A different way

You ever look at the economy and think... surely there's a better way?

I should begin by saying I'm not an economist, or have any knowledge or understanding beyond what I can observe and have learned by discussion with others. that observation has led me to some conclusions and some rough ideas for potential solutions that I though I might as-well share. If after reading this you feel there are things to debate or add, as long as it's done politely, I'd be very happy for the input.

I currently live in the UK (a place that in internationally should be considered fairly successful in social and economic terms), but I was born and grew up in Venezuela (a place that should be considered wildly unsuccessful, specially in economic terms but also very much in social terms). So while I'm quite aware that there are better and worse examples than those two, I think it's fair to say I've had at least a taste from both sides of the currently available spectrum. While it's utterly clear to anybody not under a mayor delusion that the system in the UK is preferable to the one in Venezuela (and I can really appreciate how true that is) it is not without it's faults, and in the end those faults, in my view, are down to some fundamental philosophies.

The UK is often called a "democratic socialism". I take that to mean that while we have fairly prevalent freedom of speech / press and a reasonably fair election system there is still room for good wide reaching social welfare and things like national health care. It costs everyone a bit more in taxes, but basically it's a system where you can potentially be well of and successful but where if you fall to the bottom you will still have your basic needs met. How it manages to have the resources to make that work (cuts aside, it still works a million and one times better than in Venezuela) is largely because on top of all that it still allows free trade and capitalist business to thrive. This means you have enough people making enough money to pump on to your taxes that you can afford the social projects that cost money. In turn at least some of those projects will help enable more successful or at least semi-successful tax payers to appear and contribute rather than cost. That capitalism is necessary to maintain any standing in the international market, which is the only way for the economy to grow and survive (as you cant meet all of your citizens needs internally since no one country produces enough of everything) you need to sell at least as much as you buy, preferably more, and thus there's more money for those social projects or for things to create more incentive for the capitalism that will hopefully again fund those projects and others that raise quality of life (health, education, arts ect).

Raising quality of life is the ultimate goal, more urgently for those at the bottom, but as much as possible without compromising the quality of life of the rest. The mistake in this system is that this is not always true. Too many cuts are seen as acceptable and huge tax breaks are approved to encourage business. what's the point of encouraging business if it doesn't translate into more government income leading to more spending? The balance has tilted too far towards capitalism. Now profit matters more than social responsibility. The banking system and big business know that the money that flows from them is too important to the worlds economy, and so they hold it hostage to create a situation where they can keep more and more of it. creating ever more social inequality.

The Venezuelan system in turn fails because it refuses to allow for the "necessary evils" of high tax and capitalism that generate the money needed for successful social projects. They think it can all be paid for by oil but in a large country with such a large under-privileged population those projects are much more expensive than they might have realised. Add to that oil prices dropping as more countries find oil deposits or focus on alternate sources of energy and the oil yields less and less funds. All the while you've scared of all the well educated tradesmen and business men and women that you need to maintain your infrastructure and cant afford to hire or properly educate adequate replacements because the economy is costing much more than it generates, and the oil isn't keeping up with the costs any-more. Now you cant afford the international market prices and simply cant keep up with your citizens basic needs, never mind your ideological vision of utopia. Not to mention corruption on every level skimming off money that you don't have to begin with.

Politicians are given too much power in hopes this will enable then to hold everything together but they are more concerned with they're own survival and income. this creates a completely non-functioning economy where none but the very rich, mainly in government, have the things they need. The balance is tilted too far towards socialism, where social posturing leads to not enough resources for either wide social projects or successful business.

So after all that, what's my point. well, while one is better than the other, neither system is really working. You cant completely alienate or cut out the interest of the rich business because they will take away the most reliable, constant sources of income. You also have to be able to make some hard choices, like a certain amount of tax ect, to make sure you can properly allocate some of that income that's flowing into your economy and you're not just blindly pandering to the whims of the upper classes since you'll be sacrificing too much of the quality of life of those in the middle and lower classes.

All of that, in my mind, comes down to distribution of wealth.

In an ideal system everyone, regardless of their contribution to society, would have a reasonable quality of life. Enough income to not only meet their basic needs but to be reasonably happy active members of society. I can attest that living on the breadline working or not is too stressful to qualify as life of any quality. In this ideal system people should also have the ability to succeed through business, innovation, hard work or talent, and opportunities should exist for them to do so and reach even better quality of life and luxury through those means. you need to dangle the carrot of luxury to drive enough people to innovate or work hard.

So how do you get this? where's the resources coming from to not only pay for a good enough quality of life for everyone but also allow for luxury to those who can be driven to attain it? how are you convincing lots of people to work hard who don't have to as they will have decent quality of life regardless.

Well, lets see.

It's pretty common knowledge now that 1% of the worlds population owns half of the worlds wealth
and of them the top 0.1% holds almost a quarter  . So you don't really need to go further than those numbers to know that wealth is ridiculously miss distributed. Rather than simply blame those top people for everything though lets think about how that can be logically corrected. Those people reached that level of wealth essentially because they were either clever enough, lucky enough, ingenious or hard working enough to get it and few of us could pretend that if we saw a clear path to that level of wealth that we wouldn't take it. The problem isn't so much that they have that money but where is it going. The answer, for so much of it, seems to be nowhere. Imagine you have so much money that you can give away 28 billion and still have 56 left over. So much of that top wealth sits in private accounts and gets redistributed amongst the top without ever leaving (not to come down on Gates giving so much money to charity, which is of course great and very good of him, but helps demonstrate the gross level of his income in the first place).

So when I talked before about allowing for luxury to motivate business and innovation ect you can think of that as rewarding someone for a fair contribution to society. and rewarding them well. the government shouldn't be in charge of determining what is considered "a good fair contribution". If the public want to pour money into something and afford the purveyor of that something wealth that's basically fine. But should that person then demand special legal treatment? or massive tax breaks to safeguard a grossly oversized share of wealth? No. make your money, have your luxury but let the surplus circulate back into the system that the least well of may be given reasonable quality of life and that all may compete fairly for the rest.

How?

Well, this seems pretty obvious to me, although I'm sure many will cry in horror. There should be a cap to personal earnings. Don't get me wrong, a very very high cap, possibly allowing for millions. but not, I'm sorry, billions, or even several tens of millions.

Don't just give it all in tax either. I don't specially want some obscene amount of money getting added to the military budget. some should go on tax, to give governments more breathing room to make less (or no) cuts. But in my view most of the money should be forced into broad private investment.

Basic outline of what I'm talking about:

Say you're very rich. you have a company that turns around 5 billion a year in profit above expenses. You've paid yourself and all your investors a good (fair) chunk. lets say after that year, everyone's a million richer. woohoo, grand job, pats on the back all round, who would turn their nose up at a million. So you still have, depending on how many investors, shareholders ect you still have like 3 billion sitting there. a new law on earnings cap says you cant just keep it in your rainy day fund or spread it amongst yourself and the investors. The law would tell you to either:

A) Invest the money directly on the growth of your company. creating more jobs or improving the conditions / salary of those currently working for you.

B) Invest on outside projects or the business interest of others, thus helping those grow, either creating work or improving conditions in those. This is not a loan, but an investment. since you have already reached your total income cap you wont be taking income from this company, however a record should be kept allowing you to earn from them as an investor should your own income drop below the cap in the future.

C) Should you not have any need to invest in your company or a preferred organisation or charity in which to invest firms would be set up that would take the money to give to start up businesses in the form of grants. the firm would Identify prospective people or businesses to invest in and would provide oversight to ensure business plans are being followed and that there's a serious attempt to make good use of the money, but beyond that the firm wouldn't be concerned with profit or with having it's money returned. providing a less stressful, more encouraging environment for new enterprise leading to more people self employed and more people creating work for others. there could also be foundations doing the same but distributing the money for use in scientific or artistic ends. The key point being that immediate profitability isn't such a big concern, allowing people to take more chances and more risks. Yes there will be many failures, but they are being backed by surplus money that no one should miss, and those who succeed will enrich society in one way or another.

The same basic rules applying to any earnings made by anyone that are above the cap. Firms could take a percentage for running costs of their own operations and everyone keeps paying tax as usual, businesses included, to maintain the rest of the costs of government. the government can also take a percentage off all surplus income before investment to ensure better social welfare, health, education, removing university fees ect.

I'm sure may details need sorted out. but the basic appeal of this in my mind is that while people can still aspire to luxury the current "hoarding" of resources is stopped and used to create more opportunities for growth that don't depend on creating debt. It means that most of that half owned by the 1% gets back into circulation with the other 99% improving quality of life all round. At least that's the dream.

As I said at the top I'm no economist, and I imagine there's a whole bunch of issues with this. as long as the issue isn't just "the rich wont go for it" then I'm willing to hear it and try and expand the idea.

I know of course that is the main reason this is a hard sell. If you actually managed to set something like this up in one country then many of the rich would run away to where they can keep more of their money, depriving that country of their sadly much needed assets. how do you stop that without resorting to the dark side of exchange control or currency control? maybe you can't, but as has been shown in Venezuela those things aren't acceptable options. If there's an answer to that maybe it's for a smarter person than me to figure out.

It can't be impossible though.

Surely there's a better way.

Just a thought.