Tag Archives: economics

A Biblical Proposal for accomplishing Russell Brand’s revolution

In case you’ve been living under a rock for the past two weeks, and this blog is the first thing you’re reading since you crawled out from under it, welcome back! Now watch this interview that you, and only you, missed whilst you were under that rock:

Jeremy Paxson hints in the interview that he thinks Russell Brand’s critiques are valid (and has since said he thinks Brand is “absolutely right”), but still seems to dismiss Brand’s call for revolution on the basis that Brand can only say what an alternative political system shouldn’t do, without specifying how it would work.

This is the classic hic Rhodus, hic saltus taunt that any critics of the status quo (whether political, economic, cultural, etc) face.

Brand’s three criteria for a poltical alternative (which he repeats several times in the interview) are:

1. Shouldn’t destory the planet

2. Shouldn’t create economic disparities

3. Shouldn’t ignore the needs of the people

I want to posit here that a system which satisfies these three criteria can be found in one of the books of the Old Testament that even most Christians would quietly brush off as one of the more backward: Leviticus 25.

I won’t quote the whole chapter here because it is lengthy, but there are two major components that are of note:

1. Every seven years, there was to be a “Sabbath rest” for the land, during which fields were to lie fallow (i.e. crops would not be sown)

2. Every fifty years, all debts would be forgiven, and all land acquired during those fifty years was to be returned to its original owners.

Although many of us struggle with the violence, misogyny and occasional homophobia in the Old Testament, it’s undeniable that there are some good ecological and socio-economic principles here.

Allowing the land to rest for a year was a way of halting the degradation of the land that occurred through intensive cultivation. We now know that over-irrigation of rivers in the Ancient Near East was causing salinisation as early as six thousand years ago, and this was causing yields to fall, and land to be abandoned (it’s also why some parts of the region which were once called the Fertile Crescent are now barren desert). Allowing the soil to rest helped to halt this process and to restore the land.

What saline soil looks like

Requiring debts to be forgiven every 50 years was a way of preventing the concentration of wealth and breaking the cycle of poverty that was common in peasant societies.

Prohibitions against the concentration of  wealth are a recurring theme throughout the the Old Testament. The prophets are particularly scornful of those who accumulate wealth, with Isaiah 5:8 one of the most demonstrative examples:

“Woe to you who add house to house
and join field to field
till no space is left
and you live alone in the land.”

The semicentennial forgiveness of debts was to be a way of rebalancing society and allowing those who’d fallen on hard times several decades prior — and were still struggling under the burden of debt — to have a chance of starting anew.

Returning land to everyone who’d been forced to sell it in the years between each Jubilee year broke the cycle of poverty wherein families that took on debt had to sell their land to repay it; having lost access to the means of production , they’d have nothing else to sell but their labour, which made them bond-slaves; once you were a bond-slave you had no way of earning enough to buy back your land (it was as much a dead-end job as working at McDonald’s in 21st-century America); the Jubilee broke this cycle of poverty.

Faith communities, Russell Brand fans and anyone else similarly dissatisfied with the current politcal and economic system could advocate for the Sabbath/Jubilee alternative:

Banks and credit card companies could be required to write off households’ debts after a certain number of years (and, in line with the provisions laid out in Leviticus, prevented from charging higher interest rates in the years leading up to the Jubilee year)

Farmers could be given subsidies for allowing their land to lie fallow in a given year, rather than saturating it with petrochemical fertilisers and crop monocultures (This isn’t that far-fetched; the US government already gave about $24 million last year to “farmers” who didn’t grown anything)

These policy proposals are radical. Wall Street (in the US) and the City (in the UK) would fight against them tooth and nail, as, presumably, would Monsanto, Cargill and other agribusiness suppliers who would stand to lose a lot if farmers used time-honoured methods of replenishing the soil rather than cutting-edge, ever-changing technologies developed in the laboratory.

But there is a precedent for this: Around the turn of the century, activists around the world called on rich countries to forgive the debts of poor countries, who were straining under the burden of massive debts that in many cases had been incurred by despots seeking the patronage of the West or the Soivet Union during the Cold War. The activists appealed to the biblical concept of Jubilee. The World Bank and rich country governments told them they were full of it, and that Jubilee just couldn’t work in the modern financial system.

In 2005, the activists won. If impoverished countries in Sub-Saharan Africa and Central America –the international Davids — can win Jubilee from the global Goliaths, there’s no reason the citizens of the rich countries can’t demand their own Sabbath and Jubilee.

A ‘cure’ for medical brain drain

Several months ago, I wrote a post suggesting that outsourcing (from developed countries to developing ones) should be viewed  as a potential cure for brain drain (which flows in the opposite direction).

One problem with that argument, which I acknowledged then, is that even if skilled workers stay in their home countries, they are still contributing their skills to the economies of developed countries.

But I now unveil to you, an idea which works around this problem, at least in medical outsourcing. When I say, “medical outsourcing” by the way, I’m excluding medical tourism (I don’t think that really qualifies as “outsourcing”). For a discussion of medical services that can be outsourced, see here.

The Idea

Let us establish a medical outsourcing facility in an African country that has a diaspora that includes many doctors practicing in other countries (Uganda, Ethiopia and Liberia, among many others). The doctors employed here will provide medical services outsourced by hospitals in rich countries.

BUT! We will restrict their hours to one of the following schedules:

Doctors may only work 20 hours per week -OR-

Doctors may work 40 hours per week, every other week

The agreement will be that those doctors who only work 20 hours per week will practice medicine in or around the city where the outsourcing facility is located.

Those who only work every other week, will practice medicine in rural (or otherwise more distant) areas during the alternating weeks.

This model overcomes two obstacles:

1. Doctors’ standard of living: Developed countries are sometimes accused of “looting” developing countries of their skilled professionals. In truth, it’s the individual workers who make the choice to use their skills in another country. Understandably, someone who has invested so heavily in their own education and skills wants to be compensated with a good salary and comfortable standard of living. Hospitals in the developing world are often unable to provide this, and consequently, doctors emigrate.

Although our facility would have to be able to provide a particular medical service at a lower cost to entice hospitals in the West to outsource that function, the difference in cost of living indices should allow our doctors to make a salary that is equal at purchasing power parity (but not at exchange rates) to what they would make if working in the US, Europe, Japan, etc.

2. Contribution to home country: A traditional outsourcing facility has obvious economic benefits for the workers employed there, but beyond that, it’s harder to gauge its benefit. In our setup, the doctors are practicing medicine in their home country, not just providing a second opinion on cases from somewhere else.

True, they would still only be seeing patients in their country half the time, but that is much better than practicing medicine there none of the time, which is the situation in the status quo, when a doctor chooses to practice medicine in a distant land.

Overall, this model has the potential to cure brain drain in a sector where it is particularly severe, and its consequences most harmful.

THOUGHTS???

Outsourcing: the cure for Brain Drain?

Addressing a highly sensitive issue in a casual blog post is risky.  So let’s tackle two highly sensitive issues this week!!!

I want to preface my proposal(s) with an argument that I am surprised is not made more often by proponents of outsourcing:

Outsourcing is increasingly a countervailing force to brain drain.

I say ‘increasingly’ because, in its early days, outsourcing was just replacing a national brain drain (educated workers in poorer countries leaving for richer countries where they could make more money) with a sectoral brain drain (trained professionals in poor countries, such as doctors, leaving for call centres where they could make more money).

But now that higher value processes in healthcare, IT, finance, etc. are being outsourced, it’s possible for an educated, trained professional to stay in her home country AND stay in her field of expertise AND make a good salary.

True, even though that worker is staying in her home country and using her skills and education, most of it is going to benefit a company somewhere else.  But there are still several net benefits to this situation:

  1. An educated middle class is being created in that country, with all the advantages to democracy that follow.
  2. Those workers will be paying taxes in their home countries rather than to Western governments.  This should improve public services, infrastructure, etc. especially since #1 will create a check on corruption and mismanagement of public funds.
Of course, outsourcing is not just one big bed of roses.  Most of the benefits of outsourcing have, so far, accrued to a tiny handful of Asian and Central European countries (India accounts for anywhere between 80-90% of global outsourcing).  And of course there are the workers in the US and Western Europe who lose their jobs because of outsourcing (although many big Indian firms are now outsourcing jobs BACK to the US).
What to do, what to do?

Let’s focus on tax incentives for US companies that send jobs offshore.  These are not as straightforward as some politicians make them sound, so they’re an unwieldy tool, but for now, they’ll have to do. There is no specific “Outsourcing Deduction” but because companies are allowed to deduct business expenses, they can write off the cost of closing a facility in the US and opening one somewhere else.  Moreover, some companies successfully game the US tax system by claiming a deduction for taxes paid to foreign governments without paying taxes to the US. Democratic efforts to tighten these loopholes have been filibustered.

In my opinion, there’s nothing inherently sinister about the current incentives.  I don’t think they’re evil, just unnecessary; usually a company decides to outsource a particular function because it makes economic sense, not because of the tax incentives.  So why subsidise something that was going to happen anyway?

But simply preventing companies from writing off expenses related to outsourcing or claiming deductions on foreign taxes is too heavy-handed, not to mention politically impossible.  Here’s my proposal:

1. Limit the amount companies can deduct for outsourcing expenses.  As this will result in a net gain for the Treasury, the savings could be invested in programmes that help workers who’ve lost their jobs directly because of outsourcing (and not merely because of foreign competition) gain new skills.*

2. Adjust the amount of foreign taxes paid that a company can deduct based on how prosperous that foreign country is.  The percentage could be indexed to GNI, GDP per capita, or some other measure.  As an example, a company could claim a bigger deduction for taxes paid in Uganda than in India, and a much bigger deduction for taxes paid in the DRC than in the PRC.

Available for offshore facilities!

Why would this help?

Well, let’s make the rather straightforward assumption that outsourcing is inevitable. So as a company is deciding where to locate a new facility, it now has several more factors to consider.  A poorer country that might otherwise not have been considered, perhaps because the cost of relocating there or of  giving sufficient training to local workers was too high, is now in the running because the company could deduct a higher percentage of its foreign taxes.

The first proposal is sort of a throwaway, but taken together, these two changes could help spread the benefits of outsourcing more widely across the globe while mitigating the harm done to workers in industrialised countries.

THOUGHTS???

*My more politically astute readers will note that even this proposal fails the current House Republicans’ ideological test of “cut-go.” No matter, this idea will probably still be good in 2013.

The Remittance Fund pt. 2

About three weeks and two continents ago I began writing about remittances, those financial transfers from emigrants working abroad to their family and friends back home. I noted that they have a number of advantages over more traditional types of aid (government, foundations, FDI, etc), but suffer from a critical weakness:

They don’t necessarily finance development per se.  They may help individual family members purchase important goods and services, but they don’t contribute to the provision of public goods, or to broader social and economic development.

So now, the moment you’ve all been waiting for…

The Idea

Set up Remittance Funds, that will channel investments from diaspora communities into projects of economic and social value in their home countries. Possible examples of projects in which the Fund would invest could include:

  • Renewable energy projects in off-the-grid areas
  • Expanding internet access or other telecommunications links
  • Funding co-ops for crops

Investments would be open to anyone, but because these sorts of projects have more of a social return on investment than an immediate financial one, they would probably be most attractive to immigrants who have connections to the places where the Funds invest.

So far, I’ve focused on how to get around the weakness of traditional remittances, but haven’t yet shown how we might still capitalize on the advantages thereof.  So now let’s discuss an important feature of this Fund:

Investors in each Remittance Fund will have rights rather like shareholders, only more so.  That is to say, they will propose and vote on the projects in which each Fund will invest.  Assuming that most of the investors are immigrants who still have strong links to their homeland, they will be more informed about what sorts of investments will add value, which are feasible, and how to carry out investments in a way that is sustainable in the target communities.

In this way, investors in the Fund could still have the confidence that they have when sending money directly to family members.

I’m always eager to get feedback on my ideas, and on this one I’d be particularly interested to hear from my friends who are immigrants. Specifically, I wonder: Are remittances to family already too big an expenditure to  think about participating in such a fund?  If you were to participate in such a fund, would it replace or complement traditional remittances?

THOUGHTS???

The Remittance Fund, pt. 1

Thanks to my upcoming move to Uganda, and this unfortunate habit I developed of checking to see if anyone else had already thought of MY ideas, I haven’t posted anything recently.  I was going to blog about my idea for a goat rental lawn service, but thanks to aforementioned habit, I discovered that that one’s already taken.

I’ve finally concocted another idea that is both so crazy that it hasn’t already been proposed (at least not on teh interwebz), and so crazy IT MIGHT WORK!

GET ON WITH IT!!!

Yes, right.  Remittances, for those of you who are unfamiliar, are financial transfers from migrants working abroad to family and acquaintances back in their home country.  For countries that lack economic opportunities at home, remittances sent from abroad are a huge source of income.  In Lesotho last year, remittances were estimated to be 26% of GDP. In Tajikistan, they were 35% of GDP!

Remittances are significant both in the countries in which they are received, and in the countries from which they are sent. As you can see from the table at right, immigrants in the US send more money to developing countries than the US Government, and all forms of philanthropists COMBINED!  In fact, immigrants in this country, who make up only 12.5% of the population (and not the richest 12.5% either) manage to spend 3 times as much on ‘foreign aid’ as the US government, which represents all of us.

Remittances have several advantages over the other types of capital flows noted.  They are thusly:

1. Because the motivations of the suppliers of remittances are social, cultural, and indeed moral, the supply of remittances is relatively inelastic.  Put another way, in an economic downturn, a migrant worker is more likely to keep sending money to his/her home country than either fickle investors or governments loth to spend too much money in faraway places with no votes.

2. There is a high level of trust between the remitter and recipient.  Taxpayers in some rich countries can be squeamish about foreign assistance because they don’t know for sure where the money is going and don’t even understand the need in the first place.  This is not true of the immigrants sending remittances to family and friends back home.  They know exactly to whom the money is going, and probably have a good idea of how it will be spent.

For all their advantages, however, remittances have one major disadvantage:

Because they are usually sent to individuals or households, their contribution to broader economic or social development is limited.  Think of it this way: Remittances can pay for school fees for a younger sibling, but they can’t do much to improve the quality of the school to which that sibling goes.

The irony is that the defining advantage of remittances over other forms of financial aid  — that they are diffuse and interpersonal — is also their greatest weakness.  If only there was a way to circumvent that weakness while still preserving the benefits of remittances…

TO BE CONTINUED…

 

No Gentrification without Taxation!

I’m beginning to realise that “Social Enterprise” might be too narrow a category for  the focus of this blog.  Perhaps a better term would be “Social Economics”?

In any case, today’s post is not actually a proposal for a new tax but rather for an alteration in how property taxes are collected.  I’d like to provide some context for my thinking here through a personal reflection.  If you find such introspection in blogs tiresome, skip ahead to the picture of a Cuttlefish.

What are you thinking?

As a white person in a predominately African-American neighbourhood, I realise that my very presence portends gentrification to some.  Among neighbours with whom I’ve built a relationship, I’m treated as “one of us,” but I realise that perception is not universal.  Granted, I don’t drive a Subaru or Prius, and I don’t own skinny jeans, so that probably helps.

Since a tornado devastated our block on May 22, I’ve had quite a few conversations with neighbours about what will/should happen next to North Minneapolis.*  There seems to be a range of feelings:

Some are afraid that with so many houses destroyed and residents demoralised, outsiders, or the City itself will take the opportunity to buy up lots of property, level old houses and build new condos or some other yuppie-magnet.

Others are hopeful that all the tornado relief money coming in from government and non-profits will present an opportunity for revitalization of an area that desperately needs it.  To some, though “Revitalization” is a code-word for “Gentrification.”  There’s a range of feelings in between, but it has presented a conundrum for me: Can an economically-depressed neighbourhood prosper and develop without driving out low-income residents who have lived there a long time and who often are the heart and soul of the neighbourhood?

Get on with it!

I don’t really want to start a debate over the merits of gentrification, but I do want to highlight one negative aspect of gentrification that I’m trying to address with this proposal, and one positive aspect that I’d like to preserve, and indeed, enhance.

The Bad: Many of my friends and relatives who live in the suburbs can’t understand how rising property values (and gentrification) could ever be a bad thing, especially for property owners.  One reason is that, as property values rise, so do property taxes.  This is true everywhere, but in low-income neighbourhoods, property taxes often account for a much higher percentage of mortgage payments–or put another way, the T is a much bigger part of the PITI.

Now, if your mortgage payment is already a sizable portion of your monthly income, and your property taxes are a sizable portion of your mortgage payment, a steady increase in property taxes could bust a tight budget.  As the process of gentrification gains steam, more and more people in this very situation are forced to move away.

To me, the loss of affordable housing is problem enough.  But there’s also a cultural loss that can’t be quantified — neighbourhoods take on their own character because of the long-term residents.  Williamsburg and Park Slope might be trendy and popular right now, but Harlem and the Upper West Side endure as strong communities because of the people and families who lived there long enough to feel that they had a stake in their neighbourhood.

The Good: A potential benefit of gentrification and revitalization is that it allows an asset (property) to give a very good Return on Investment to people who bought homes before the neighbourhood was gentrified.  Of course, if they can’t afford the increasing property taxes, they won’t be able to stick around long enough to see the value of their house appreciate as much.

So: My proposal is that municipalities levy property taxes on a sliding scale based on how long the current owner has owned the house.  All properties would still be assessed each year and the taxes would change based on the assessment, but the baseline would be different.

Different municipalities would have to determine their own formulae, and this proposal would probably only need to be used in low-income neighbourhoods where property values are rising rapidly. One problem I see that would have to be worked around is that this could be disadvantageous to younger homeowners.

This is obviously a very rough idea, and maybe it could be expressed through some other mechanism, but property taxes seem to make the most sense.

THOUGHTS???

*It’s worth noting that in the days after the tornado, some people mistook me for a volunteer who’d come to help with cleanup efforts, and were somewhat surprised and relieved to learn that I was actually a resident who’d been affected by the storm.

A Global Minimum Wage

Fanciful Utopia

The idea I’m about to foist upon you is not a new one, and it might not even be original (feel free to direct me to anything in the literature or blogosphere that might have scooped me on this one).

To make matters worse, it’s not even an enterprising idea — it’s a policy recommendation!  I first started formulating it when I was a wee undergrad, and when I pitched it to one of my Econ professors, he told me it sounded too much like “global utopia.”  I haven’t spent much time refining the idea since then, so it hasn’t changed,  but the times have, perhaps sufficiently to make the idea palatable…

The Idea

There are essentially just two big steps to this idea, the goal of which is to end exploitation of workers:

  1. Set a global minimum wage (GMW)
  2. Allow countries to place import tariffs on companies that pay below this global minimum wage
1. Set a global minimum wage
This will be very hard to determine.  It makes sense for whatever wage is agreed upon to be expressed in USD, but at purchasing power parity (PPP) rather than exchange rates, as that will make it more stable (If I’ve lost you, don’t worry, the rest will still make sense).
Where exactly the GMW should be set is tricky, to say the least.  It needs to be set high enough that it actually accomplishes its goal of lifting workers out of poverty and preventing exploitation, but low enough that it doesn’t push economic activity underground or off the books.
2. Allow Tariffs
This part is also tricky. I’m still not sure whether tariffs should just be allowed against companies that fail to pay the GMW or against product categories from an entire country if the respective government fails to enforce the GMW in that sector.
In any case, the enforcement for this plan would be through the World Trade Organisation (WTO).
As I said, this idea has not undergone significant revision since I first dreamed it up, but the current political climate might make it either more palatable or less so.  First, the reasons I think it might be more plausible:
Pro: Rising Protectionism
I’m not a big fan of “economic nationalism” but it’s a completely predictable consequence of a recession or downturn, and in this case it could be put to good use.  I think politicians in the US  would love the opportunity to slap tariffs on China and other emerging economies; European leaders would love it even more because they could do it in the name of Human Rights!
Con: Corporate Objections
The major opponents to this will of course be large multi-national corporations who rely on low wages at one end of their global supply chain.  Their objection to paying livable wages to workers in developing countries is nothing new, but their political power, especially in the US, has been growing significantly.
Recent Supreme Court decisions (Wal-Mart v Dukes, Brown v Entertainment Merchants Association, etc.) have solidified the Roberts court’s reputation as the most corporate-friendly in history; with the current composition of SCOTUS, it’s quite possible that any tariffs enacted in support of the GMW could be successfully challenged in court in the US, the biggest single market for imports.  And even that would require a treaty to be ratified in the first place; given the increased corporate influence over Congress authorized by Citizens United v FEC, it would be difficult, at best, to get any sort of legislation passed enshrining the GMW in law.
As with any other idealistic global scheme, it would be possible to proceed without US participation, but the effect would be reduced.
Thoughts???