation (where Venezuela forced the US to allow them - effectively - to sell more polluted gasoline on the US market than extant EPA legislation allowed), or indeed human rights legislation (where Massachusetts was forced to deal with Myanmar even though they had made legislation that disallowed them to deal directly with despotic regimes). This is simply in their nature: corporations act to increase share value. They will use all tools at their disposal to grow, and prying open other markets is one of the things necessary for growth past a certain point. It is no surprise that GATT became the WTO and the WTO may likely expand to the TPP. It's a natural evolution. Predictable, really.

We need a way for economic proverbial Davids to compete against proverbial economic Goliaths. The purpose is not to abolish the WTO, throw out the multinationals, eat the rich, and establish a dictatorship of the unions. That can't be done, especially not through any kind of direct conflict. No, the purpose is to make the people in your immediate area able to compete against money. Not simply against this company or that company, or this product or that product, but against the fundamental underpinnings of the entire neoliberal economy: money itself. 

More in the next instalment. Read this for a taste of the direction we're going. A shout out to The Valhalla Movement, a step in the right direction.

It's like Capitalism... except that it's Fair!

The next ten years are the prelimaries for our species' final exams, in which we discover whether this bold evolutionary experiment of combining a large forebrain with opposable thumbs was really a good idea.  Practically, that means: can we get our act together enough to do what we know how to do to solve our environmental problems or, better still, eliminate and avoid those problems, not at a cost but at a profit, in a way that is trans-ideological, attractive to everybody, and with no, or hardly any, losers?

-Amory Lovins

Economics is a topic far and cheap to my heart. This is because traditional economics only sees the environment as a source of raw material, and therefore as a part of the greater economy. As my heavily German-accented TA from one of my graduate seminars in international relations put it: "[economists] worship a false God". From a guy who started out his academic career in Economics, that's something of a grand condemnation. Our current economic trajectory is set by an economics of endless growth:

"The current system is broken," says Bob Watson, the UK’s chief scientific advisor on environmental issues and a winner of the prestigious Blue Planet prize in 2010. "It is driving humanity to a future that is 3-5°C warmer than our species has ever known, and is eliminating the ecology that we depend on for our health, wealth and senses of self." (emphasis mine)

Economics itself is, at best, a pseudoscience. It is a dark art that attempts to explain complex, multidimensional, and cyclic behaviour through simple, monovariable, and linear means. It is better explained as part of the ecology rather than with the ecology as part of the economy. The problem is that many people conflate the word economy with money, or Capitalism - as if all economies since the Cold War are Capitalistic. Money economies have the problem that they tend to need to grow in order to survive, and that infinite growth has an inevitable run-in with a finite planet.

Capitalism today abuses the people, environment, politics and culture in equal measures. It has fostered new extremes of wealth and poverty inside most countries, and such extremes always undermine or prevent democratic politics. Capitalist production for profit likewise endangers us by its global warming, widening pollution, and looming energy crisis. And now capitalism’s recurrent instability (what others call the “business cycle”) has plunged the world into the second massive global economic crisis in the last 75 years. Manifesto for Economic Democracy and Ecological Sanity  

Economies are not all money-based, and it has taken a huge economic downturn - that is to say, a gigantic failure of Capitalism to do its job and spread the wealth equitably - to bring alternative economies to the fore. The Occupy Gift Economy is a prime example of the genre, but there are others. In Greece, for example, alternative economies are emerging to free the people from the yoke that money imposes. Such debrouillard economies - Systeme D - are growing like an economic superpower across the world. Their adherents know - just like your mechanic knows - barter is nigh impossible to tax. They also know that the purpose of the economy is not to amass the most green pieces of paper, it's to redistribute wealth. Accumulation is about the ego, redistribution is about the community. It's hard going in Greece, but they have been given an opportunity to show the world that the birthplace of Democracy - a force far more important than cash - can democratise economics, too.

Ironically it is in the gaps of a broken system that the shoots of a different, new economy get a chance to grow. ... But while disaster reveals a society’s economic and social weaknesses, it also reveals where true resilience and real value can be found - in the ability of people to cooperate at the local level to meet a community’s needs.

-Andrew Simms

The change into a local economy, based on barter and a local - informally issued - currency, can actually serve to revitalise the economy without need of money. Europe, especially Germany, has been experimenting with local currencies for years now. They are complete fiction, just like any other currency, but they get buy-in because they can be spent locally. Local merchants make excellent first adopters because they realise no big-box store would ever accept such stuff. In Canada, we have the brilliant idea of Canadian Tire Money, which some local bars even accept on the occasional special promotion night. Canadian Tire knows that Canadian Tire Money keeps people coming back. Parts of Greece are now using the Local Alternative Unit to purchase goods. Does money have to be centrally issued? No. In Canada, you can settle a debt for goosefeathers if both parties agree. You can't pay taxes with them, but contract laws allow you to barter anything for anything, so long as both parties agree to the transaction.


People are even considering new ways of making business equitable. Co-ops are growing in popularity. There is a plethora of startup information online for creating co-ops, and analyses of how a cooperative economic system might develop.Other systems exist, such as a "Circular Economy" based on recycling; Holonic credit networks that are holographic groups of groups of groups that trust one another and are willing to extend one another credit based on their relationships; and Sharing Economies much like the gift economy discussed above. These are all viable ideas that fly in the face of the monetized "everything has a dollar value" paradigm. 



Economies that run on money work, but they don't work equitably. Certainly they drive all sorts of interesting social and industrial forces... but I'd rather be assured by my economy that I can eat than be assured by my economy that I can keep my teeth white and hair tangle-free. The goal of an economy is to redistribute wealth fairly. A even a free market can distribute wealth fairly - if we construct it with that aim in mind.

Water and Food are Strategic Resources

When people talk about strategic resources, they typically mean a few bits of materiel reserved for use in the event of the outbreak of war: uranium, titanium, and oil lead the pack. Oil is the sine qua non of modern strategic resources. Without it, no military can operate. It has been so since the Second World War. But before the WWII there was a saying: "an army marches on its stomach". Did we forget that adage, or was it simply taken for granted that so long as we could fuel the lines of supply there would be enough food? The latter sounds right to me. Food is taken for granted, whereas before, it was central to military affairs. How now? Is food important as a strategic resource? Does its scarcity have the ability to destabilise populations? Are national policies put in place to control the distribution of and access to food? Yes, yes, and yes.

Recent events in the Middle East have pointed to a deep and abiding need for democratic reform. They are signs that grassroots populist movements can rise and demand regime change. But what methods are used to keep down these uprisings? Well, there seems to be a clear pattern:

2008 MAR: Yemen - "In March 2008, in the middle of a world food price crisis, the cost of wheat more than doubled in the space of four months, leading to weeks of protests and riots across the country. In the past two weeks, the price of wheat in Yemen has risen by 45 percent, and the cost of rice by 22 percent, according to the World Food Programme. The value of the Yemeni rial is also in decline, while the U.S. dollar is increasingly difficult to come by in the capital."

2008 JUN 16: World Bank gives Yemen $100M to lower food prices (the Houthi Rebellion has gone on since 2004, but aid came only after food riots in March)

2011 JAN 14: Zine el-Abidine Ben Ali pledges to reduce prices on staples of bread, sugar, and milk

2011 JAN 16: Kuwaiti Emir Sheikh Sabah al-Ahmad al-Sabah orders food distributed for free for 14 months. As of yet, no Kuwaiti uprising has materialised.

2011 JAN 20: Jordanian Prime Minister Samir Zaid al-Rifai announces increased subsidies on heating oil and food.

2011 JAN 30: Hosni Mubarak orders maintenance of food subsidies.

2011 FEB 04: King Hamad bin Isa Al Khalifa of Bahrain orders increased subsidies on food

And so on.

Even after political change has been won, there is a further problem to be faced: political freedom does not emancipate the poor from poverty. In Egypt now, the decision to end subsidies may triple the cost of staple bread. Subsidies are touted by governments as a way to redistribute the wealth and give the poor more buying power when it comes to the daily necessities. I can understand. I have said it before, the basis of any decision to work for a low wage is predicated on whether I can feed my babies or not. The inability to do so would instil me with vitriolic rage or abject hopelessness. The haunt of hunger is the home of hyperbole. Given the opportunity to live on a meagre wage, so long as my kids were fed, I might choose to eat bitterness and shovel my 16 tons. Subsidies might keep the peace, and ensure adequate food gets distributed to the poor. Still, something is missing from this picture.

Subsidies are funny creatures. We think that they are geared at helping people live from day to day, helping people feed their families. But who actually benefits from them? Now that we've seen the natural progression of thinking for a regular ordinary bloke trying to feed his kids - from despondency to the capacity to bear poverty - what can we truly say subsidies have done? They've driven down the cost of labour, that's what. Subsidies are passed directly to corporations by increasing the public's capacity to bear poverty. The alternative, as we've seen, is rioting. But is it the fault of the government for being unable to provide adequate subsidies, or is it a problem of labour being underpriced?

Subsidies may be defined as helping the poor buy food, but let's call them what they really are: a stopgap measure to address the structural failure of an economy to distribute wealth fairly. Price controls on foodstuffs (and other consumables) are the same thing. Why should the nation tread the razor's edge between deficit spending and riots? In a constant balancing act between two extremes, the key is not to play one side off against the other, but to move the razor. I would much rather balance between a wall-mounted LCD display and not having a wall-mounted LCD display rather than balance poverty against hunger.

And yet, here we are. Subsidies were necessitated by wages that never increased while the price of everything else did. Therein lies the secret to the source of a great deal of hyper-wealth: the disparity between growth in wages and growth in prices. If wages had increased with the price of food - an essential input to labour - then I wit there would be far fewer hyper-wealthy individuals out there, and governments would have less of a deficit. As it stands, we've eaten ourselves into a hole... and done so by spening the money we should have had lying around to dig ourselves out.

So, food fuels labour, labour fuels industry, industry fuels growth, and growth fuels the economy, right? Well, except that growth of the economy will equal greater consumption of those basic consumables, which makes them more scarce, which should make them higher-priced. But if the join between food and labour is based on a subsidised price, then that price signal will not be correctly interpreted by the market. The cost of food stays low, labour stays low, industry stays low, but growth continues (and makes the wealthy extra wealthy!). Which means the price of stuff should be higher... but there's this fantastical wall of subsidy that makes the price of food imaginary. So consumption increases because of growth, and growth doesn't cause a price increase in food, so production of food has to be artificially stimulated to keep up with growth. If price increase doesn't happen, production increase isn't naturally incentivised! The government has to do it itself. Enter agricultural subsidies.

What's already a drain on the treasury has become an even greater drain, precisely because the treasury was being drained to begin with. In this way, an ongoing cost begets and ongoing cost. The government gets trapped propping up its labour and agricultural sector, and where does the money go? Industrial profits. Agricultural subsidies increase supply of food, food subsidies maintain the low price of food, which maintains the low price of labour, which allows for a bigger profit margin for industry because while the cost of goods is going up, the cost of labour stays the same. Subsidies are a band-aid solution to a structural problem. If you leave a bandage on for too long, your wound can fester, but ripping it off is a temporary pain. Sadly, there isn't a single government in the world that wants to be the one that stops subsidies. In an autocratic system, you've already seen what happens... and when the proverbial faeces hit the proverbial impeller, the leaders there reverted to doing what's always worked before when there were problems with the plebians: they gave them bread. This last time, it didn't work (except in Kuwait). In a democracy, the government that removes subsidies doesn't get re-elected. There we are, stuck in a pickle where food prices can't increase to temper demand, where the government can't pull out of the incessant need to subsidise food, and can't stop artificially stimulating the supply of food. Until now.

Now, we hit a wall. Now we tap out our aquifers. The Middle East is the natural place to begin the adjustment to the reality of market forces because the aquifers won't replenish themselves. With subsidies reaching the extent of their ability to keep up with actual food prices, food production is getting to the point where artificial stimulation (including the massive irrigation projects of the gulf and Maghreb) by money can't push yields any higher, and growth runs into the wall of economic reality: eventually, the market undergoes a correction.

The Arab Spring is a great and noble thing, but we need to learn our lessons from it as well. This is certainly more than a market correction - it was a humanitarian correction - and it continues as I write. But Egypt and Tunisia are the first to emerge free of political oppression only to find economic repression there waiting for them. The first to find out that all those subsidies and economic smoke and mirrors cost ungodly amounts of money. The correction happens now, and higher wages are going to be the order of the day, or history will repeat itself. The wall that economic growth is hitting is not imaginary; it is quite real. Only when the real cost of food is known will it become a matter of importance. As the Middle East has shown, food is a strategic resource. We can't afford not to pay for it.

Fiscal Responsibility - Part 1: Wealth Redistribution, Chapter III: Labour Laws

The Economist noted that:

Wages still account for a much greater slice of income than profits, but labour’s share has been in decline across the OECD since 1980. The gap has been particularly marked in America: productivity rose by 83% between 1973 and 2007, but male median real wages rose by just 5%.

So, why are profits going up and salaries staying flat? I personally don't care. The only question to ask is whether salaries are equitable. I doubt many who read this would disagree. There may be some holdouts, who argue that supply and demand determine what goes on in the market, but supply and demand works with only certain things. Work puts food in kids bellies, and sometimes any work is better than hunger. Sadly, many companies are able to depend on that fact to enlist unskilled labour at bargain prices. As the song goes:

What force leads a man to a life filled with danger,
high on seas or a mile underground?
It's when need is his master and poverty's no stranger,
and there is no other work to be found.

One's ability to eat is a hard limit on one's choices for work. If everyone's needs were somehow fulfilled by fantastic food faeries who fed, clothed, and housed the entire population to a minimum standard, then the value of work would truly be set by supply and demand. Then and only then would the worker's want for greater wealth be a determining factor in whether he or she actually wanted to clean toilets for six bucks an hour. Given the choice, I wouldn't clean toilets. If my kids were hungry, and there was no other work, I might reconsider.

The same people might argue that having children is a choice. Well yes, it is. It's a choice the government has been actively trying to encourage for years because of the need to grow the population to grow the economy. It would seem odd to penalise someone for doing something the government wants him or her to do by not allowing him or her to earn enough to feed his or her family. The hundred bucks a month per child is a help, but it doesn't go far when the household is earning part-time minimum wage.

We've already talked about redistribution of wealth through a more progressive tax regime. Now, I would like to talk about how corporations can contribute to equitable wealth distribution. This will happen in two ways: first, through fairness in staff reductions; second, through fairness in base salaries. What corporations will get in return is more freedom to hire and fire, and they will pay a little less income tax. What some currently low-paid workers get in return is a living wage and the freedom from fear of being let go.

REDISTRIBUTION OF WEALTH
Labour Law: from downsizing to conservation

Corporations are able to find ways to cut costs by cutting people, keeping wages low, and forcing salaried workers to do more for the same pay. Large companies, and by large I mean companies that span more than one province or employ more than 200 people (if some king hires me to write policy, I'd try to get someone to help me figure out what that number should be, but for now I'll just pull something out of the air), should no longer be bound by simple provincial regulations. I propose a set of labour relations laws that kick in once a company crosses the line from small to my above definition of "large". These would be national labour laws, instituting a minimum wage for large companies as well as terms of release for workers. The laws would mandate overtime payments for salaried and hourly workers alike. None of these solutions are elegant, but they are necessary, in my opinion, for low-paid workers to stop getting the short end of the stick. Remember, all of this only applies to "large companies". Everyone else abides by existing regulations when it comes to employment. This will give startups a competitive edge to allow them the leeway to become a large company.

Part one, and the first piece of legislation, is quite simple. Every worker earns a $10k or one month salary payout (whichever is larger) per year of work upon leaving the company. After the initiation of the program, this amount can be scaled to inflation, but inflation would not affect the amounts of previous years' payments. This is for a full-time equivalent year, meaning part-timers will have to work longer. For the sake of argument, a full-time equivalent year will be 52x37.5 hours of work (1950) and paid holiday. If a worker is let go by the company in the first year of work, the worker qualifies for the leaving pay. If the employee leaves in the first year of work, the employee does not qualify for the leaving pay. After the first year, whoever terminates the employment, the pay is the same. The application of the concept is simple, but there would have to be details added to protect both worker and company from either gaming the provisions for first year payouts. Funds for this purpose must be set aside in an escrow on a month-by-month basis to ensure the money is there should the company go under. In the event of bankruptcy, this cash would be completely protected from creditors by bankruptcy protection. The company would not have to pay the escrow's interest to the employees, and may use it as it wishes. As a side benefit, this increases the amount of money invested in the market. Companies would be allowed to hire and fire employees more or less freely in exchange for this simple payment, since every transaction has an opportunity cost. This would also eliminate the need for employment insurance. This benefit would not be subject to income taxes.

The next little piece of legislation would be a regulation setting the "national" minimum wage for hourly workers in large companies. This would be set at $15.39 to begin with, and would be reviewed every year based on inflation. Minimum salary per annum would be set at $30,000. 'Nuff said. Finally, large companies would be forced by law to pay salaried as well as hourly workers 1.5x overtime for work in excess of 9 hours per day or 37.5 hours per week. This would allow for flex time within reason. Salaried overtime would simply be prorated to their salary divided by 1950. These two very basic points are not simply a brute-force solution to wage inequity, they are hopefully an equaliser that will help little companies make a market niche for themselves by being nimble and lower-cost. The playing field has to be levelled so that small companies can compete with large companies, and the way to do that is to force the big boys to pay their employees a living wage. Big businesses that can derive enormous profits can either afford to pay, or they can leave and give back the niches smaller stores once filled. While it seems counterproductive to drive off big businesses, the efficiency and profit maximisation that these big businesses can benefit from actually translates into fewer, lower paid jobs for the regions they move into. Small to mid-size businesses drive the economy, and big businesses will either give their employees enough money to feed a family, or they will vacate the market niche and let small companies re inhabit it.

The reasons why I don't fear driving big, efficient corporations away are going to be covered more in the next part, specifically, in a chapter on equalising the "runaway leader" problem in businesses: big companies make more money and can then choke out competition, which is bad for overall innovation in business. Big companies are also making lots more money, but not passing it on to their workers. This national level labour law is just a brute force solution to that systemic problem that kills two birds with one stone: it forces big companies to put a little more of their profit into their salaries, and allows for leaner small companies to enter niches in the same industries as corporate giants because of their relative salary advantage. Of course, big companies would be rewarded for their adherence to the relevant laws and regulations through lower corporate income taxes. Deadbeat companies would be penalised with standard taxes. If companies come up with a less draconian method to right the wrongs that share-price motive inflicts on workers, I'd love to hear it. For now, however, I think that this is the one thing that strict regulation would solve better than simple incentive measures. 

Fiscal Responsibility - Part 1: Wealth Redistribution, Chapter II: Consumption Taxes

Canadians are predominantly slightly left or slightly right of centre. They mainly want less deficit and more services. When voters see government spending go over the top, they are rightly concerned about it, and it becomes a hot political issue... but the national budget is not about "cutting" or "becoming leaner" to be more fiscally conservative. Fiscal conservativism is rooted in only spending what you have, not cutting the services you need. When voters see services cut, they are rightly concerned about it, and it becomes a hot political issue... but providing adequate services for the public isn't a financial issue, it's a matter of accomplishing the will of the electorate. Political parties seem to see "issues" in isolation from one another, like the problem of voters wanting lots of services is somehow perceived separately from the problem that the treasury holds inadequate funds. Most political parties seem to have their approach to budgeting backwards. What political parties don't seem to get is that these two issues are not a problem of leftist voters demanding more services and rightist voters demanding less expenditure.  The problem is that political parties won't do what will solve both problems: select exactly the services that Canadians require, and then raise the revenues to pay for them. Why these two issues continue to be handled in isolation to one another boggles my mind and deprives me of much-needed sleep.

This is why the first part of this plan is about finding more wiggle-room for the government to get its financial footing and fund the programs necessary to support the economy and, more importantly, the electorate. Once the government has the funds, then it can modernise the economy, and seek efficiency through devolution of services to the lowest natural level of government. The function of the federal government must be to collect and direct funds where they need to be. If programs from the Department of Veterans' Affairs or Health Canada (just for random examples) would be better delivered by cities, then cities should not only receive the money but receive the mandate to implement those programs. Here's a bit of foreshadowing: I think cities can do a lot of this stuff, and save money doing it. Each level of government should do what it's good at, and cities are the best place for direct service-delivery to Canadian citizens (and permanent residents).

Consumption taxes, in this scheme, cover off a little bit of each of these issues. In part, they engage all levels of government, they also assist in the delivery of service to Canadians, and offset the hidden subsidies of the items they tax. Except for the GST, all consumption taxes are geared at preventing harmful or costly activity from hurting the treasury too much. By engaging the power of consumption taxes, we can increase the coffers of the governments that fund the programs we require. We can also use them to penalise the inefficient and unsustainable, and make sustainable products and services more appealing to the consumer. In this way, we will assist the market in pushing consumption patterns from the unsustainable to the sustainable.


REDISTRIBUTION OF WEALTH
Consumption Taxes: from the unsustainable to the sustainable

Consumption taxes are an essential tool for governments to offset the costs of unsustainable and dangerous activity. Consumption taxes, in some ways, act as insurance policies: alcohol and tobacco taxes are a case in point. If you drink and smoke often, chances are higher you will contract a disease that is expensive to treat or cause a road accident. Though a few people might chafe at these concepts, look at the insurance industry: they may charge more if you drive a red car rather than a white one, because stats show more red cars are involved in accidents than others. Certainly we can accept that if red cars cause more accidents, drinking and smoking cost the economy more than not drinking and not smoking. The taxes on these products serve to offset the costs these activities incur, or can potentially incur, on the health system of the respective polity.

A solution to this can be implemented by engaging two rather disparate stakeholders: insurance companies and civil society groups. The former, because it has the greatest expertise at estimating the potential costs of a certain activity. The latter, because parts of it have a natural interest in limiting behaviour that is a drain on the treasury. I propose that insurance companies be allowed to bid on contracts to insure potential drains on the treasury. The lowest bidders on the tender will be allowed to participate in the program. The insurers must pay for all issues arising from their given program, but they keep the profits (if any) from the tax levy. Also included in the tax levy will be an incentive to civil society groups to reduce the behaviour that is a drain on the treasury. If the stats show a reduction in the activity, the participating groups get a donation. Insurance companies, of course, would stand to gain considerably through reductions in the behaviour, and therefore would be thrust together with the civil society groups through sheer self-interest... that benefits both the common citizen as well as the treasury. When you create a system that privileges cooperation - get this - cooperation happens. I've seen it before in academic writing on the Prisoner's Dilemma and I even tried it out myself: In a class of MBA students, I got the group to play an iterated version of the Prisoner's Dilemma. We split the group in half: I had the group where I explained the game in cooperative terminology. The actual professor of the class described the game using specially selected competitive terms. Guess what? The people who were instructed the game in cooperative terms were cooperative in the game. That was just changing the framing language of the rules! Imagine if there was monetary incentive for cooperation between groups in the system. Each group will reinforce the other in its own domain. A useful side effect of the engagement of both civil society groups and corporations under the benevolent guidance of the central government is the production of numerous warm and fuzzy anecdotes about working together to solve social problems. Never underestimate the power of a warm and fuzzy anecdote during a political campaign, especially when it can simultaneously involve corporations making money, civil society groups making a difference, and the government saving money. Triple win.

Consumption taxes are, however, more than simply tools to offset costs. They can also redress hidden subsidies. I was talking to a man who is in the mining industry about the price of gas at the pump, and he indicated (only partly correctly) that a large part of the cost of gas is tax. Yes, there is a lot of tax on gas, but not enough. This isn't because of carbon emissions or environmental impact or anything of the sort (though that does matter). No, it is principally because the petroleum industry receives ample subsidies from the government for supporting the overuse of gas. Let me raise just two:
1) Roads - while most people will scoff at the insinuation that roads are a subsidy to gas companies, we should remind ourselves that the suburb - that road-intensive invention of the 50's - necessitated a huge increase in road building. Trucks carry huge numbers of containers across country that could be handled more efficiently and cost-effectively by train, but instead we insist on maintaining enormous trans-continental stretches of road all so that cars and trucks can burn gas on it. Gas prices should reflect ALL costs inherent in road construction and maintenance at all levels of government. Canada is one of those weird and rare animals that has only a couple real toll roads. The rest are all totally free of charge. This needs to change, and users should pay.
2) Accidents - cars cause automobile accidents. All costs related to the direct car-related health problems should be borne by gas prices. Natural Capitalism suggests that car insurance payments be made directly at the pump, and this is not a bad idea. It is perhaps easier to simply ask the cities to make a cost estimate for emergency and police services related to traffic accidents and pass this directly on to the pump.

Again, through the engagement of civil society and all levels of government, the central government can identify the hidden subsidies being given to industry and offset them with appropriate taxation. Increased prices for these products means better services related to those products and, hopefully, reduced consumption and increased conservation.

Finally, there is a need to encourage  recycling and conservation as well as discouraging waste and linear production models. To list the fundamentals of such a consumption tax regime, I'd identify the following points:

• If it isn't recyclable, add to its cost.
• If it's within a class of "industrial nutrient" (something that can be reused over and over again in industrial processes) per Cradle to Cradle, give a rebate.
• If it's virgin raw material, add to its cost.
• If it's recycled material, give a rebate.

Taxing waste directly would also assist in its reduction.

All together, there are ample tools here to guide the market along a sustainable path and raise funds at the same time. The end result of this taxation regime must be a reduction in the taxed behaviour, and therefore a reduction in the amount of tax paid. This is fine. The key is to build up a head of financial steam in the beginning, and let off pressure as the economy changes tack. Part of the pressure will be let off simply by the economy shifting to sustainable practices. Part of the pressure will be let off by more responsible consumption. In the end, the government will take in much less money for all consumption taxes included in this regime, and that is exactly what this regime of taxes is designed to do: move purchasing behaviour from the unsustainable to the sustainable.

Fiscal Responsibility - Part 1: Wealth Redistribution, Chapter I: Income Tax

This is the first part in a series on what I think the important issues are in Canada at the moment... that don't seem to be talked about by any politicians. These policies are aimed at sustainability, but I think address many needs of Canadians simultaneously. Right off the bat, the topic that seizes my attention is the size of the budget deficit over the past couple years. Now, Paul Martin was a lot of things, but he did balance the books. With Canada knee-deep in recovery (and having weathered the economic crisis very well), we don't currently seem to have much money in the treasury to show for it. Partly, it seems a decrease in the GST to 5% diminished revenues somewhat. It certainly doesn't account for the whole deficit, not by a long shot, but it's something. Canadians are not afraid of taxes if they get reasonable services. We shouldn't fall into the the Reaganomic trap of outspending and undertaxing the populace to leave political opponents with a bitter debt pill to deal with that hobbles their chances at reelection. My concept for fiscal responsibility urges we pay a bit more for a couple years in order to create virtuous circles of positive economic feedback. These concepts argue for a new definition of fiscal responsibility.


If you think about it, most of the laws we live by have been made to protect our ability to plan ahead and take calculated risks. This is done in three basic ways: to redistribute wealth, to provide fundamental services, and to construct infrastructure. Redistribution of wealth is necessary because it increases the total number of consumers (welfare), increases the amount of money available to purchase goods, and primes the pumps of local economies (stimulus). Services that defend against crime, ill health, and unemployment are necessary because these ills hurt the economy; damage or devalue human, corporate, or natural capital; or diminish the ability of a person to participate in the economy. Infrastructure construction is necessary because it assists in the flow of goods and commerce (roads, railways, and ports), increases our ability to participate in the economy (schools, electrical lines, and telephone lines), or because it is a hedge against future misfortune (fire hydrants, breakwaters, and reservoirs). As the first part of this discussion, I'd like to talk about redistribution of wealth.

REDISTRIBUTION OF WEALTH: 
Personal Income Tax - from the rich to the poor.

Every nation in the world has a Byzantine labyrinth of taxes, user fees, subsidies, duties, and rebates. This reality reflects the concept of the central government as a redistributor of wealth. Income tax was the source of about 28% of total Canadian federal government revenue in 2009, and 51% of all tax revenue. Income tax is the largest segment of Canadian government revenue, period. Greater amounts of government revenue could be raised by either a) increasing total taxation, b) moving tax brackets into lower incomes, or c) increasing salaries across the board. Neither a nor b are palatable scenarios. In the case of c, increasing the lowest salaries would have the most telling effect, as they are both numerous and currently untaxed. In 2007, the lowest quintile of the Canadian population earned an average of $7900 per year, meaning that far more than half of this population paid no taxes at all. In 2007, with about a 33M person population, the families that comprise a population of over 6.6M souls mainly paid no taxes. Moving that 6.6M people into the next tax bracket would increase revenues a great deal. Emancipation from wage slavery should therefore be in the interest of the federal government, as it increases this "user fee" income. The inverse is also true - the topmost salary bands should be taxed further in order to assist in this emancipation of the working poor.

We have seen it again and again - the rich don't create jobs when they get more money, they just get more money. The middle class is (to put it cynically) the group of people who have enough income to sustain the payment of taxes, but not enough income to avoid them through write-offs and tax shelters. That means that the elevation of the working poor into the middle class is the surest way to increase tax revenues. This is true of both income and consumption taxes: higher income naturally means higher income tax, but it also means more money available for consumption. Only a select few can pull themselves up by their bootstraps. The rest could use a little boost from a more equitable tax regime. The money the government needs to do that is found in the top-earning income quintile. The lowest fifth of the population made 11 times less - in 2007 (see p. 81 of the linked document), on average - than the top fifth of the population. Equitable income taxes are one tool to get income equity done.

In 2011, the tax brackets are:
$0 – $10,382  (0%)
$10,383 - $41,544  (15%)
$41,544 - $83,088  (22%)
$83,088 - $128,800  (26%)
over $128,800  (29%)

I am constantly left wondering why we stop the tax brackets at $128,800. We need to decide that, at a certain point, money no longer becomes an incentive to do more business, it simply becomes an incentive to make more money. What we require, in order to prime our fiscal responsibility pump, is a more strict progressive tax regime. Often people who argue against high tax brackets for Canadians in the upper income echelons argue that capital flight would occur if taxes were drastically raised. I don't agree, but let the evidence speak for itself: for example, Finland's tax brackets hit 30% at only about 66k Euro. New Zealand hits 39% at 70k Kiwidollars (45% for people who fail to fill out a claim form). Australia taxes 45% over 180k Aussiedollars. As a matter of fact, 45% as an upper limit is in no way abnormal. Denmark goes as high as 60% on amounts over about 36k Euro. Certainly Denmark seems to have a draconian tax system from the outside, but how many people are fleeing Denmark's tax system? A unifying factor in all these nations is that they are rather nice places to live, with stable and mature economies and a reasonable prime interest rate. That's the carrot. The stick is that there are progressive tax rates elsewhere, so the grass is not necessarily greener. Add to that the fact that tax evasion is a crime, and the Canadian government can deny passport privileges to criminals... and the cons of fleeing taxes are outnumbered by the pros of just paying up. If we accept the most draconian 60% as a maximum upper limit of taxes payable (as in the Danish example - nobody can pay more than 59% of their gross income in tax, meaning that at the highest levels, payments toward all other taxes can count as deductions on income tax), the highest level tax bracket could begin at somewhere between 200-500k CAD.

In the long run, however, a more progressive income tax system is only the first phase of a more equitable taxation regime. Consumption taxes are better than income taxes for two reasons: one, people simply have more money in their pockets to do with as they please when their income tax is lower. Two, consumption taxes can be used as incentives to change behaviours. The first is important, the second is extremely useful from a sustainability standpoint. I will come back to this later, but the end goal of this tax regime is to guide the market into sustainability by gently influencing purchasing behaviour. Within this greater goal, the purpose of a more progressive tax regime, therefore, is to give the government a big enough head of steam - that is to say, surplus - to implement the necessary shift to greater reliance on consumption taxes. First among these changes would be the reinstatement of a 7% GST, the scrapping of GST refunds, and the elimination of the "Value Added Tax" traits of GST. In short, make the GST a flat tax on all purchases, period. The progress of these changes would be gradual, but offset by an overall surplus in government revenues. For lack of a better word, I'd call this redistribution regime a "Robin Hood" Rebate program.

Higher sales taxes hurt lower incomes most. The gradual reduction of government reliance on income tax should therefore occur from the bottom up. There must be enough surplus in the treasury to play with to be able to effect these changes. The surplus would be used in part to pay down debt, but also in part to pay up those in lower income brackets. Up to the limit of the surplus, all taxes paid by the lowest tax bracket would be reduced by an equal amount. This may mean that some taxpayers at the very bottom of the bracket end up making back slightly more money than they paid in. This could act as an incentive to the lowest wage earners to jump into the first taxpaying bracket. The Robin Hood Rebate would be tacked on to the taxpayer's normal tax refund. Lower income taxpayers have to spend a greater proportion of their funds on necessities than the rich. Lower income brackets are, therefore, more likely to spend on consumer goods, by proportion, than higher income brackets. This means more money enters the market for consumer goods, and the amount of sales tax collected increases. With an increase in sales tax, the Robin Hood Rebate increases. A virtuous circle is created, allowing for the overall decrease in reliance on income tax.

Gradually, over a period of five to ten years, the system could be brought into balance such that income taxes are reduced, and at the same time, revenues from consumption taxes are increased. The progressive tax regime gives more to the low income earners and takes a bit more from the high income earners, so it's a program that moves wealth "from rich to poor". The complimentary system to the personal income tax system is the network of consumption taxes that will guide market behaviour. Consumption taxes are not just the GST. There are liquor taxes, tobacco taxes, and fuel taxes, to name a few. These taxes are levied to cover the extra costs these substances incur society. The next part of the wealth distribution is not about moving wealth from "rich to poor" but from unsustainable activities to sustainable activities.