Category Archives: living wage

Broad left narrative – 2: Owen Jones

owen jonesCould any reader write a narrative combining Owen Jones’ suggestions for policies, around which a left alliance could coalesce?

  • A living wage is good for workers and for businesses, with better-off customers and taxpayers, who will spend less subsidising poverty wages.
  • A homebuilding programme will reduce the social housing waiting list, create skilled jobs and waste less public money on paying private landlords.
  • Public investment banks could support local businesses currently starved of loans.
  • Concerns over immigration could be addressed through an “immigration dividend”: extra public money for services going to communities with higher levels of migrants.
  • Middle-class commuters resent taxes spent on far higher subsidies than in the days of British Rail. Public ownership – this time democratically involving passengers and workers –would benefit them.

 

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The Nordic model: a beneficial culture for Britain

 

tim harfordTim Harford, the Financial Times economics leader writer and author of ‘The Undercover Economist Strikes Back’, won the Royal Statistical Society’s 2010 award for statistical excellence in broadcast journalism.

He raises an important subject, comparing the tax-raising regime in Scandinavian countries with that in Britain: Denmark, Norway and Sweden receive taxes worth about 45% of GDP according to economist Henrik Jacobsen Kleven – 10 points higher than the British take. The following text follows Harford’s theme, supplemented by an Economist article and Wikipedia entry on the Nordic countries.

Scandinavian “universalist” welfare states aim to enhance individual autonomy, promote social mobility, ensure the universal provision of basic human rights and stabilise the economy. They rank highest on the metrics of real GDP per capita, healthy life expectancy, interdependence, perceived freedom to make life choices, generosity and freedom from corruption.

nordic welfare model graphic 2013Jon Kvist: Institute of Society and Globalisation, Roskilde University, Denmark

The Nordic model emphasises maximizing the labour force, promoting gender equality, extensive benefit levels, income redistribution and maximisation of public participation in social decision-making. This also operates in the workplace as employers, trade unions and the government, negotiate terms as a social partnership, rather than having conditions imposed by law. Other strengths:

  • free education,
  • universal healthcare,
  • strong property rights,
  • contract enforcement,
  • overall ease of doing business,
  • public pension plans or
  • union-run unemployment funds.

Transparency

Comprehensive tax reporting in Scandinavia makes evasion very difficult. Norwegian tax returns are published for all to examine. An Economist article amplifies: “The performance of all schools and hospitals is measured. Governments are forced to operate in the harsh light of day: Sweden gives everyone access to official records. Politicians are vilified if they get off their bicycles and into official limousine.”

Tax

The Nordic welfare systems are mainly funded through taxation: Sweden at 56.6% of GDP, Denmark at 51.7%, and Finland at 48.6% reflect very high public spending. A large number of public employees work in various fields including education, healthcare and the civil service. They often have lifelong job security and make up around a third of the workforce (more than 38% in Denmark).

Harford points out that the UK system needlessly excludes swathes of the economy from tax. Rather than charge a 10%t rate of VAT on everything, the UK government charges a 20% rate of VAT on roughly half of what consumers spend.

He concludes that the simplest way to broaden the tax base is to dismantle barriers to getting a job, putting entitlement programmes on sound economic foundations: “Scandinavian governments subsidise education, transport and care for children and the elderly, all of which help people to work who might otherwise find themselves stuck at home. As a result, even high taxes do not keep them out of the labour market”.

True free trade

Though they employ 30% of their workforce in the public sector, compared with an OECD average of 15%, they are true free-traders who resist the temptation to intervene even to protect banks (following the lessons learnt in the ‘90s) and iconic companies: Sweden let Saab go bankrupt and Volvo is now owned by China’s Geely.

Tempering capitalism

The Economist notes that Nordic countries look for ways to temper capitalism’s harsher effects. Denmark has a system of “flexicurity” that makes it easier for employers to sack people but provides support and training for the unemployed, and Finland organises venture-capital networks.

The anonymous author concludes: “A Swede pays tax more willingly because s/he gets decent schools and free health care. The generous Nordic welfare states have negotiated far-reaching reforms with unions and business lobbies to sharpen performance”.

A prescription for Britain? So near and yet so far below par

nordic countriesThe Nordic culture has been arrived at by rooting out corruption and vested interests and a readiness to forage for good ideas across the political spectrum. It would be good to believe the Economist’s conclusion: “The world will be studying the Nordic model for years to come” and – even better – to see action under way for beneficial change.

John Kay, Professor of Economics [LSE] on the ’good corporation’

John Kay, whose remarkable career currently includes work as visiting Professor of Economics at the London School of Economics advises the Labour Party on its ‘rethinking of economic policy’.

In his FT article he focusses on the profit-making corporation a central institution of the modern economy. Though the writer qualifies his view of their status, remembering that many are subsidised by SMEs who perforce give them extended credit and that to date government, despite expressed intentions, have not addressed the matter. She also bears in mind that the European Commission’s SME Performance Review estimates the Gross Value Added of SMEs as €473 billion or 49.8% of the UK economy.

pcu3Setting aside that reservation, however, John Kay’s words are well worth putting before readers who receive alerts and also random visitors to this site from many countries – see last week’s stats, left.

John Kay stresses that the purpose of a profit-making corporation is not only to make a profit: “We must breathe to live but breathing is not the purpose of life.

The purpose of a corporation is to produce goods and services to meet economic and social needs, to create satisfying and rewarding employment, to earn returns for its shareholders and other investors, and to make a positive contribution to the social and physical environment in which it operates”. He continues:

The good corporation contributes relevant expertise to the formation of policy but does not engage in lobbying on a scale that corrupts political decision-making.

Like the good smartphone or the good school it can be identified by what it achieves:

  • It pays workers a living wage;
  • it does not engage in aggressive tax avoidance.
  • It develops the skills and capabilities of its employees
  • It does not bewilder customers with complex tariff structures.
  • It earns profits, reinvests some and pays a dividend to shareholders.
  • Its executives spend more time walking around offices and shop floors than sitting in the meeting rooms of investment banks.

Kay concludes: “The political and social legitimacy of the market economy and of the corporations through which it functions, cannot simply be asserted — as it has been in the market-fundamentalist rhetoric that has dominated economic policy for the past three decades. Its legitimacy has to be earned by the behaviour of the leading economic institutions. That social contract has too often been broken in recent years. And drawing attention to that breach, and the measures needed to regain trust, is an agenda that is not hostile but rather friendly to the long-term interests of the business community.