ECONOMY.  “We need to get off of all of these subsidies at some point — otherwise, we’ll have a zombie economy”

Carl Bildt, co-chairperson for European Council on Foreign Relations.

Covid-19 is a hard blow to the world. According to official statistics worldwide, around 111 million people are considered infected, and approximately 2,5 million people have died.  

At the beginning of the pandemic, economists spoke about the biggest impending economic crisis since the Great Depression in the 1930s. However, GDP statistics for the third quarter of 2020 show a strong recovery. For example, the growth in Germany was 8,2 percent compared to the second quarter. In France, the growth was at 18,2 percent, which is almost the whole loss from Corona. 

Corporate bankruptcies in the EU diminished by on average 25% in 2020. Without billions of euro in government-supported loans and wage subsidies to keep companies floating, the number of bankruptcies would have been doubled, according to a study from the research institute National Bureau of Economic Research NBER.

Government support has certainly prevented rising unemployment, but the proportions are risking to increase the number of zombie companies.  The Bank of International Settlements, an international financial institution owned by central banks, defines zombie firms as “a company that at least is ten years old, listed on the stock exchange and has interest rate costs that are exceeding the company’s results before interest rates and taxes”. 

BIS’s estimation shows that when the share of zombie companies increases by one percent within an economy, the productivity growth decreases by 0,3 percent.  They distort investments and slow down renewal, so much that such companies could contribute to the 2020s as an “a lost decade” with a standstill economy, according to the World Bank. 

Most of the European governments did plan to phase out their support for companies during the autumn of 2020. The governments counted on the Coronavirus to be under control by then. A second wave has just filled the hospitals and is aggravated by new strains of the virus, which also led to economic support being brought forward. When the third wave of Covid-19 strikes, while the EU’s member states are having problems cooperating about vaccines and measures against the pandemic, the economy risks shrinking even more. 

The increase of zombie companies and government budgets operating on high deficits, even when the economy is booming, combined with weak productivity growth, was already a problem in Europe before the pandemic. Consumers in the world’s biggest economies have accumulated about 2.9 trillion dollars in extra savings during the lockdowns and a large number of liquid assets that could lead to a powerful recovery, according to Bloomberg.

Inflation and growth are not low because of a surplus of savings, but because of a very high indebtment that sustains an over-capacity in the economy with low-interest rates and high liquidity. Small savers do not know what they can invest their money in because nothing seems to lead to returns on their investments. 

Rarely has optimism in the financial markets been as high as it is now. On the stock exchange, record highs are continuously beaten, while at the same time, everything from real estate to high-risk bonds continues to increase in value. Growth in the world economy is expected to be around 4% in 2021 in order for the economy to be fully recovered to its pre-pandemic state by the end of 2022 fully. That requires a previously unmatched level of indebtedness and asset-buying (quantitative easings) by the central banks. 

It is a question of “toxic positivity” in the economy.

When someone shows toxic positivity, it means the person attempts to be happy and positive even if feeling terrible. They also want others to adopt the same distorted positivity. Otherwise, the bubble risks to burst. 

Negative interest rates are a large transaction of wealth from savings and wages to governments and debtors. It functions as a tax on realism. If the interest rate and the price of money are equal to zero today, then all profits have to be achieved in the future. Thereby, the economy becomes dependent on debt and asset bubbles. Politics become dependent on financing rising expenditures with cheap loans and perceives that reforms are unnecessary. 

The promises of the future promises are also on the present’s accomplishments, and we are now expecting the value of our stock to be extremely high, our real estate to be constantly rising in price on our real estate and for dividends to give us ever-increasing profits. 

The worst that could happen is not a financial crash, but that the current situation becomes normal. It means a weak and K-shaped recovery, where specific sectors as tech companies and sectors with higher added value recover fast, while a majority of small and medium-sized companies and entrepreneurs do not. The pandemic becomes a permanent feature of the economy. 

Researcher Jessica Mead at Swansea University et al. finds in a study that those who psychologically have dealt better with the pressure and isolation during the Covid-19 pandemic are those who were ready to accept that life will become more stressful, compared to those who were not able to accept that. That can be a source of guidance both for the pandemic crisis, as well as the debt crisis. 

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WELFARE. The idea of basic income has a long history. In Europe, during the last decades, it has transformed from a theoretical approach to the practical implementation as with the experiment in Finland during 2017-2019.

In Switzerland, a referendum in 2016 took place where citizens voted about the issue concerning the government providing every citizen with a guaranteed citizen salary. The proposal was later rejected by a significant marginal. Namely, around 74% voted against. However, despite the relevant terms basic income, citizen income or citizen salary a considerable difference within the debate.

The ongoing debate and the supporters of the basic income policy can be divided into three main categories: the economic-liberal, the welfare supporters and the economic-growth critics. In its original, the idea of the basic income, such as argued by academic Phillipe van Parijs, should be provided to each individual and citizen within the society. In practice, it means that a basic income should, by the state government, be given, for example, both a businessman who earns several million euros per year as well as to a low-income job seeker.

One of the most prominent specifics of the basic income idea is that it has broader support within the ideological sphere since political thinkers from left to the right, from freedom to authoritarian side, have been supporting the idea. The economic-liberal side of the debate has different political ambition, based on two main arguments. The first one is to reduce the overall size and expenditure of the welfare state by cutting down the size of bureaucracy and its costs. The second is to make the welfare state gentler and less paternalistic towards the individual.

Liberals in favour of basic income often argue that the individual should have the personal freedom to choose how to spend the basic income. The argument is that the individual knows better how the basic income can be used for their own personal success, welfare and future perspectives. Therefore from the economic-liberal side of the debate, the general idea is that basic income should be provided by a more limited distribution of welfare. For example, by providing basic income only for those who are outside of the labour market or who lack other kind of sufficient income. Also, there can be an age limit, such as providing basic income only for individuals in the age span of 19 – 65 years.

 Another support for the economic-liberal basic income policy is original ideas of liberal economist Milton Friedman regarding the negative income tax (NIT). The primary purpose is that a person without income or earning much less than the average salary would be able to receive payments in the form of subsidies from the taxation agency based on the scale the person`s income gets under the tax threshold.

Historically seen the idea of basic income has had its supporters among liberal thinkers. One prominent thinker who supported the purpose of such income was Friedrich Hayek. As a classical liberal, he was against the existence of the welfare state. However, he argued that an individual should be guaranteed a basic income if for example, being left out from the labour market. For Hayek, the primary assignment of the basic income was to deal with and correct the ”imperfections” of the free market economy.

According to Hayek, the basic income could function as a protective floor to hinder the individual from falling down into poverty. For him, this was a preferable method for making things right in the free market economy where the government could provide support for the individual in a difficult socio-economic situation.  A classical liberal argument can, therefore, be presented in short as the argument that every individual member of the society should be guaranteed freedom from poverty.

Similar ideas as Hayek’s are proposed by Matt Zwolinski, a bleeding-heart libertarian and philosophy professor in the USA.  He argues that a basic income would be an effective way to reduce the spending and the size of the federal government’s welfare, by cutting down the administration and giving money directly to individuals. Also, he means that basic income is compatible with original thoughts of the classical liberalism, meaning that the tax-funded necessary social protection can be provided.

Zwolinski’s argument is that society’s morals, rules and rights should be available to be exercised by everybody in the society as much as possible. A society based on free but complex social and economic interactions between individuals also leads to specific problems. By having citizens who are stressed and dissatisfied because of the issues as poverty, social exclusion and lack of confidence, the free and democratic society gets challenged by having the members not being able or willing to practice the morals, rules and rights of the society. The basic income can, therefore, ensure that a free and democratic society can function better since its imperfections can be corrected.

Another support for the economic-liberal basic income policy is original ideas of liberal economist Milton Friedman regarding the negative income tax (NIT). The primary purpose is that a person without income or earning much less than the average salary would be able to receive payments in the form of subsidies from the taxation agency based on the scale the person`s income gets under the tax threshold.

In contrast to the progressive taxation, the NIT is also part of the method where overall taxation would be lower and managed with the different percentage depending on the size of the taxpayer’s income. Friedman’s vision was that this would be a kind of win-win situation where the welfare state and its spending are being reduced while individual is more stimulated to take a low-paid jobs as well as getting protected from poverty.

Finally, there are also more social-liberal arguments for basic income based on positive rights. Civil rights activist Martin Luther King also advocated that a basic income should be given to every citizen, human and families in the USA. He argued that it was easier to erase poverty than to deal with its roots. Interesting fact is that during the same time period president Richard Nixon was also in favour of basic income policy which was called the family assistance plan and inspired by Friedman’s approach. For Martin Luther King, the basic income was a way for empowering the civil rights movement and also of reshaping the society into becoming more civic.

In Europe historically seen the idea of the welfare state was from the beginning, a conservative idea which can be traced to Bismarck’s Germany during the later period of the 19-the century. By, for example, providing guaranteed pensions and free schooling for all citizens it was a method of maintaining stability in the society. Many conservative politicians at the time were, for example, worried about the class-based struggle and protesting actions among the growing working class.

Today the idea of having more substantial or smaller welfare states is widely spread across the union, including the different models being implemented such as the Nordic and the continental model. For most of the citizens welfare is not a question of having or not having but a question about what kind of welfare policy should be exercised. The basic income idea has, therefore, a lot of potentials to become a modern welfare approach in future within the EU to have a more human-centric welfare policy rather than older versions of paternalistic and integrity infringing welfare states.

The post The liberal case for basic income first appeared on Opulens.

Photograph: Pixabay.com. Edited by Opulens.

MILITARISM. The Chilean government raised the subway ticket price by 30 pesos. On Thursday morning, October 17, small groups of students evaded paying for their tickets, skipping the controls in some subway stations. I took the Santiago subway. There was a tense but calm atmosphere. The calm before the storm. Closed doors. Guards and police were intimidating the students all over.

On the morning of Friday, October 18, I travelled to Pichilemu, a charming seaside resort on the Pacific coast 250 kilometres from Santiago, to participate in a Book Fair. The day was sunny in Pichilemu. Social networks informed that people were continuing to protest in Santiago. People did not accept government intimidation. Chaos broke out. The situation worsened, and violence took to the streets of the Chilean capital, with burning of various metro and bus stations, looting of supermarkets and attacks on public buildings.

A photo increased the discontent. The photo was of President Piñera eating pizza at a restaurant in Vitacura, to celebrate the birthday of one of his grandchildren. His grandfather role was more important than his role as president. A single photo increased people’s anger. The next day, on Saturday the 19^th, President Piñera rescinded the price increase on subway tickets. Too late. The protests did not stop. Piñera declared a state of emergency. He limited some civil rights. He imposed a curfew and deployed the military to the streets.

In the airport, flights were stopped, and hundreds of passengers were stranded. That Saturday, I saw Pichilemu neighbours quickly, organized a protest march. At 7 pm, a huge number of people gathered in a square. They started marching by banging on pans. I joined the march with other writers. Thousands hitting pans. “Piñera, listen, go to hell!” The march stopped in front of the cultural centre, at the place where the book fair was held. The same sort of energy and atmosphere made the rounds of almost every city in Chile. People rebelled spontaneously.

While we were having dinner, we heard and saw on social networks that the people of Santiago challenged the curfew there. Result – eleven dead individuals. The Government indicated that 716 people were being detained, 241 of them for not respecting the decree that prohibited nighttime traffic. Sunday was also sunny in the coastal town of Pichilemu. We ate breakfast sitting by the pleasant sunny sea, with other artists and writers. We commented on what was happening in Chile.

The demonstrations continued in different places in Chile, and the government’s misconduct was absolute. Piñera did not appear, and rumours of all kinds were in the air. We returned to Santiago. We had to arrive early as the government had moved up the curfew in Santiago to 7:00 p.m. on Sunday. The trip was quiet with little traffic. We heard on the radio about more protests in Santiago.

We went to eat some tasty shrimp empanadas with cheese in the town of Pomaire. A town known for its handicrafts. Normally the town of Pomaire is full of tourists. Now we were alone in the restaurant. Already in Santiago, on Sunday night, I could see President Piñera appearing on TV. Emaciated. He said a phrase that made the situation worse again. “We are at war”.

Piñera was reckless. I was struck by Piñera’s lack of restraint.  When it was more necessary to calm down and show sanity, Piñera spoke of war. He poured gasoline on the fire. I felt that he was out of control – a disgraceful president who does not know how to govern. His words have made everything worse.  Until those days Piñera ruled Chile based on monitoring opinion surveys. The man was convinced that surveys were the best way to rule.

In just three days, the social blowout proved its political ineffectiveness. He showed his arrogance — a man who does not know how to govern. There was accumulated anger. Chile is one of the most unequal countries in the world. Neoliberal politics sold everything into private hands: water, health, education. The sea is private, and the roads are private. Wages and pensions – miserable.

In Pichilemu, a young writer told me that her mother called her on her cell phone and asked her to take care of herself. “Mom, do not worry. I’ll be fine”. And then her mother cried on the phone. Her mother remembered the time of the Pinochet dictatorship when she was young. She knows how things used to be. Chilean trauma, like a ghastly ghost, reappears as if it were a horror movie.

More than 44 days have passed. Things have gotten worse day by day. The paralyzed government continues to intensify the repression. Several international human rights organizations have publicly denounced human rights abuses. There have been several cases of people linked to the social movement who have turned up dead in suspicious circumstances.

The billionaire Piñera is an egocentric man. Sitting on top of his millions of dollars, he lives today in a moral vacuum.  Piñera has led a country to a terrible crossroads.

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