“Reforming capitalism involves stopping the power of money in politics” – Sustainability

He defends a redefinition – or restart – of capitalism with profound reforms of the market system that currently exists and which has already revealed many flaws in the last four decades that the State is also unable to overcome. But, he emphasizes, capitalism is not just a reform of market rules and regulation. It also involves reformulating what politics is in a context of greater demand from the electorate.

“There needs to be a balance between markets and the State.”

He has advocated a redefinition of capitalism and the economy itself in the way it responds to current challenges.

The dominant paradigm in the last 40 years has been neoliberalism, which places excessive dependence on markets as a vehicle for response. And a lot of the problems have been exacerbated by the markets, and they’re not going to be very good at solving them. The lack of resilience, the high levels of inequality. The failure to deal with climate change. So the discussion over the last 40 years started with the presumption that markets were the key tool to solve all problems and I think we’re going to have to have a better balance between markets and other institutions, particularly the state.

So it is necessary to have a redefinition of capitalism, as the Financial Times recognized four years ago, to create the new Capitalism.

I consider this to be true and it is what I have been advocating since my 2019 book, “People, Power and Profit”, and which I continue in my new book “The Road to Freedom – Economics and the Good Society”. Both go towards the need for a redefinition of capitalism.

“The main argument for populism is that the State has failed to respond to citizens’ demands.”

He argues that States must do more to overcome market failures and have more influence on the economy. At the same time, there is populism and populist parties are gaining a lot of strength. How can we make it compatible?

The main argument for populism is that the State has failed to respond to citizens’ demands. The problem, they say, is that there is too much State and people are angry. The real danger is that it could go the other way and things could get worse. Take the case of Donald Trump. His support comes from the anger associated with the failures that are already visible. What these people do is exacerbate problems. If there is a lot of inequality, this cannot be resolved by approving yet another tax cut for millionaires and companies. Therefore, these policies were making the problem worse. Now one of the things that any reform of capitalism has to include are democratic reforms that curb the power of money in politics. This involves creating systems of checks and balances within society as a whole, and part of this system involves reducing excessive wealth inequality and ensuring that there is an active press, which functions as the fourth power, which is critical, which informs. Therefore, it is a more complex construction.

He has been a strong supporter of a 15% minimum tax on large multinationals, but he also advocates a minimum tax on personal income. How could this mechanism be adopted?

There has already been a lot of progress on a global agreement, a minimum tax on multinational companies. However, 15% is a very low value and the proposal from the Organization for Economic Cooperation and Development (OECD) actually had clauses that allowed the effective rate to be substantially lowered. In the commission I was on, we asked for the rate to be 25%, and even the United States proposed a higher value, 21%. It seems clear that the OECD gave in to companies so that a lower tax rate could be approved. I was in Washington, at the IMF World Bank meetings, where there was a lot of discussion about the minimum tax on ultra-rich individuals. It had a lot of repercussion, many people were interested in this idea.

And what is the principle of this tax?

This tax would take the form of an income tax that must be at least equal to 2% of your assets. Thus, it combines wealth and income. In other words, if someone has assets worth 100 billion dollars – and we know who these people are – they cannot pay zero taxes, when many are even proud of paying nothing. With this proposal they would have to pay 2 billion in tax, 2% on 100 billion. I don’t think it’s much for someone who has all this wealth. Let’s imagine that this person earns an income of 10 billion a year – which is not unreasonable – it is not an onerous tax.

But could we have massive capital flight to other countries?

The question is does it have to be done globally, and if so, where will the proceeds go? Are you going to escape to the Moon or Mars?

But it is very difficult to bring all the countries together to do it.

The idea of ​​a minimum tax is that we really don’t need absolutely all countries to agree. It’s basically taking the idea and mechanism of minimum corporate tax and applying it to personal income. For example, if a company is operating in the United States, we check the income globally, we apply a tax, but these companies can even deduct the value in other countries. But if you want to enter the United States, you have to pay this global tax. You can say that many companies, in order to avoid paying this tax, give up on the North American market. The truth is that there won’t be many companies in the world that want to give up on a market as vast as the US.