A vision by Ralph T. Niemeyer
What the hell did Chancellor Scholz mean by the term “turning point”? In the period of reunification in 1989, it was immediately clear where the train was heading to, because socialism had collapsed for everyone to see, so there was only hard-hitting capitalism, which had not won the cold war but was left over.
Socialism promised that you would get everything you needed. Capitalism promises that we will need whatever we can get. Socialism choked on centralism, capitalism choked on concentration. Socialism imploded because the lies had grown too big. Capitalism always explodes when the bubbles get too big.
One could continue these system comparisons indefinitely, but that would not answer the question of how it is going to be after the apparent collapse of financial capitalism, which has been delayed since 2008 and has been covered up with the help of a pandemic narrative for two years, and which is once again leading to a presumably purely conventional world war. Chancellor Scholz and company don’t even try to fill the term “Zeitenwende” with any philosophical or political content, so I dare a vision as I described it in my 2012 book “Germany after Capitalism – the Wagenknecht – Doctrine“.
10 rules of thumb for the New Economic System
- Regulated Money markets and currency exchange controls need to be re-installed
Many economists today demand a “common growth strategy of the industrialized economies” as John Kenneth Galbraith calls it. But, a global Keynesianism also requires a non-restrictive monetary policy of the central banks and this should also include the German Bundesbank and European Central Bank whose hobby it seems to be to press inflation permanently under 2% although one knows that anything below this border-inflation any innovative industrial society destroys its economic growth. The only reason why the Frankfurt based banks still adhere to that principle is because they are beholden by the interest of shareholders who do not want to see their virtual wealth be eaten up by inflation. Neither Bundesbank not ECB ever were a ‘people’s bank’ but designed for manifesting income distribution from bottom to top of society. But, this is our own fault as we let our private financial sector like in 1720 John Law not only emit worthless toilet paper but also generate the money for the purchase of such. Central Banks are sidelined in the whole process and have to re-establish their role.
And, a worldwide coordinated monetary and interest policy consequently requires a World Central Bank in order to make sure that countries aren’t competing with each other about attracting capital by offering interest premiums and other favourable conditions which only let the cost of money supply go through the ceiling. This, however, is a dream and in a deregulated and liberalised money market it is hard to see it come true and if, how effective would it be?
Truth is that the IMF and World Bank already exist and have a terrible record when it comes to providing stability. Unforgotten is the IMF demanding South East Asian countries like Malaysia to open its market during the 1998 crisis. China was not affected during that crisis only because its currency was not convertible.
The demand for a world central bank which shall also take over the risks private banks is frequently repeated these days, but it has been Josef Ackermann, in 1998 board member and today CEO of Deutsche Bank AG who is dreaming in Technicolor that a world central bank would put up with all the mis-speculations of his and other banks and without regulating the markets simply let them continue do their business. It amounts to allowing banks to regulate themselves and if it goes wrong have the world stand together to shoulder the risk.
The only reasonable and achievable way out is indeed to have regulation and currency control restrictions in place which have always been proven a good tool to manage markets.
And, as said above, the “Vollgeld” – rule would make bubble building impossible. It only requires these two simple regulations and laws to be agreed upon internationally and no new body of a world central bank or world reserve system would be necessary.
The institutions are already there, the mechanism is there, so why not make use of it?
2. Corporate and income taxes to be harmonized, offshore places taxed at 25%
As the financial direct investment which comes into the EU from off shore places has doubled over the past 5 years, and since it is clear that those funds have previously legally or illegally circumvented national taxation of member states, any transfer from such black holes of the financial markets should be taxed at a flat rate, let’s say 25%.
If at least all EU member states apply this rule, one will notice that the money is staying in the place where it is accumulated and also spent. The reaction of EU Commission, EU Council and European Parliament citing that it was impossible to tax international financial transfers as this would hurt the economy in EU member states is simply not true.
The money our major corporations produce here and transfer to these offshore places under palm trees would not leave the EU and therefore would also not have to be brought back.
The reaction by member state governments to the tax evasion of major corporations who entertain finance companies in Panama, Liechtenstein, Tobago, Bahamas or Panama and others so far has been to lower corporate taxes at home.
A dreadful tax dumping competition is also in full swing between member states. This can be stopped by one single law or regulation fixing the corporate tax across the EU at a certain minimum level one may debate and negotiate politically. The fact that any other taxes, such as VAT are harmonized proves that it is indeed possible to harmonize taxes, so why not capital gains-, corporate- and income taxes? It is the political will that is making it possible.
3. A thumb – formula for the distribution of wealth based on Capital co-efficient
Since productivity had risen over the past 35 years by some 60% while per capita income has skyrocketed in the past 20 years as well, the question arises why the standard of living of the vast majority of citizens has declined. The level of wages is (clear of inflation) down to where it has been in 1983. So people on an average basis lived better 40 years ago. Reason for this is the income distribution from bottom to top of society. The economic development of the past quarter of a century has bypassed most citizens. Technologies make it possible to increase productivity rapidly.
A higher productivity means that higher quality goods could be produced in less time requiring less labour- and energy input. Theoretically, the average person should have today a much higher standard of living, have more money in the pocket than 35 years ago or work less but still have the same income. The truth is that the rise in productivity has only benefited the top of society.
Not only the increased productivity should lead to an increase in standard of living but especially also the phenomenal growth rates of the 1990ies and early 2000s. One can, of course, argue that an investor in 1983 had to put relatively less capital up in order to have certain return on investment, whereas today this would be significantly more.
But, that is a mere capitalistic problem, as it could be avoided if the capital coefficient was adjusted. Within the economic system it won’t be possible to eliminate this problem. This can only be fixed when one thinks outside the box. What remains, is the fact that increased productivity allows us to use resources more wisely, work less for the same reward and enjoy a better standard of living, better healthcare, better pension systems, better education, a better and cleaner environment and better public subsistence and life. In order to achieve this, a rule of thumb for the distribution of wealth generated from the rise in productivity and growth has to be negotiated.
This is a matter for politicians to sort out, but an idea could be to say that those rises are equally split, i.e. a Third shall be put on an annual basis behind a better Education, increased welfare and healthcare, the second Third behind innovation and science, while the last Third shall be reserved to entice investors to put their money behind start-up’s, innovative production lines and environmentally friendly technologies. Wouldn’t that be a fair deal?
4. Productivity-rise defined increases of wages, social-, innovation-, education-spending
As it is clear that only that fur of the bear can be distributed that has successfully been hunted, the annual increases of wages as well as social expenditure has to be determined by a clear formula that assesses what the rise of productivity and growth had achieved. The old formula of the old economic system which we see in these days end in disaster was obviously mathematically incoherent and based on the misunderstanding of a few of our elites that all that needed to be done was to create wealth by whatever means even if that destroyed production lines.
And, it has been the cynical approach of our political leadership to think that as long as they themselves enjoyed an ever increasing standard of living all they needed to do was to listen to the shareholder’s who told them that as long as they made huge profits the economy was fine and eventually some of the fruits of the earth they squeezed would trickle down to the masses.
Then, when the world economic crisis could no longer be denied, some of the same elites started to revive old ideas, some from the old Socialism, some from Keynesianism but these models won’t save our economies anymore as a few peanuts here and there won’t do anymore.
It would mean to fall back into the old habit of distributing what in reality doesn’t exist. It doesn’t help the people in the street who sees purchasing power decline to give him a few tin cans full of hot air and some deadly foam from financial bubbles. Let’s say that wages shall increase by 2 % per year if social expenditure will increase by the same and assuming that economic growth is at around 2%. This, of course, implies that bubble – building no longer will be counted as economic growth but is only allowed in casinos.
5. Incentive-based system of paying employees
One of the biggest problems of every economy, be it socialistic or capitalistic, is to motivate people to work hard. There are only two major driving forces behind any economic activity and innovation, the goal of profit and the fear of competition.
Likewise, there are only two forces which make a human being work, the goal of being able to afford a better standard of living and the fear of not being able to make a living at all. In a perfect scenario a mixture of goal and fear keep the balance. What people in the Eastern European Socialism were deprived off had been both: goal and fear.
Unless one had been an oppositional activist in the East, there was nothing to fear which would make someone stretch to the ceiling as the basic subsistence had been provided for by the state. On the other hand, there hadn’t been many goals as the centralised economy had proven inefficient and static, producing only goods one either didn’t really care about or couldn’t buy because the output quantity had been insufficient.
Socialistic Centralisation suppressed innovation, Capitalistic Concentration destroys economic capacities. In our –still- capitalistic economic system any goals are replaced by fear. It is the fear of not being able to survive in dignity as an unemployed or sick or old person.
Any goals which once existed for the masses have been put into jeopardy by elites who shrug their shoulders when being asked how a single mother shall survive on a few Euros per day for food or how parent’s shall afford to pay for school books and university enrolment even though they already hold down 2 jobs.
The reason why the majority of people still endure the economic system is for the sole reason of fear. It is the fear to loose even that little bit, they got. These people do not stretch to the ceiling anymore either. They walk around depressed. In a society which wants to sustain economic lead by innovation goals are inevitably necessary.
The goal for an engineer to be paid a good salary from which he can sustain himself and his family, pay for a house and a car without being over indebted or the goal for an uneducated worker who feels challenged to qualify for a better position by evening courses which enables her or him to climb up the ladder and enjoy life even more are the driving force in any economy, be it organised socialistically or capitalistically.
The biggest mistake the past Socialism made probably has been to believe that human beings would, if all were paid equal in a classless society, not develop apathy or even greed.
The Socialist economy could have become quite successful if only in addition to the basic needs some incentives were given for those who wanted to stretch to the ceiling and work more and become innovative and if the economy had not been centralised. The biggest mistake the ailing capitalistic model presently undertakes is to believe that fear alone will make masses continue to push the wheel in the treadmill and create mega concentrations.
The New Economic System will make sure that every person can lead a life in dignity even if there is no place found for him or her in the production process. And, the New Economic System will guarantee economic growth by strictly applying an incentive scheme for innovative and more productive employees.
At the same time, the New Economic System will not allow anyone to sit around being bored to death doing nothing but cutting interest coupons while zipping away Champagne others have to work for. That ought to be the sole fear one shall have in the new society.
6. Corporate taxes defined by Wertschöpfungsabgabe rather than static figures
The backbone of any economy are Small & Medium Sized Enterprises (SMEs) which also are the largest group of employers in any EU member state, but it is very often made difficult for those companies to be flexible in their employment decisions.
In Germany, 65% of all new jobs are created by SMEs while more than 80% of apprenticeships and educational programs are conducted by those small and medium sized companies, from which major corporations as well as multinationals indeed do benefit a lot, too.
Too often decide entrepreneurs against employing a person because of the high social security and labour costs combined with any new employment. Static regulations make it hard for smaller companies to decide pro-employment.
On the other hand, the American model of Hire & Fire can not be recommended either, so how to balance in the New Economic System the necessary flexibility for the entrepreneur with the reasonable interest of an employee to have a certain security to keep the work for a certain time and be protected throughout the engagement and also not to fall through any social net after being laid off?
Notably, smaller companies are more labour intensive than let’s say large banks and insurance companies. Accumulation of added value in relation to labour intensity shall define the contribution a company shall pay into the social security systems as this would take a burden from SMEs while at the same time lay a reasonable cost on the shoulders of those corporations whose production is streamlined and less labour intensive.
A person which is employed by a small company thus will have the same protection and benefits as a person being employed by a major corporation while the entrepreneur benefits from the burden sharing between his SME and a multinational corporation which generates value in a more automated way or even entirely by machines. The Wertschöpfungsabgabe (Accumulated Value Contribution) is the only reasonable and fair equilibrium between the interests of the employed, the SMEs as well as major corporations and it will ensure in the New Economic System that a free, social, market economy will be sustainable.
7. Unbundling of conglomerates
The EU Commission’s credo when it came to energy market liberalisation has always been to “unbundle” the major providers. Theoretically, this should lead to more competition, better quality, lower prices, etc. The usual nonsense the neo-classical model promises. The reality, however, is the opposite. Prices went up by more than 39% within a year’s time in Germany, the networks were not safe anymore as the privatised energy conglomerates failed to invest into the networks. In short: it has been a disaster.
When the EU Commission ordered ENSA, the Spanish national energy provider to be split up as the monopoly would violate European free market, the buyer, the German RWE already stood ready to take it over. This was rather an example for bundling than unbundling.
In Germany, the de-regulated energy market was left alone from any effective supervision and of course price-fixing was ripe. What all these neo-liberal ideologists don’t want to spell out is the fact that they and their friends are after the profit from a privatised company. As greed is their drive they do not invest into maintaining the network.
On the other hand, those who are controlling a network are sitting on a classical monopoly and therefore ought to be nationalized as otherwise it can not be made sure that the situation is not exploited in the interest of an increased shareholder value bearing higher costs as well as certain security risks for the end-user as we have seen several times.
There are a few things one can not be administrated and managed well by private ownership. Some of them are energy providers, national railway systems, public transport, postal services, schools, hospitals, libraries, prisons, police and security forces, motorway, airports and, last but not least, the central bank.
The deficiencies of state owned corporations has all along been pointed out and in many cases rightly so, but private companies are not much better but when governed by the profit maximisation goal are unable to make reasonable decisions.
In the New Economic System we will have state owned companies where necessary but their employees will have to abide by the same rules as private companies in order to be more efficient and innovative. Again, the driving force behind it shall be incentives and not apathy.
There is no natural law that says that state controlled or state owned companies can not have competition among themselves and within their departments. It should be easy to install those mechanisms. But, what the New Economic System will not allow is the cynical arithmetic’s of private insurance corporations who find thousands of excuses not to deliver under the terms and conditions they set-forth. Insurance companies need to be regulated in such a way that they predominantly serve the client and not the shareholders. There won’t be many shareholders probably if insurance business is conducted responsibly.
What all insurance companies fail to spell out when they sell a pension plan is that it doesn’t matter whether or not one agrees to an automatic inflation dynamism in the pension contract as neither the mathematicians of the insurance company nor anybody else will be able to predict what the Euro or whatever currency in the future will be worth.
Nobody can tell today, even is provision is made for compensating inflation, what one will be able to buy for a Euro in 30 or 40 years time. It is ridiculous to speculate how productive future generations will be. Whatever one may wish to buy in the future for money saved today solely depends on what is produced at what cost in what time and nobody can guess how good that will be in the future. The 21st century society needs to be built on solidarity.
Solidarity requires that all citizens are enjoying the same privilege of having their subsistence be guaranteed even when becoming sick and old. Therefore, one should not allow private companies to take care of such important issues like ones pension. One can not make business with healthcare, pensions, social security and education as this, under shareholder value – conditions can only mean to gamble with other people’s life.
8. Calculate GDP growth also by quality of life measurements
Let’s forget for a moment about money. It is only a tool anyway and as we all know, it is maybe sexy to have a lot of it, but then again, it also only is so because it represents a certain value which doesn’t create capacities but may move those. The still economic system we endure in its final stages engaged in creating enormous wealth but at the same time destroyed its capacities.
The elites of the declining economic and political system hadn’t understood that wealth needs to be produced not created. That’s why they believed in their own model and managed to interpret even it’s destruction as “economic growth”.
The New Economic System will calculate GDP growth not only by measuring wealth and production output, but also by other factors which are relevant for our societies, such as standard of living, quality of life, public subsistence, health, environment and last but not least, cultural life.
All these factors ought to be weighed and adjustments have to be defined to make sure an as accurate as possible picture can be drawn. It is of course important to know how many healthy years after 65 men and women in the member states on average basis can enjoy, a statistic which is available but not part of any economic theory although it is so vitally important.
The Eurostat statistics show that by no means do people in rich Nordic countries experience most of the years after their 65th birthday without severe impairments and disabilities, but people in Greece, Portugal, Italy and Spain, which probably is also affected by nutrition as well as consumption and rather not due to financial leeway.
The New Economic System will set the axiom on which the whole neo-classical model had been based on and which until now has been ∂F(x)/∂x = 0 not ZERO but ONE so that it doesn’t allow the economic model to substitute the factors like capital and labour by whatever figures and assumes that it is divisible anymore.
The old, neo classical, model in it’s entirety had been based on this assumption, making it possible that their models – in theory – show even then growth rates if consumption declines because of shrinking wages leading to retracting production cycles while the profit rate increases amid declining production output.
Applying this old model means that in theory even destruction would be measured as growth. In the New Economic System the axiom will be put right as we can not afford to dream of growth that doesn’t exist. And, we need to be able to calculate the consequences for wages, social expenditure as well as production output correctly and realistically.
Furthermore, GDP growth in the New Economic System will deal with the most pressing question of our times: what is Time worth? Since productivity constantly rises, more time is gained for many of the citizens. Time is not money, it is wealth.
9. European wide minimum standards prevent exploitation
Instead of a dreadful spiral pointing downwards when it comes to all kinds of standards, the New Economic System will be based on high standards across the European Union. Worker’s protection, social security, health care, education, public subsistence will be given the highest priority while at the same time SMEs and corporations will benefit from an as widely harmonised standard as possible.
It wouldn’t benefit enterprises in the long run to have an ever declining industrial standard. The Bolkestein Service Directive and all similar attempts by the EU Commission to set the lowest standard will be replaced by a directive which will set the targets for doing better.
In this way member states and companies can very well compete with each other. Innovation is the only principle which shall govern the setting of standards. Exploitation will be made unprofitable and true and honest competition let the best companies succeed, not the most ruthless ones.
The New Economic System will set priorities for science, healthcare, ecology, education and sustainability. A society in which a sports-star is paid multiple amounts of what a scientist who develops a treatment for a disease earns definitely didn’t get its priorities right. Sport’s and tabloid entertainment are welcome distractions from real life, but they aren’t the priorities of Europe’s new societies.
The New Economic System is not aiming at a so called “classless society” but rather a classy society giving everyone equal chances to succeed and find ones personal felicity.
10. Resource management and Fair trade
It has become impossible now to deny that planet Earth is about to become uninhabitable. It is the profligacy and wanton destruction of natural habitats which result from the false economic system.
Fair trade is free trade, but this is not a one way road. Emerging economies and developing countries need to be given access to the world market, not kept out of those by Doha Round and WTO rules. Our New Economic System will be able to deal with the challenges of a truly free trade and free market as EU companies produce high quality goods and services.
A vivid exchange between all continents and countries won’t be counterproductive to anyone except for the greedy. Resources shall be traded at market value on the world’s markets and no blackmailing by EU countries shall be allowed for acquiring such products.
It is overdue that we buy the resources of Africa, South America and Asia without making pressure on the sellers. It will pay off or our societies in Europe that we will have normal trade relationships with the rest of the world without exercising political or economic pressure.
Adam Smith’s ‘Wealth of the Nations’ always meant to say this. In return, we will see that we will be granted access to resources and markets without investing into war machinery.
And, we will see that products we have thought of being overpriced suddenly appear to be quite reasonable. As productivity in the world rises by some 2.5% per annum while economic growth is relatively constant around 2% but population grows only by 1.75% annually, there is no need to see anyone go hungry and not be able to drink clean water, be protected from diseases and enjoy life.
The New Economic System will take account of the fact that productivity rises faster than the world’s population and will set free capacities for sustainable, not excessive, growth and management of resources in environmental friendly manner.
Our ever richer and more productive economies have the ability to rescue this planet and all beings on it, human and non-human, North and South, Rich and Poor must get their act together. We have to cut down on emissions, not human beings and nature.