Good Governance: Let it be ecosocial!

To leave nature to our children and grandchildren undestroyed by the ever more weighty ecological footprint of present generations – within Europe, this demand meets with broad understanding. Nowadays there is little doubt that the steady increase in the consumption of resources wreaks havoc on the world’s natural resources, even as the residuals of industrial production tend to pollute air, water and soil to an ever-increasing worldwide scale.

However, a policy of sustainability requires more than just such sober reflection. In the future, we will have to say goodbye to the dubious blessings of “conspicuous consumption”. Developing countries, though, sit still in a different boat. As long as they only acquired a fraction of the standard of living we expect as a matter of course, they will pay little attention to our concerns. Terms such as “ecological footprint”, “sustainability”, “environmental protection” become a focus of public attention only when and where populations have achieved a minimum of prosperity. To be sure, it is no coincidence that Germany, being a rich country, has embarked on the so called “Energiewende”, that is a green energy transition (it is a different matter that, so far, this transition is far from being a story of success, the Federal Republic currently producing more CO2 than before the transition).

Individual concern and institutional consolidation

No change has any prospect of success, if it does not correspond to a subjective willingness of the population at large to actively participate in its implementation. Subjective willingness, on its part, remains ineffective if not underpinned and strengthened by appropriate institutional measures on the part of the state. At the level of subjective consciousness people are roused to cooperate, it is they who contribute their enthusiasm, their personal commitment, and sometimes an astonishing amount of knowledge manifesting itself in innumerable initiatives by private organizations. At the level of institutions, things tend to be different: Here, as a rule, only experts become involved. Institutional changes require soberness and a keen regard for factual logic – which in most cases rather act as deterrents on popular enthusiasm. Numerous scientists, beginning with Herman Daly, have been concerned about the factual logic of ecosocial society. I would like to highlight just one aspect which, though being undoubtedly of central importance, nevertheless belongs to that class of changes least likely to arouse enthusiasm: I mean ecosocial taxation. Good ecosocial governance will not arise as long as excessive consumption remains institutionally uncontrolled. Such a change is surely of utmost importance, but for the time being we should deal with the problem only as a matter of principle – as a theoretical task, so to speak, the practical implementation of which should concern us at a later stage. So I deliberately refrain  from asking whether among parties or politicians we meet with even the slightest willingness to carry out such changes. We know that without the occurrence of sudden emergencies (such as Fukushima), politicians are unlikely to initiate any far-reaching changes.

The current system: both antisocial and non-ecological

I think this to be a fairly undisputable judgment. Or will anybody seriously deny that states act irrationally and against their own purpose when taxing their citizens for what they contribute to the common welfare? Or do we find any convincing justification for their proceeding when taxing their citizens the more the higher such contribution is? Should we not accept as a matter of elementary logic that the state only acts according to reason if he taxes consumption, that is, what companies and the common consumer take out of the common pool of basic resources and finished products?

Logically speaking, the taxation of income and achievement was never justified – its historical origins and formation were solely due to practical constraints. Until the end of the last century, it was technically impossible to register the consumption of individual citizens. In other words, it was incomparably easier to record production and income at its source, namely, at the producing factories, as these existed in comparatively small numbers. The current tax system owes its origin and present form to nothing else but such historical limitations. In our time, these have lost their validity – for the first time in human history. Since the beginning of the present century it has become technically possible – even in a surprisingly simple way – to convert the tax system from income and production to consumption and to tax the latter progressively.

So far, this has never been done. The existing value-added tax – a tax on the achievement of companies (that is what they themselves add as value) and which they pass on to consumers – does not offer a substitute because its ecological effect is zero and it is socially unjust. Being an indirect tax, it is levied on all consumers alike, thus putting a disproportionate burden on low-income strata – the general shortcoming of indirect taxation. It strengthens social inequality, as it does not, by definition, take into account personal situations. However, poverty and wealth, ecological waste or frugality are always personal! Good ecosocial governance designed to mitigate such extremes must therefore always turn to direct taxation.

Ecosocial readjustment

As said before, the technical requirements for a fundamental ecosocial turnaround are ready for use since the end of the last century. In my book Prosperity and Poverty, published six years ago (and in my article on “New Fiscalism”: http://www.gerojenner.com/wp/?p=139), I described their application for the purpose of a progressive consumer tax. What we need are electronic reading devices for the registration of consumption in all retail outlets and a central computer established by tax authority, which records the purchases of physical persons and automatically reports them via the Internet – just as they are already reported to the banks at the same occasion. Instead of the usual ATM card the buyer is equipped with a card of a twofold function: a debit-plus-taxing card. This transmits to the central computer the total purchase amount together with the identity number of the consumer.

In such transactions, the tax authority (the central computer) is not interested in the type and nature of purchased objects, but only in the sum total paid. All sums that a consumer X thus forwards  by means of his or her card in various shops and locations during a certain time period (one month, for example) are recorded by the central computer and their sum total automatically calculated.

Calculating the ecosocial final consumption tax

Should the total amount of purchases as calculated by the central computer for a certain period (for example, one month) fall short of a certain minimum, the tax authority (the central computer) does not issue a tax bill; if the amount in question corresponds to the average standard consumption, a standard tax is levied. Sums above standard consumption are taxed progressively according to a preprogrammed algorithm, whereby the steepness of the progression takes place according to democratic regulation and ecological considerations. Consumption, which is not taxed at all below a minimum, becomes more and more expensive the further it moves upwards from the standard. In such a perfectly transparent system, every citizen is compelled to make a greater contribution to the well being of the community, according to the amount of goods and services, which, for the purpose of individual consumption, he withdraws from general availability.

A system of unrivaled transparency and simplicity

Systems of institutional control – and taxation represents nothing else – strive for a compromise between two opposing objectives: on the one hand, the public’s demand for ecological and social justice; on the other hand, the endeavor to encourage every citizen to fully utilize his or her forces for the common good. Justice is achieved when higher consumption costs more to the consumer. Justice is disregarded if government punishes, at it were, the performance of its citizens – this is but a grotesque relic of the past.

The quality of institutional control depends, furthermore, on how many people are needed to administer it efficiently. In this regard, “New Fiscalism” (as I have termed such a system of ecosocial taxation in Prosperity and Poverty) represents simplicity unsurpassed. We need, firstly, a central computer; secondly, the Internet; and, thirdly, a comprehensive coverage of all shopping malls with reading devices for consumers’ debit cards – these three components are sufficient to stimulate employment on the one hand, while on the other hand replacing thousands of tax offices, financial officials, and tax advisors, who owe their existence solely to the absurdity of our current system. Some of them will, of course, offer the strongest resistance to such a change.

Translucent consumers?

Resistance is also to be expected from those who, in the current tax system, have been able to quite easily shirk and avoid the demands of public welfare, either because they declare their income themselves, or because they can conceal it legally or not before the treasury. As far as the income of employees and workers is concerned, that is to say the great mass of population, government has long since known it down to the last penny. So, in this respect, most people could never hide from government. Nowadays people may not even hide from much more invasive private inquisitiveness as their daily purchases are constantly monitored by all major markets in view of their concrete nature.

The transition to an ecosocial taxation of consumption therefore only creates some real disturbance to a minority of people, who, despite their wealth, like to shirk their duties. In a system of pure consumer taxes, such an evasion is no longer possible.

Nevertheless, it would be worth considering whether the central tax authority should not be an independent institution, just like the central bank.

Industries and final consumers are treated in the same manner

Finally, it should be noted that the productive cells of society producing the goods of daily consumption, i.e. companies, will be subject to exactly the same transformation: Their taxes are converted from achievement to consumption – the consumption of raw materials and energy in their case. Accordingly, in addition to “final consumption tax”, which concerns final consumers of finished goods, there must be a “primary consumption tax” levied on the primary resources needed by companies – a tax of the highest ecological relevance. The “primary consumption tax” I likewise described in the aforementioned sources.

I think there is nowadays a real readiness in large parts of the population for a change to greater ecosocial justice. On the other hand, such readiness is hardly to be found among politicians and parties, because these usually only react to emergencies. Meinhard Miegel has found quite a realistic explanation for this aloofness. Parties have an explicit interest in muddled rules: Only these allow them to introduce all kinds of gifts for their respective clientele before elections, gifts which, later on, they may as easily revoke. A completely transparent system, such as the one here proposed, would make such maneuvers much more difficult and thus limit their power. This is why – and such a statement was made by John Kenneth Galbraith, one of the greatest economists of the United States – advocators of reform are usually smiled upon:

If a man seeks to design a better mousetrap he is the soul of enterprise; if he seeks to design a better society he is a crackpot.