The fight against the rooting cause
A democratic revolution to shape the capital structures of the future
A Wings of Excellence awarded essay at the 49th St. Gallen Symposium on the topic “Capital for Purpose.” Written by Florian Gasser
Finish time! Another productive working day ends and I finally find some time for the News. Re-strengthening nationalism like Brexit, the system struggle in Venezuela, the violent clashes of the Yellow Vests in France, terrorist attacks in the Middle East, environmental catastrophes, climate change, the effects of digitalization on job development, new data breaches from digital corporations — and I am still not at the weather overview. With a whisper, I ask myself: Is it as good as it gets?
The current pressure on society appears to be extremely tense. The mystical power behind this seems to be anchored in capital-relevant issues. Since the beginning of human coexistence, capital has been a potential source of friction. The system recognized today is based on several findings from well-known visionaries, such as Karl Marx [i] as the founder of socialism, and Adam Smith [ii], who discussed the role of the division of labor and the free market, foreign trade the questions of distribution, and the role of the state.
Much later there was an open exchange of blows between the two capitalists Keynes [iii] with his interventionist and Hayek [iv] as the liberal view. All these works show a strong focus on financial capital. The view of social and human capital types was constantly overlooked. Bourdieu [v] sees social capital as an “accumulated social energy” that is distributed unequally. Power arises from belonging to a group or by consolidating itself as a status within a social class. This power component is strongly criticized by Putnam [vi]. He has proven that solidarity and sociality in western democracies are strongly dwindling and approaching a critical state. This disintegration of social cohesion leads to ever-stronger egoism and an ever-stronger allocation of power and money accumulations. This vicious circle represents a central danger for social peace. Personal expenditure on education is rising disproportionately in many countries meanwhile PISA-results [vii] drop. Strengthening civil society and republican traditions can defy the erosion of social and human capital. To secure social justice and to establish a sustainable capital structure we need to analyze our current power structure. It defines the playing field for the triad of capital types.
Democracy according to western standards, including political elites as well as cooperation with trade unions, associations and lobby groups, currently represent the most “fair” and economically meaningful image of rule. However, it depends on the baseline. I dare to put forward the hypothesis that democracy, as we know it, is defective and provides false incentives to achieve this triad.
According to a recent study by the Bertelsmann Foundation [viii] using Germany as an example, the number of satisfied democrats tends to decline from 60% in 2017 to 53% last year. Only 69% of the population accepts democracy as the best form of government. Similar processes happen worldwide. The current level of satisfaction in France, for example, in this respect is unlikely to require any further explanation. According to The Economist Intelligence Unit’s Democracy Index [ix], today only 4.5% of the world’s population live in full democracies. Even in those democracies, there are deductions in individual components of measurement, such as participation and influencing free opinion. This essay will tackle some of these deductions and tries to establish a more holistic approach.
Social and financial disparities are often the reasons for dissatisfaction that deeply divides societies. Although Oxfam’s method [x] of calculating inequality isn`t uncritical, as it is too strongly focused on wealth rather than income, there is an undeniable drift between the two extreme poles of rich and poor. The economics of scale, which have accelerated with the use of digital services, play a decisive role here. Historically high inequalities led continuously to destabilization of societies and culminated in revolutions. Under the status quo, this leads to the fact that capital isn`t used for the best benefit of the public, which end in destabilization, devastating environmental impacts and other challenges mentioned above. To this end, I put the central thesis of this essay into perspective. Capital should serve to sustainably increase the general well-being (and not pure prosperity) of a society. A clear demarcation between well-being and prosperity is indispensable.
The initial question is how to measure well-being? Unfortunately, KPIs like GDP fail, since they originate from an analogous time and evaluation criteria are partly outdated. An example: If someone marries his cleaning professional, then the GDP decreases, although still the same achievements are converted. A distinction between creation of value and pure value skims was foreseen. However, it has not succeeded until today to draw a clear line in between. There are justified criticisms, whether financial transactions actually donate value, or evenly only value shift. The digitalization with new technologies such as AI, virtual reality, blockchains, and the associated changes in capital structures is not depicted yet. More and more services are digital and, although they bring benefits for individuals, they do not represent a corresponding monetary equivalent (e.g. imparting knowledge on Wikipedia). Erik Brynjolfsson noted at WEF 19 that digitalization still accounts for only 4.6% of GDP, like in 1983 [xi]. The GDP cannot claim to be complete in order to adequately measure the development of capital and well-being. Other indicators, as the Better Live Index [xii] from OECD try to answer the same question. However, no comprehensive picture of people’s well-being is established yet.
A special case for illustrative purposes of putting well-being and luck of the population in the focus took place in Bhutan. The king of this tiny Himalayan country, decided years ago to look just on growth of happiness of its people. The government provided funds to its people for everything they needed (healthcare, education, security, etc.). The people started participating significantly more and it strengthened their values and identity. The philosophy of Gross National Happiness is still guiding the government of Buthan after the king handed over its sovereignty. This is an extreme case — but the underlying basic principles to increase well-being can be inspiring guidelines of future purpose of capital.
Time for Action
The Key Challenge, therefore, a reform of the basic democratic order of states and communities of states. The goal should be to promote a stronger balance between the different types of capital and sustainable well-being. The following 5 strategies are central:
1. One person — one vote, but be aware of vitamin B overdoses
I want propose a more transparent and indirect democratic information system prior elections. Therefore, election expenses linked to the number of people eligible to vote should be capped and complied with (not as in Austria)[xiii]. Further, a public party funding would be advisable. Following the example of Switzerland, every voter should get a (digital) electoral book. In it, each party gets the same stage to explain its program on equal fair terms on central political issues. Clear answers at the end of the statements like a “against or for”-format would be mandatory. It can be used as a confirmation comparison for the next elections — so that the voter can review central decisions. This links political parties to the clear voter will and promotes a fair, balanced electoral campaign based on themes.
These framework conditions deprive lobby groups of the disproportionate power to make future decisions. The overcapitalized election campaigns like in the USA, in which interest groups finance both parties in order to buy a say in one way or another, leads decision-makers into a relationship of dependency from the outset. The last American election was a pure material battle without any thematic thread and personal denunciation with a spending of over 1.8 billion dollars [xiv]. Can anyone remember any other political message, except building a wall?
2. Following Capital into the digital era
Politics has to focus also on the transformation of capital and the transformation of value creation. Therefore, the governments have to be up-to-date of the newest technological progress, so that they are early enough to shape the major guidelines for corporations (e.g. legal and taxation issues, so that have planning reliability and growth opportunities are set from the beginning).
3. Stop orders like “Double Irish With a Dutch Sandwich”
This is a clear political mandate. It cannot and must not be that Cum-Ex-, Cum-Cum-Files, Panama Papers, or the “tax avoidance option” mentioned in the action title are not classified as illegal. In many nations, citizens criticize the high tax burden for individuals. The discussion that such mentioned tax strategies are currently “legal” does not change the fact, that majority of society perceives this as unethical and that politicians have a responsibility to change that. Self-interest as well as the influence of lobbyists prevent a struggle for a verifiable distribution of taxes and indirectly increase income and wealth inequality. The lost tax gain could support the redistribution, better education systems, debt reductions or even other tax reductions. Strong cooperation between states are mandatory, so that also positive sustainable economic effects can occur.
4. “All […] are equal, but some […] are more equal than others.” [xv]
As the famous novel animal farm from Orwell (1946) trenchantly criticizes, law has to be the same for all, also when it comes to bigger frauds from famous, rich or also political persons. It is a clear defect when a “better=more costly” advocate can improve the probability to be proved right in court significantly or it helps get lower fines. Some cases in the last months concerning tax fraud in football were proved and the fines can be seen as substantially low. From the society, cases like this can be regarded as an unfair procedure, which results in a reduced trust in the constitutional state and the democratic system.
5. Everyone is replaceable and should be
Especially in the aftermath of the economic turmoil of 2008 political discussions came up, that the financial capital and the economic egoism was the rooting cause of the crisis. This led to a discussion about executive compensation in respect of how they induce or mitigate risky leadership. Western state leaders and organization had to deal with it inevitably. It was the perfect time to set far-reaching reforms in the area of financial capital, against short-term risk behavior and wrong incentives. Managerial and investment short-termism could have been reduced by capped and incentive-driven compensation systems. However, a reform has to be value-based and oriented towards stakeholder goals. In my eyes, the decision makers did not act bold enough and just took the easier way. Using public money for bailouts of banks, who triggered the crisis in the first place, just leads to a wrong mindset of future decision makers. In line with the homo oeconomicus theory it is to be expected that one behaves riskier if someone else takes the risk, in case of emergency. This behavior has not changed yet and the size of major banks is still increasing [xvi]. Instead of setting the criteria in a way, that future too-big-to-fail cases cannot arise, we accept the ticking time bomb. A framework were the responsibilities are clearly assigned and are not just written on a paycheck is necessary. It is time for a not-too-big-to-fail-policy.
It takes courageous leaders with far-sighted decisiveness to tackle such revolutionary ideas for the future purpose of capital. Such developments would not go smoothly because leading interest groups would be subjected to an inevitable loss of power. However, even in historical context, encouraged persons took the chance to fight for basic democratic values as well as economic achievements against strong power imbalances for even bigger changes in the power structure. The positive effects of an balanced capital structure would be a long-term political and economic stability, a sustainable increase in well-being of the society, which has interacting effects with welfare and a far-sighted decision-making process for future challenges — and finally, we all get more positive News in the future after a hard day’s work.
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[i] Marx, Karl & Engels, Friedrich (1962). Werke, Band 23, 11–802. Berlin: Dietz Verlag.
[ii] https://books.google.ch/books?id=C5dNAAAAcAAJ&pg=PP7&redir_esc=y#v=onepage&q&f=true
[iii] Keynes, John Maynard (1936). The General Theory of Employment, Interest and Money. London: Macmillan (reprinted 2007).
[iv] Hayek, Friedrich A. (1960). The Constitution of Liberty. Chicago: University of Chicago Press.
[v] Pierre Bourdieu (1983): Ökonomisches Kapital, kulturelles Kapital, soziales Kapital, in: Reinhard Kreckel (Ed.): »Soziale Ungleichheiten« (Soziale Welt Sonderband 2), Göttingen, pag. 183–198, Original contribution, translated from Reinhard Kreckel.
[vi] Putnam, Robert D. ( 2001). Bowling Alone: The Collapse and Revival of American Community. New York: Simon and Schuster.
[vii] http://www.oecd.org/pisa/
[viii] https://www.bertelsmann-stiftung.de/fileadmin/files/Projekte/Gesellschaftlicher_Zusammenhalt/ST-LW_Studie_Schwindendes_Vertrauen_in_Politik_und_Parteien_2019.pdf
[ix] http://pages.eiu.com/rs/753-RIQ-438/images/Democracy_Index_2018.pdf
[x] https://oxfam.app.box.com/s/f9meuz1jrd9e1xrkrq59e37tpoppqup0/file/385579400762
[xi] https://www.srf.ch/play/tv/wef-davos/video/eco-spezial---srf-panel-vom-wef-2019?id=56bfb0aa-c893-4417-aa62-a5297173b878&startTime=102.237184
[xii] http://www.oecdbetterlifeindex.org/de/
[xiii] https://kontrast.at/wahlkampfkosten-oevp-obergrenze-2017/
[xiv] https://www.bloomberg.com/politics/graphics/2016-presidential-campaign-fundraising/
[xv] Orwell, George (1946). Animal Farm. London: Penguin Group.
[xvi] https://www.ft.com/content/0bd8f4d4-76de-11e7-a3e8-60495fe6ca71
