June 21, 2021

Prevent inequality before it appears | Economy

Prevent inequality before it appears | Economy

Will we be able to face the enormous problem of inequality, poverty and lack of opportunities that many people suffer only with redistributive measures? That is, only with new taxes on the very rich. Will these new taxes and social rights, such as housing, correct the inequality, get out of the ditch of unemployment and lack of income to households without resources, promote the emancipation of young people and recover the deterioration of the middle classes?

In my opinion, no. Our problem of inequality is of such magnitude that redistribution alone will not be enough to eradicate it. We also need to act on the sources of inequality and poverty. On the pre-distribution. But before I see what they are, let me explain my skepticism with redistribution.

Redistribution was a fundamental element of the postwar "social contract". Through this contract, the left committed themselves to accept, albeit reluctantly, regulated and competitive capitalism as a system to organize the economy; the rights, on the other hand, committed themselves to pay taxes and to support the creation of a new social (or welfare) state to make true two old aspirations. First, the principle of equal opportunities. To this end, public education and health systems were created. Second, eradicate the "poverty of the elderly", which came from the loss of labor income as a result of two circumstances: the loss of employment derived from economic crises and retirement. Public unemployment and pension insurance came to cover, albeit partially, the loss of income that led to poverty.

Market capitalism and social status were reconciled during the "Thirty Glorious Years", the three decades that followed the Second World War. Stable jobs and decent wages, on the one hand, and taxes and redistributive social programs, on the other, created a decent society and established a broad middle class that promoted the spread of democracy.

The Spaniards signed a social contract of this type in the second half of the seventies. First in the so-called "Agreements of the Moncloa", March 1977. And, the following year, with the approval of the Constitution. The Christian-Democratic governments and the Socialists put the pieces of that contract. Spanish democracy is inseparable from the social contract of the Transition.

But the glue of that contract began to dry up in the eighties. On the one hand, conservatives and liberals began to question their support for the principle of solidarity of the social state, delegitimizing the payment of taxes and redistributive expenses. On the other, market capitalism changed its skin; real wages began to lose purchasing power; Labor market reforms, more libertarian than liberal, promoted temporary employment, insecurity and low wages. At this stage, economists argued that an increase in distributive equity impairs the efficiency of the economy.

Surprisingly, although with lower real wages, households continued to consume. The reason was that governments encouraged indebtedness as a substitute for low wages. Until the debt reached its limits in 2008.

Today, with the knowledge that comes from new data, economists know two things. That social equity and economic efficiency are not in conflict; on the contrary, a fairer society produces a healthier and more sustainable economy. It is a new epiphany of economic knowledge. It is better to redistribute than to encourage indebtedness. And, secondly, we have discovered that inequality and poverty draw from three sources. The first is the poor distribution of the corporate surplus between salaries, executive salaries and dividends. The second is the malfunctioning of markets to set prices, responding more to logics of monopoly than competition. And the third is poor macroeconomic management, which by unnecessarily prolonging recessions produces massive long-term unemployment and structural poverty. In these three sources there is a pre-distribution of income and wealth and, therefore, inequality and poverty.

With inequality, as with disease, prevention is better than cure. Act before it appears. As happened at the beginning of the last century, in circumstances that rhyme with those of today, that means that the next few years will be times of feverish experimentation with ideas and policies (fiscal, economic and business) radical. It is convenient to reconcile market capitalism, social progress and democracy.


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