The Governance Gap

What keeps me awake is not that the most powerful nation is governed by a guy such as Donald Trump, it is the fact that such a prosperous country, with all its journal and universities, and so rich in information, voted for a such a guy. I mean, for his arguments. The country of the Statue of Liberty, Thomas Jefferson, Lincoln, all these symbols.

Gunnar Myrdal, in his classic The American Dilemma, was right after all: the mystery is how people manage to be simultaneously inhabited by the ideas of freedom and democracy and by so much hatred. Sing the national anthem and get excited about the Klu Klux Klan. Unfortunately, ‘Make America Great Again’ has been popularly translated as ‘We’re the best, f... the rest’.

How can we forget that the US has 4.5 per cent of the world’s population yet represents 25 per cent of world incarceration, mostly people of colour and stupid sentences relating to marijuana?

The whole Muslim world has seen the Abu Ghraib documentaries, vivid images of merry lads and girls torturing naked prisoners and taking selfies. Those who haven’t seen them in the West would do well to take a look. The West has a credibility problem. Is anyone surprised at the now declassified British government papers revealing excitement about the opportunity for arms sales on the eve of the Iraq invasion? And by the way, is anyone seriously looking at the flourishing world trade in sophisticated weapons? When the wretched of the earth have to look to charities to resolve their basic needs, be it AIDS or hunger or whatever, what has become of democratic government, of public policy? Is out-shouting Kim Jong-Un the priority?

Back to basics. We are frying the planet, slowly, admittedly, but homo sapiens hates looking at the long term. We are cutting down the rainforest, contaminating water, sterilising agricultural soil, destroying biodiversity, clogging our cities and polluting whatever we touch. Under our present system of governance, some 7.4 billion inhabitants are all looking at who can grab a bigger piece. We are not the last generation on earth, yet we behave as if we were. And forget Musk, the man that wants to travel to Mars. This is the only planet we have.

The average annual stock market return, according to How Money Works, has been around 7 per cent. But GDP growth is around 2 or 2.5 per cent. This simply means that if you invest in production, you work a lot and earn very little. But if you invest in papers, which means calling an appropriate intermediary, or typing in some instructions on your computer, you earn three times as much, and work much less. And the money you earn on interest is reinvested, generating magical wealth. You didn’t have to produce anything, but you now have a fat account which gives you rights to other peoples’ produce.

People get wealthier not according to what they contribute to our global wealth, but how far they can twist governance according to their interests, and how much they can squeeze out of the productive world.

The work of the French economist Thomas Piketty is wonderful, but you don’t have to read the 720 pages of The Capital in the XXIth Century to get it. In my last book I call it an ‘era do capital improdutivo’. You understand the idea even in Portuguese: money-speak is an international language. The former Chief Economist of the World Bank Joseph Stiglitz calls it ‘unearned income’.

The basic fabric of our political stability is deeply weakened. This systemic deformation generated by what has been termed ‘financialisation’ goes far beyond the 2008 crisis. It is a question of how the corporate decision process works, how the supposedly important compliance mechanism has lost its capacity to keep even simple legality.

The CCP Research Foundation tallies the misconduct bill for the peri od 2012 to 2016 at a staggering 340 billion dollars, ‘raising doubts about efforts by the major financial services players to restore trust in the sector.’ All the big banks we know are on the list. But the corporate governance chaos goes much further, as in the real economy businesses have to make profits. Here we find the absurd VW swindle, the GSK fraud on medicine, Apple’s tax evasion and so forth – there is barely a major corporation that is excluded. It’s all about short-term financial gains, forget social and environmental responsibility, or even basic respect for the rules of the game. Whistleblowers are the only ones on the run, not the culprits. For corporations, ensuring major stockholders’ short-term interests has become more important than social and economic benefit, and they are lavishly and proportionately paid. But governments are also divided between two constituencies: the voting citizens they are supposed to represent, and the pressure for financial results and public debt servicing.

In the US, for example, the bulk of the population has hardly seen any improvement in the last four decades, and their perception of democracy has deteriorated fast, and for sensible reasons.

The German sociologist Wolfgang Streeck has neatly shown this divide between the Staats Volk and the Markt Volk. So-called market confidence, meaning the satisfaction of rentier interests, and if possible investment grade, have become the measure of good governance. The overall result is quite clear: the system is destroying the environment for the benefit of the few, and the resources needed to fix the planet and to reduce inequality are out of democratic control. In Streeck’s words, it is not the end of capitalism, but of democratic capitalism.

And yet...We are a rich planet, awash with technology, capable of impressive science, producing more than 3,000 dollars a month of goods and services per four-member family. Can we not ensure children get the food they need, that young people can see a future for themselves, that different cultures can learn to live together? The basic fact is that we know what should be done, we know how to do it, and we have the money for it. The key, obviously, is rescuing governance, the capacity to control the use of our resources in a useful way.

Europe had its 30 golden years with the help of the welfare state, which expanded family consumption and gradually stimulated the whole economy. Lula applied this for ten years, with impressive results that earned it the name the Golden Decade in the World Bank’s recent report on Brazil.

Taxing idle capital, unearned income, also stimulates the rich to do something useful with their money. Once rent is taxed high enough to make productive use of money more profitable, and if we decide to exert some control on tax havens, it might work. In any case, putting the economy back on track means using our resources where they best serve the population. Directly, including universal basic income. And it is important to realise how absurd the alternative is, based on making the rich richer so they can invest.

Putting the economy back on track means using our resources where they best serve the population.

Joseph Stigliz summed it up: ‘The solution is always the same: lower taxes and deregulation, to “incentivize” investors and “free up” the economy. President Donald Trump is counting on this package to make America great again. It won’t, because it never has.’ We cannot afford to continue ignoring the slow motion catastrophe we are creating in the world. The problems will not disappear, unless we organise to face them. We are one world, one humanity, and a multicultural world. No wall will solve anything, we should have learned this from China.

Overall, there is no way of avoiding the Global New Deal, or the Welfare World, whatever you call it, that is needed to save us from big, big trouble, as Trump would put it. Instead of proclaiming ridiculous, highbrow, environmental scepticism and locking out the poor, we have to face the challenges and concentrate our financial and technological resources on saving the planet and solving poverty. This will make us great. Will this solve all our problems? Well, humanity will continue to be the boisterous, babbling, bickering crowd we know so well. But it will set us in the right direction and, considering the present trends, some civilised capitalism would already be quite something.