Star economist Isabella Weber: “Companies use inflation as excuse to raise prices”

Publicerad denFörfattareKontrast.at

She is currently one of the most sought-after economists in the world: Isabella Weber is an expert on price trends and inflation – and is considered the “inventor” of the gas price cap. She has been awarded the Kurt Rothschild Prize for her work. We had the pleasure of meeting Isabella Weber for an interview and spoke to her about the consequences of price shocks, companies’ scope for action and the failings of politicians. As well as how we can better manage the next price shocks that are coming.

Kontrast.at: Ms. Weber, Austria has been the sad leader in inflation in Western Europe for months. We feel the high prices very strongly when shopping in supermarkets. If you compare the prices of the same products with those in Germany, your jaw drops. Where does that come from? Do the supermarkets in our country inflate prices excessively, or what is the cause?
Isabella Weber: It’s not that companies – such as supermarket chains – have become greedier overnight or anything like that. These price increases are simply part of a capitalist market economy in which companies want to make a profit. And that also means that these companies take every opportunity they can to achieve this goal. In this respect, we are not dealing with a sudden change in mindset or anything similar. Instead, we have experienced external shocks, price shocks, caused by the pandemic and the energy crisis.
1. IT WAS THE PRICE SHOCKS IN SYSTEMICALLY IMPORTANT AREAS THAT FUELED INFLATION IN GENERAL
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Kontrast.at: Now you could say that there were crises in one form or another in previous years as well. Why has inflation now skyrocketed – especially in our country – and remained so high?
Isabella Weber: We experienced high price stability for around 20 years. That was almost exceptional. It was a time that coincided with the financial crisis of 2008/09. There were large economic stimulus packages and a loose monetary policy. Despite this, prices remained relatively stable, and now we suddenly have this high inflation. Why is that? My finding is that there were major price shocks in systemically important areas that had an impact on other areas. So of course the energy sector is very important, but also areas such as raw materials, transportation, etc. At the same time, we have to ask of who is going to pay for these costs or the cost shocks.
In general, the corporate sector in most countries has managed to pass on this cost shock. In short, they have passed on the higher producer and supplier prices. As a rule, profit margins have been kept constant. This means that when energy prices soar – and with them the costs on the business side – and the profit margin remains constant, profits also go up.
Let’s take a refinery as an example: the refinery does the same thing it always does. It processes crude oil into a form so that it can be used. If the price of crude oil goes up, the cost of a ton of oil is still the same. But if the margin remains constant, then profits skyrocket. I would say that is the most general phenomenon.
But of course there were also supply chain bottlenecks that led to a kind of temporary monopoly. All companies in a sector knew, so to speak, that the competition had the same supply problems, and they reacted by raising prices – because they knew that the competition couldn’t undercut them.
2. COMPANIES WERE ABLE TO PASS ON COSTS – IN THE END, EMPLOYEES AND CONSUMERS ARE LEFT TO BEAR THE COST OF INFLATION
Kontrast.at: If companies have been able to protect their profits by and large, who are the losers?
Isabella Weber: If you consider that the corporate sector has protected its margins and at the same time wages have not kept pace with inflation, then the situation is that it is the employees as a whole who are bearing this cost shock. The latter are experiencing a crisis in which they are finding it increasingly difficult to cover the increased cost of living. This is particularly dramatic for the lower income groups.

By and large, the corporate sector has managed to pass on the higher costs and keep profits constant. In the end, consumers pay the price, argues economist Isabella Weber. (Foto: Melissa Mumic)
The German government has opted for measures such as one-off payments, i.e. it has left the price trend itself untouched. A few months ago, the European Central Bank (ECB) took action and raised the key interest rate. How do you assess this measure? What consequences did it have?
Isabella Weber: First, I think you have to realize that the interest rate hikes were a massive intervention. So there is a very massive political intervention in the economy – but through interest rates, not through price regulation. If I raise interest rates at this record speed, as has now been done, then on the one hand this creates a situation where the banks have opportunities to make excess profits. This is because the interest rate increases were not immediately passed on to savers, but were very quickly passed on to borrowers. This has created great profit opportunities. It is said that this is to combat inflation, but in fact such an interest rate hike is aimed at increasing unemployment. This is because higher interest rates affect the economy: investments and purchases become more difficult.
In the end, this also means redundancies. Higher unemployment in turn weakens the position of the employee side in wage negotiations. There is talk, quite euphemistically, of a “cooling off” on the labor market. This is supposed to sound like a spring breeze, but what they really want is for people to lose their jobs so that they have less leeway to demand higher wages. In my opinion, this is an extremely problematic way of doing politics. Because it fuels recessionary tendencies that are already visible in Austria, for example.
The price shocks and interest rate policy have exacerbated inequality in the corporate sector. Because when consumers have to spend all their money on covering basic needs, there is not much left to spend on other things. Companies are noticing this – especially smaller ones that cannot finance themselves on the financial market and are reliant on bank loans. Falling demand is having a massive impact on them.
3. PRICE BRAKES AND EXCESS PROFIT TAXES WOULD (HAVE BEEN) EFFECTIVE MEANS OF COMBATING THE PRICE SHOCK
Kontrast.at: In your opinion, what would have been a better alternative to intervene in the economy in this crisis?
Isabella Weber: I think that it would first have been important to stabilize these central prices or what I also called systemically relevant prices in my research. So that these price shocks don’t rattle through the whole system and have all these knock-on effects. That means, for example: Taxing excess profits. But it can also mean introducing a price cap to cushion the shock and prevent all these second-round effects from being triggered in the first place.
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Of course, in the energy sector in particular, we are talking about prices that hit both companies and households very hard. If it is a situation, as I have tried to explain, in which companies are able to react to these energy price shocks in such a way that their profit volumes increase, then this means that at the same time this energy price shock indirectly exacerbates inflation for households.
In this respect, I think the approach of energy price cap is definitely a good one. Because it protects basic needs. Because part of the energy consumption of households falls into the area of existential needs. I can try to heat less, but there are limits to the potential savings that can be made.
4. “WE NEED A NEW FORM OF STABILIZATION POLICY – ONE THAT AIMS TO SECURE BASIC NEEDS”
Kontrast.at: Do you think that these crises and shocks now have an expiration date? Or will they keep us busy for longer?
Isabella Weber: We are living in very crisis-ridden times. You could say we are living in a time of multiple crises. Climate change is a reality. Extreme weather events are already a reality. The situation in the Middle East is extremely precarious. There is a risk of a regional expansion of the conflict. In this respect, it is very likely that there will be further shocks. It is therefore also necessary to rethink the financial and economic situation. We need to find a different way of reacting to these shocks. We see this with interest rate hikes. They sometimes lead to recession. Then comes the next shock – what then? Interest rate hikes again, more unemployment?
We have to break out of this logic. We need to think about a new type of stabilization policy that aims to protect basic needs against these price shocks.
5. POLITICIANS MUST NOT JUST WATCH AND WAIT FOR THE MARKET – THEY MUST INTERVENE IF IT DOESN’T WORK
Kontrast.at: How does this “breaking out” work? Where should the big change take place?
Isabella Weber: For example, we need a different structure for the energy supply itself – then we won’t be so vulnerable when it comes to price shocks for oil and gas. At the same time, I think we also need ways of reacting to extreme price increases at short notice. For example, by having monitoring processes.
If you look at what has happened to gas prices: Prices have already risen dramatically in the winter of 2021. Sebastian Dullien and I published articles on the topic of gas price caps back in February 2022. Because even then – before the war against Ukraine – it was clear that these gas prices alone could trigger 2.5% inflation. But politicians didn’t say “gas is a systemically relevant price, we have to monitor it and react with measures”. They simply waited. In the case of Germany, until the fall. In the end, people’s basic needs were not protected. There really needs to be a rethink.
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Of course, you can’t always predict everything in advance, but there are prices that you know will have serious consequences if they skyrocket – and you have to react immediately. In this respect, you need a mandate to act.
What we are seeing now is that people are continuing to do their jobs and work – and yet are afraid that they will no longer be able to afford their basic needs. That’s breaking a social contract. The foundation on which a market economy is built is being shaken.
6. THIS INFLATION IS NOT ONLY SHAKING THE ENTIRE ECONOMY, BUT ALSO DEMOCRACY
Kontrast.at: What other dangers do these existential fears pose?
Isabella Weber: Well, if I can no longer be sure that I can meet my basic needs, if I have existential fears, then I become sensitive to angry and sometimes extreme ideas. We can see that in many European countries, radical right-wing or extreme right-wing parties are experiencing an upswing that should give us pause for thought. In the end, democracy is also being shaken.
That is why we need an alternative. The alternative means intervening and rethinking the state and the economy in such a way that they are attractive to the many and secure basic needs.
Who is Isabella Weber?
Isabella Weber is Professor of Economics at the University of Massachusetts, Amherst. Together with Sebastian Dullien (Scientific Director of the Institute for Macroeconomics and Business Cycle Research (IMK) at the Hans Böckler Foundation), she was awarded the Kurt Rothschild Prize this year for her research on the gas price cap to combat inflation.
This work is licensed under the Creative Common License. It can be republished for free, either translated or in the original language. In both cases, please cite Kontrast.at / Kathrin Glösel as the original source/author and set a link to this article on Scoop.me. https://scoop.me/isabella-weber-inflation/
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Fighting housing shortage: Airbnb & Co should share more data with authorities to prevent fraud 

Publicerad denFörfattareScoop Editorial

The business of platforms like Airbnb and Booking is booming: more and more private apartments are being rented out online. While this is good for tourists and hosts, it also leads to significant problems in many cities: fraud, housing shortages and rising rents can be the consequences. So far, there is no uniform system for data collection in the EU, which makes it difficult to control and prevent fraud and its negative effects. This is now set to change. Airbnb welcomes the EU’s breach.
Paris, Porto and Vienna: Europe’s major cities are popular travel destinations. Accordingly, many people vacation there. Around a quarter of all overnight stays are now booked via the major online platforms (Airbnb, Booking, Expedia and TripAdvisor). This is because the accommodations offered there are usually cheaper than hotels. This mainly benefits the hosts, platforms and travelers. 
At the same time, it causes immense problems for the cities concerned: lack of tourism taxes, housing shortages and rising rents are the result. This is mainly due to the fact that there is no reliable data on overnight stays. The EU now wants to change that.
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Platforms like Airbnb and booking.com to share data with authorities in future
If the EU Commission has its way, platforms such as Airbnb & Co. should share data with local authorities in the future. Specifically, the following information is to be made available: 

Who is the host?
Where is the accommodation?
How long is the accommodation rented out?

Private individuals who rent out accommodation are to be given a registration number, which is then also publicly available for all to see. This is not only to protect guests, but also to prevent fraud. Unregistered accommodations often lead to the evasion of taxes and tourism levies. The cities then miss out on these taxes when it comes to maintaining and expanding the necessary infrastructure (public transportation, waste disposal, etc.). 
Furthermore, the reporting obligation should contribute to fair competition with other providers such as hotels and youth hostels. In addition, the shared data makes it easier for authorities to manage the crowds in tourism hotspots.
Many cities, many different regulations: Airbnb welcomes EU breach
So far, there is no uniform regulation for the collection of data within the EU. That’s why more and more cities and municipalities are introducing their own. This complicates the business model of the platforms and the further development of the tourism industry. 
In an official statement, Airbnb welcomes the EU’s legislative proposal. This makes it easier to expand cooperation with governments and allows private individuals to rent out their homes without violating applicable rules.
Basically, cities benefit from tourism. Vacationers tend to consume more: they eat out more often, buy souvenirs, and go to the theater or other cultural events. In short, they spend money and that is good for the economy. And, of course, it’s good extra income for anyone who has a vacant apartment or room to rent out. Nevertheless, renting out private apartments in particular can lead to major social problems.
Andreas Schieder, head of the SPÖ-Delegation in the EU-Parliament, wants the new regulation to protect social housing in particular: 
“Short-term accommodation such as Airbnb is now an integral part of the tourism sector. Over the past few years, we have seen an enormous increase and therefore also observe new challenges. Particularly important to me is also the protection of municipal and social housing against misappropriation”.
Rising rents, increasingly expensive restaurants and congested infrastructure
On a random night in 2019, about 1.4 million tourist stayed in a short-term rental apartment. So demand is high. The lack of data and the resulting difficulty in regulation can lead to profound problem in the worst case. Among them, the following: 

Rising rents and less housing: it is often more profitable for landlords:inside to offer apartments as short-term accommodation. They earn more money that way. However, this reduces the supply of housing for the people who live there. 
Overloaded infrastructure: The large number of tourists overloads public transportation and strains waste disposal, since neither is designed for large numbers.
Changed cityscape: There are entire streets or blocks of houses that consist only of Airbnb apartments. 
Burdens for residents: The constantly changing residents can become a burden for neighbours. For example, through noise or the additional garbage that is created.

EU directive comes into force in 2025 at the earliest
Before the regulation on data collection and exchange comes into force, the EU Commission, the EU Parliament and the individual member states must first agree on a compromise. This so-called “trilogue” is to take place this year. After that, the EU member states will have two years – until 2025 at the latest – to implement the new regulations. Läs mer…

Los Angeles implemented a new tax on luxurious real estate to finance affordable housing and combat homelessness

Publicerad denFörfattareNoah Duker

Los Angeles implemented a so-called “mansion tax”. At a rate of 4% for real estate purchases between 5 and 10 million dollars and 5.5 percent for properties over ten million dollars. All in all, the tax is expected to bring in about 670 million dollars of revenue. The money is mend to finance affordable housing and thus preventing people from becoming homless.  
The tax, officially known as “Measure ULA” was agreed upon by the state legislator after a referendum in November 2022 as close to 60% of voters cast their ballot in favour of the proposed law. Los Angeles being the city with the highest number of homeless people in the country, it’s little wonder that such a tax comes to fruition. California in general is also known as the second most expensive state when it comes to real estate, only being topped by Hawaii. 
Under the new tax, a millionaire selling a house worth 5 million dollars would have to pay 200 thousand dollars to the government. To put the necessity of action in the city of LA into perspective, the recent crises have made the number of homeless people skyrocket to around 42,000 people in February 2022. In 2016 the number was closer to 28,000 people without a home according to an article published in the New York Times.
Other estimates by the “US department of housing and urban development” put the number of homeless people in the LA at a staggering 65.111 people.
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“Mass Panic”: Real Estate Owners get creative in trying to avoid the new Taxes
Despite the relatively low sum of tax money in comparison to the enormous profits made in the real estate market, millionaires and celebrities sought for evermore creative and desperate ways to avoid contributing to improving societal living standards. According to “The Guardian“, one desperate super rich homeowner of a 16.5-million-dollar mansion was going as far as to gift a supercar to whoever buys his house, just to get out of paying around 900 thousand dollars in tax.
Others are taking different approaches to avoid paying taxes. A legal challenge has been put before court, claiming the tax violates the Californian constitution. The outcome of the challenge is, as of now, still open, and it will very likely take a while until any result comes of it. 
The Tax would only affect 4 Percent of the Real Estate Transactions in LA
According to the luxury real estate platform “redfin” the median selling price for property in California is just short of a million dollars. It is hovering around 900 thousand dollars. The tax therefore would only affect about 4% of real estate transactions in the city.
Interesting claims come from real estate agents working for the super-rich. The tax is set too low, as 5 million dollars for a home does not qualify as a mansion. “Five million dollars is certainly not luxury. It’s a nice house, in a nice area. It’s not what most people would consider a luxury house in a prime area”, says real estate agent Scott Tamkin.
Critics launch massive PR campaign to sway Public Opinion
But he is not the only real estate agent trying to tell the average person that a five-million-dollar home (about 4000 square foot in Beverly Hills according to Josh Altman, real estate agent and reality TV star) is not a luxury. A massive PR campaign seems to have been launched to sway public opinion against the tax with multiple large US news outlets writing pieces against the proposed tax, despite the scientific, political, public support for the law.
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The new Tax will bring in about 627 Million Dollars
It’s estimated that the tax will bring in about 627 million dollars, according to an article published by the Guardian. This still enormous sum is almost 400 million dollars short of the sum initially expected being a billion dollars, but still more than triples the amount of revenue collected from the before active transfer tax, which is raking in about 200 million dollars per year.
Multiple universities and analysts, above all the University of California (UCLA) have recently come forward to counteract the multi-millionaires PR offensive to roll back the tax. They are saying that the money collected and the impact on the housing market will really help improve the homelessness crisis in Los Angeles.  Läs mer…

Portugal caps rents, gives away vacant flats & suspends VAT on basic foodstuffs

Publicerad denFörfattareneuezeit.at

Inflation is driving more and more unexpecting people into poverty. The Austrian People’s Party (ÖVP) and the Greens nevertheless refuse to take action against the skyrocketing prices. The Portuguese government shows that there is another way: it already capped rents last year. Recently, Portugal has started renting out vacant flats and suspended VAT on 44 basic foodstuffs.
Between 2017 and 2022, rents in Portugal increased by 42 percent. The country is one of the poorest in Western Europe. Although the government only raised it in December, the minimum wage is just 760 euros a month. More than half of workers earn less than 1000 euros per month.
The government of the socialist Prime Minister António Costa has therefore limited rent increases. Landlords can increase them by a maximum of two percent. Costa’s next step is to put about 730,000 vacant flats on the market. If a flat remains unoccupied for more than two years, Portugal will have it forcibly rented out.
Putting vacant flats on the market
Owners of vacant flats receive a rental offer from the municipality, to which they must respond within ten days. If they do not accept the offer, they have another 90 days to rent out the flat or use it themselves. If the owners continue to do nothing, “municipalities proceed with the compulsory leasing”, according to the planned law. In this case, the municipality manages the flat and, if necessary, carries out renovation work to make it habitable. They then put the flats on the market for five years at low rents. According to the government, rents may not exceed 35 per cent of the family income. The income – minus the renovation costs – is paid out to the owners. There is an exception for properties that registered as tourist enterprises or local accommodation establishments. Flats that are currently being worked on or are about to be sold are also excluded.
Austria: ÖVP & Greens fueling inflation instead of relieving the burden on tenants
In Austria, the situation is different. Here, too, the government discussed a rent brake at the end of February. In the end, however, the ÖVP and the Greens opted for a housing cost subsidy. While 250 million euros will be paid out as a one-time payment, the increased rents remain the same or rise further in the future. Moreover, the housing cost subsidy ends up back with the landlord after the rent payment. The inflation rate in Austria in February was 11 per cent. Tenants not only have to pay higher prices for energy and electricity like everyone else, but also higher rents.
Gabriel Felbermayr, head of the Economic Research Institute (Wifo), also criticises the government’s approach. “I thought it was clear by now that more and more new cash transfers can cushion social hardship, but do not dampen inflation, instead they even fuel it”. The state does not have these 250 million euros and has to borrow them on the capital markets; if you put new money into the economy, it drives up prices, Felbermayr said. In his view, the rent brake was a way to get out of the price spiral.
Portugal suspends VAT
The government in Portugal on the other hand, is not only putting vacant flats on the market, it is also curbing rising inflation by suspending VAT. For the time being, it is suspending VAT on 44 basic foodstuffs for six months. If necessary, it wants to extend this period. This measure is part of an agreement with producers and retailers to stabilize prices as soon as possible. The government also foresees financial support for farmers and livestock in this framework. The suspension of VAT will make bread, eggs, meat, oil, yoghurt, fish and cheese, among other things, cheaper and more affordable for Portuguese households.
This work is licensed under the Creative Common License. It can be republished for free, either translated or in the original language. In both cases, please cite https://neuezeit.at / Kasija Milošević as the original source/author and set a link to this article on Scoop.me. https://scoop.me/portugal-vacant-flats-vat/

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“Creating Prosperity Together”: How the social economy model saved the English city of Preston

Publicerad denFörfattareKontrast.at

For a long time, Preston was the centre of industry in England. But when the city’s big companies decided to move production to low-wage countries, the economy collapsed and Preston plunged into a deep crisis. The people of Preston didn’t let it get them down, however, and together they rebuilt their economy. Instead of international corporations and low wages, they relied on local production and co-determination. Thanks to the “communal prosperity” model, Preston is booming again today.
Preston was the economic engine of England for a long time. In the city in the northwestern county of Lancashire, the textile industry boomed in the 19th century. Products from Preston were exported all over the world, and the city grew rapidly. The boom did not last forever, however. After the Second World War, large parts of English industry migrated to low-wage countries. The economy crumbled and with it the city. Just a few years ago, Preston was considered one of the poorest areas in England.
But then came the turnaround starting in 2012. The city reorganized itself to boost its own economy. It was understood that no help would come from big investors or the government in London. The results of their effort can be seen: Unemployment is falling, the city is growing, and the economy is booming. And how did the people of Preston do all this? With an idea called Community Wealth Building.
Community Wealth Building: Business for the People, Not the Corporations
But what is community wealth building? Broadly speaking, it’s an approach that shapes the economy to serve local people, not managers in corporate headquarters or investors in tax swamps. Preston achieves this primarily through four principles:

Working with what’s there
Producing and buying locally
creating good working conditions
Shaping the economy

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Preston’s “Communal Prosperity”: Working with what’s there
Preston knew that no outside savior would come to help the city. If they wanted to change their lot, the people of Preston would have to tackle it themselves. So the first step was to look at how the city’s economy was set up at the time.
While many businesses had left Preston, there were also institutions that were still in town and would remain. These included the local university, a housing cooperative, the pension fund, the town hospital, and the local government. These institutions were called anchor institutions because they were firmly anchored in the city and would not leave.
The anchor institutions spent many millions annually. The hospital needs fresh food and laundry every day, the housing cooperative needs materials and people to maintain the houses, and the local administration needs stationery and furniture. The list goes on and on. These expenses were looked at by the city government. The result: these institutions hardly ever shopped in Preston. Only about 5 percent of the spending was done in their own town. The rest of the money went to other parts of the country and the world.
Produce locally, buy locally
To boost Preston’s economy with the “communal Prosperity” concept, these anchor institutions had to be persuaded to spend more money in their own city. Since they all had a vested interest in seeing the city do well, all institutions were willing to buy more locally. The result of this was that the order books of local businesses filled up. This allowed those businesses to hire new people. Now, more people had jobs and more money in their pockets to spend again. That further boosted the local economy.
Where the increased demand from anchor institutions could not be met by existing businesses, new ones were started. Preston University assisted the start-ups with its expertise. 
By having anchor institutions, such as local government, buy more from their own city, more jobs could be created in Preston. (Foto: pixabay/PaulCosmin)
Co-determining the economy
There was also a plan for when new companies were founded. What should not happen is that all the profits end up in the boss’s pocket and the workers have no say. The people of Preston should decide for themselves how they want to shape the economy of their city and also reap the fruits of their own labour. The solution to this: cooperatives!
The university supported the people of Preston in setting up cooperatives, in which they themselves can determine how work is done and what is done with the profits. This, it said, strengthened co-determination in the city and meant that the profits generated ended up in the workers’ pockets rather than in investors’ accounts in tax swamps. The cooperatives also had another positive effect. Because the workers themselves determine their company policy, their jobs are not outsourced to low-wage countries.
A wage you can live on
It was also important to the people in Preston and its “communal prosperity” concept that everyone should be able to live on their wages. What is the point of working in a cooperative or one of the anchor institutions if the money is not enough to live on? That’s why most local institutions, businesses and cooperatives decided to pay a wage that is above the minimum wage and that people can live well on. Now that people have more money in their pockets, they were able to consume more, and the local economy continued to grow.
At the same time, however, a lot of money was put into providing a good education for the city’s workers. The city’s university provided training and counselling, and other anchor institutions such as the local government and the housing cooperative also invested more in the education and training of the local workforce.
Preston’s “Communal Prosperity” Model as a model for success
Preston’s four principles worked strongly together. Anchor institutions looked to their purchasing not only to ensure that local production took place, but also that companies paid their workers well and gave them a say. While not everything could be produced and sourced locally, the percentage of anchor institutions’ spending in their own cities increased sharply. When the Community Wealth Building project started in 2012, it was 5 percent. In 2016, it was more than three times that, at 18 percent!
That wasn’t the only thing that had improved in Preston. From 2014 to 2017, unemployment was cut in half. At 3.1 percent, it was below the statewide average of 4.6 percent. The city’s economic development was so successful that it became the most up-and-coming city in the country, overtaking the capital London in quality of life.
Mondragón is the largest cooperative in the world. For Preston and Cleveland, Mondragón is a source of inspiration. Mondragón workers built the roof of the famous Guggenheim Museum in Bilbao, for example.(Foto: Unsplash/Jorge Fernández Salas)
Social business: Global trend
Preston’s success has created a buzz and encouraged imitation. Today, there are 20 other cities and communities that also use the Community Wealth Building approach. This approach did not come out of nowhere, however, but has its roots in the U.S., in the former industrial metropolis of Cleveland. Similar to Preston, industrial companies in Cleveland migrated to low-wage countries. The result was a fallow economy and a decaying city. However, through a regional economic plan and the formation of cooperatives, Cleveland achieved economic recovery.
Cleveland, in turn, got its inspiration from the small Basque town of Mondragón. There, the Spanish Civil War had devastated the local economy. Under the guidance of the left-wing priest José María Arizmendiarrieta, a technical college and several cooperatives were founded in the small town. Today, Mondragón is the largest cooperative in the world, with branches in 31 different countries and over 80,000 employees. The entire cooperative federation is democratically run and owned by the workers. Läs mer…

Bolivia: Less poverty and booming economy through nationalisation of mineral resources

Publicerad denFörfattareKontrast.at

Bolivia, a country in the Andes, has developed strongly in recent years. Since the left-wing president Evo Morales took office, poverty in the country has been more than halved, life expectancy has risen by four years and the economy is booming. Bolivia has achieved this through the nationalisation of its mineral resources and an economic policy that takes care of the poorest in the country.
Bolivia was long considered the poorhouse of Latin America. Although the country is rich in raw materials, most of the profits from their extraction went to large corporations from Europe and North America. This changed when the indigenous trade unionist Evo Morales was elected president in 2006. He nationalised the country’s raw materials and introduced far-reaching social programmes to help the impoverished population. As a result, during his time in office, Morales was able to more than halve poverty in Bolivia and the economy grew faster than in almost all other Latin American countries.
From poverty to the presidency
Evo Morales grew up in extreme poverty in the highlands of Bolivia in the 1960s. Four of his brothers died at a young age. He attended school for only six years before helping to feed the family by selling sweets and working in a bakery. As a young adult, he became active in the local coca farmers’ union and took on more and more responsibilities.
The country’s government was controlled by the white upper class, although the population was largely indigenous. The country’s political situation had been marked by wars and coups d’état since independence in 1821. The economy barely moved. Much of the population, especially indigenous peasants in the highlands, lived in abject poverty and had little say in the country’s politics. In addition, the country’s mineral resources were controlled by international corporations. The poor population had hardly anything from the country’s wealth of resources.
The population hardly benefits from the mineral resources of their country. (Foto von Alex Azabache / Unsplash)
Morales wanted to change that. Together with other trade unionists and activists from the indigenous population, he created the Movimento al Socialismo (MAS) party. Their goal was to nationalise the mineral resources, strengthen the rights of the indigenous population and expand the welfare state. Despite opposition from the country’s political elites, Morales was elected the country’s first indigenous president in 2005 with an absolute majority. Under his presidency, which lasted until 2019, the country changed fundamentally.
Nationalisation of mineral resources
One of the first major steps taken by the Morales government was the nationalisation of Bolivia’s oil and gas resources. By law in 2006, the large international corporations that had controlled these mineral resources until then were required to sign new agreements with the state oil and gas company Yacimientos Petroliferos Fiscales Bolivianos (YPFB). In some cases, YPFB took over the extraction of the raw materials completely, in some cases only shares in them. The Morales government took a similar approach when it nationalised the mining industry in 2007. The following year, the Bolivian government also nationalised the largest company in the telecommunications sector.
Through these nationalisations, the government now not only had more control over its own resources, but could also use the profits from their extraction for social and infrastructure projects.
Evo Morales was elected Bolivia’s first indigenous president in 2005. (Foto: Cancillería Ecuador / CC BY-SA 2.0)
The fight against poverty
When the Morales government took office, Bolivia was the poorest state in South America. Morales experienced the bitter poverty of the population himself. His goal and that of the MAS movement was to end this poverty. This was achieved mainly in three ways: strengthening the economy, raising wages and expanding the welfare state.
With the income from the extraction of raw materials, the government modernised the country’s infrastructure. Between 2000 and 2015, public investment doubled. Roads, hospitals, and schools were built. An important focus, however, was the development of rural areas. Through land reform, small farmers gained access to land that was previously in the hands of large landowners. In addition, the government supported food prices to help small farmers and ensure the country’s food security. At the same time, oil and gas refineries were built not only to export raw materials, but to keep value added in the country.
With a stronger economy, higher wages could be paid. A particular focus was on the incomes of the poorest in the country. That is why Bolivia’s minimum wage was quadrupled during Morales’ term in office (2006 to 2019). More money in their pockets meant that Bolivians could now consume more. This further boosted the economy.
Numerous social programmes were created to reduce poverty even further. The universal basic pension Renta Dignidad is particularly central. Many thousands of older Bolivians received a pension for the first time. In addition, poverty-stricken families were supported if they kept their children in school instead of sending them to work. Free meals were also introduced to further increase attendance at school.
Poverty in Bolivia more than halved
Poverty in Bolivia has been more than halved from 47.20 to 15.60 during Morales’ term in office. Life expectancy has also risen from 64 to 68 years during this period. With an average economic growth of 4.7 percent, Bolivia’s economy has grown faster than in almost any other country in Latin America. At the same time, the government has been able to significantly reduce social inequality in the country.
MAS’s reforms mainly help the poorest in the country. (Foto: Lesly Derksen / Unsplash)
More rights for indigenous people
In addition to the social and economic improvements for the broad population of Bolivia, the MAS government was also able to strengthen the political rights of indigenous groups. A new constitution was adopted, making Bolivia a plurinational state. In the course of this, a total of 36 indigenous languages were recognised as official languages. In addition, the indigenous flag Wiphala has since been used on an equal footing with the national flag.
Since the electoral success of MAS, more indigenous people have been elected to the national and regional parliaments or have held ministerial posts. Joshua, a taxi driver in La Paz, explained the political change as follows:
“We used to be governed by the upper class, now our own people govern us. We now live with dignity.”
Morales’ flight from Bolivia and exile
Despite the MAS government’s successes, it has also been heavily criticised. Morales was accused of being too distant from the needs of the indigenous population. In addition, his government was repeatedly accused of a lack of environmental protection. Bolivia’s rainforests are falling victim to slash-and-burn agriculture. The dependence of the Bolivian economy on fossil fuels and raw materials is also repeatedly criticised.
However, Evo Morales received the most criticism for not wanting to leave the presidency. After his first electoral victory, he was elected president in 2009 and again in 2014 with a large majority. In 2018, the Supreme Court overturned a constitutional article that prevented him from running again. When Morales ran for president again the following year, he drew heavy criticism at home and abroad. Irregularities occurred during the election and although Morales clearly won the election, the opposition rejected the result. Riots broke out in many parts of the country. The police and military leadership sided with the opposition. When the military chief asked Morales to resign, he complied and fled Bolivia.
The right-wing opposition then took power and tried to reverse many of the MAS government’s reforms. The welfare state was to be cut back, large corporations were to control the extraction of natural resources again and, above all, the rights and influence of the indigenous population were to be pushed back. The opposition was mainly based on evangelical Christians and the country’s economic elites.
New president continues reform policy
Although it soon became clear that there was no electoral fraud in the 2019 election, the new government repeatedly delayed new elections. Elections were first held in October 2020. These were clearly won by the MAS candidate and former Minister of Economy in the Morales government, Luis Acre. Evo Morales then returned to Bolivia.
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Luis Acre is considered the architect behind Morales’ economic policy and is continuing his reforms. For example, Bolivia managed to keep inflation at the lowest level in Latin America through subsidies for food and energy.
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Nobel Prize Winner Stiglitz wants 70% tax on top incomes

Publicerad denFörfattareKontrast.at

Nobel Prize winner Joseph Stiglitz is concerned about increasing social inequality in the world. The gap between rich and poor is widening. To reverse the trend, he calls for the super-rich to pay a higher income tax and a wealth levy. He says introducing a special global tax rate of 70 percent for top earners “would clearly make sense.”
“People at the top might then work a little less if you tax them more. But on the other hand, our society benefits from a more egalitarian society with greater cohesion,” the former World Bank chief economist explained in Oxfam’s “Equals” podcast, summarized by the British newspaper The Guardian.
Current top tax rates are much lower than what Stiglitz has in mind. A few examples

In the U.S., the top tax rate is 37 percent for incomes above $539,901.
The top tax rate in the U.K. is 45 percent on annual incomes above 150,000 pounds.
In Austria, the rate is 55 percent, but only for annual incomes above one million euros.
In Germany, the top tax rate is paid from an annual income of around 278,000 euros—it is 45 percent.

Only four European Countries have a wealth tax: Spain, Norway, Switzerland, and Belgium.
Joseph Stiglitz: Getting rich is a question of chance—not performance
Stiglitz explained in the podcast that such a new, higher top tax would lead to more redistribution—but at the same time one must also tax wealth fairly. Because that way, the richest people in the world would make a fair contribution, whose wealth has been accumulated over generations. According to Stiglitz, a global wealth tax would have an even greater impact in combating social inequality.
“We should tax wealth more heavily, because a lot of the wealth is now inherited. For example, the young Walmart’s inherited their wealth“, Stiglitz cited as an example.
“One of my friends describes it as winning the sperm lottery. You got the ‘right’ parents. I think we have to realize that most billionaires got a lot of their wealth just by luck.“
The Nobel Prize winner considers U.S. Senator Elizabeth Warren’s proposals for a 2 percent tax on wealth of more than $50 million and a 3 percent tax on wealth of more than $1 billion “very reasonable.” He believes that would “really do a lot to raise revenue that could be used to alleviate some problems our country faces.“
The crisis has made rich even richer
According to Stiglitz, the Corona pandemic has exacerbated social inequality around the world to an “astonishing” degree and “both exposed and exacerbated global inequalities.“
“At a time when so many people’s lives have been so difficult, when they have lost their jobs, when food prices have risen and oil prices have risen, it is shocking how many people and rich companies have made off like bandits,” Stiglitz criticized.
Oxfam study: For the first time in 25 years, extreme wealth and extreme poverty are growing simultaneously
A recent Oxfam study showed that nearly two-thirds of the wealth accumulated since the pandemic began has gone to the richest 1 percent. The charity found that the best-off will have amassed $26 billion in new assets by the end of 2021. That’s 63 percent of all new wealth, with the rest going to the remaining 99 percent of people.
As a result, for the first time in 25 years, the rise in extreme wealth has been accompanied by an increase in extreme poverty. 
The charity said that a tax of up to 5 percent on multimillionaires and billionaires could raise $1.7 trillion a year for the world. That, in turn, would be enough to lift 2 billion people out of poverty and end world hunger.
“While millions of people don’t know how to pay for food and energy, the crises of our time are bringing gigantic increases in wealth for billionaires and billionaires’ wives,” said Oxfam spokesman Manuel Schmitt.
200 super-rich call for global wealth taxes
More than 200 members of the super-rich elite have written to governments around the world in the run-up to the World Economic Forum in Davos calling on them to “tax us, the super-rich, now” to tackle the crisis of inequality. “Patriotic Millionaires”, “Tax me Now” and “Millionaires for Humanity” were behind the campaign.
Among the signatories are Disney heirs Abigail and Tim Disney and “Hulk” actor Mark Ruffalo. Marlene Engelhorn from Austria also participated in the protest—she delivered the letter on site.

Members Phil White and Marlene Engelhorn protest the World Economic Forum in Davos.
It’s time to #TaxTheRich. pic.twitter.com/QwV7aWMPEP
— Patriotic Millionaires (@PatrioticMills) January 17, 2023

This work is licensed under the Creative Common License. It can be republished for free, either translated or in the original language. In both cases, please cite / Kathrin Glösel as the original source/author and set a link to this article on Scoop.me. https://scoop.me/stiglitz-tax-on-top-incomes/
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Rewarding “Good” Companies—How the Economy for the Common Good Wants to Change the World

Publicerad denFörfattareIngo Geiger

The Economy for the Common Good (ECG) is an alternative to the existing economic model of capitalism, including the pursuit of profit and constant growth. The ultimate goal is a good life for all people. The idea: the state supports companies that produce in an environmentally friendly way and pay their employees fairly. Through favorable loans and tax breaks, they receive a clear advantage and can thus operate even more successfully. Piece by piece, this could lead to a sustainable and socially just economic system.

Let’s imagine that a small café, a local carpentry shop and a family bakery are suddenly more successful than the branches of the large global corporations. The reason: the state supports them with favorable loans, investment aid and tax breaks because they operate more sustainably, socially and fairly. The corporations, on the other hand, have to pay higher taxes because they exploit their employees and destroy nature. This deliberately gives small businesses a clear advantage over corporations and enables them to assert themselves on the market with their fair and sustainable products.
A utopia? From today’s perspective, yes. But in the sense of the Economy for the Common Good, this is what our economic reality could look like. 
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Economy for the Common Good Explained: What is it?
The Economy for the Common Good (ECG) is an alternative to the existing economic model of capitalism. The primary goal is a good life for all people, and not the maximum enrichment of a few company owners. It is an ethical market economy based on basic human values. The focus is on human dignity, solidarity and justice, ecological sustainability, transparency and co-determination. Values that are also shared by almost all democratic constitutions. 
One of the strengths of the Economy for the Common Good is that it links to core elements of the capitalist market economy: corporations, credit, trade, markets, property. However, it transforms these elements by consistently placing them at the service of overarching values—human dignity, solidarity, justice, sustainability, democracy. It is therefore transformation and evolution, not “disruption” or “system change.” (Christian Felber, founder of the Economy for the Common Good)
These overarching values are only a proposal. The concept envisages that they will be (further) developed jointly in a democratic process. 
Sustainability for People, Environment, and Economy
The Economy for the Common Good understands sustainability as being, not only the resource-conserving use of nature, but also respect for human dignity as well as free and successful economic activity as part of an ethical market economy. 
The three Pillars of Sustainability

 Upholding human dignity
Respectful treatment of nature
Entrepreneurial freedom and success within the framework of an ethical market economy
ECG leads to more sustainability, as it promotes those companies that operate in an environmentally friendly and socially responsible manner. Through loans, investments and tax breaks, they gain a clear advantage over others and thus prevail with their products on the market.
Following this simple principle, it would simply no longer be worthwhile to disregard human dignity, destroy the environment or drive inequality in society for the profits of a few. Step by step, this could lead to an economic system in which careful use of our finite resources pays off—while reckless and exploitative behavior does not. 
Many people are now looking for meaningful work. Sustainability is particularly important—especially among the younger generation. This is another advantage for companies that focus on the common good: many of their employees feel significantly more satisfied  they see their work as making a contribution to the common good.
The “common good balance sheet” measures exactly how much a company contributes to the common good. 
Common Good Economy Goals: Democratize the economy
Through a new economic order and a fundamentally new way of thinking about business, the common good economy aims to achieve a good life for all. This is its ultimate goal. Everything is to be discussed anew and decided democratically:
ECG Goals: Democratize the Economy

Should a CEO really earn 300 times as much as an employee? Or wouldn’t 10 times be fairer? Of course, there should be more pay for more responsibility. But at the moment there is a lack of proportionality. Because such high salary differences endanger social cohesion.
Shouldn’t toxic sprays be banned altogether, even if a global corporation is resisting one  with all its might? After all, every single person bears the health consequences. Wouldn’t it be fairer if they were the ones to decide?
Eight billionaires own more than the poorer half of the world’s population. Is that still fair? Or do we need a wealth cap, higher inheritance taxes and a fairer distribution of property?
How high should the minimum wage be? Is 12 euros per hour (Germany) enough? Is it okay that there is none at all in Austria?
The Economy for the Common Good wants to put control over our future back into the hands of democracy. An accumulation of capital, money and consequently power should only be possible to a limited extent. Where this limit lies, all people should decide together.
The common good balance sheet: This is how it is assessed
With the common good balance sheet, a company, university, city, or municipality can measure its contribution to the common good.
Contribution to the Common Good

Are the raw materials used mined in an environmentally friendly way?
Are there human rights violations in the supply chains?
Does the customer benefit take precedence over the company’s own sales aspirations?
Are all those involved paid fairly?
Is transparency ensured in dealings with employees?
One of these companies is the sporting goods manufacturer Vaude. Vaude pays attention to the highest ecological standards in textile production. With the Common Good balance sheet, the company can measure the resulting contribution to the common good. 
The Common Good Matrix (graphic: www.ecogood.org/)
The Common Good Balance Sheet is based on the Common Good Matrix and rates companies in 20 categories with + or – points. Plus points are awarded, for example, for resource-conserving and environmentally friendly business practices, fair wages and social working conditions. Minus points, on the other hand, are awarded for environmentally harmful behavior or disregard for human rights. The more plus points a company has, the more it contributes to the common good. 
The Economy of the Common Good advocates that such a balance sheet would be mandatory for companies and, above all, would have legal and economic consequences. Companies with a high score would receive certain advantages, such as lower taxes, more favorable investments, or would be given preference in the awarding of public contracts. This would create concrete incentives to operate and produce in a sustainable and socially responsible manner.
Around 1,000 companies in 35 countries are already drawing up a common good balance sheet and have decided to pursue social goals beyond mere profit maximization. These include well-known companies such as Vaude, Sonnentor, Windkraft Simonsfeld, the Trumer brewery and the Freistadt brewery community.
Pros & cons of the Economy of Common Good: advantages and disadvantages for society
The basic values of the common good economy (human dignity, solidarity, justice, sustainability, and democracy) result in the following benefits: Pros & Cons of the Economy of the Common Good

Sustainability: By committing to sustainable and resource-conserving production, we save our planet. 
Transparency: The common good balance sheet makes the behavior of companies comprehensible and transparent for society. 
Solidarity and justice: Social cohesion and solidarity with one another grow as inequalities and injustices are reduced. 
Equality of opportunity: A wealth cap (for legal entities: e.g., a limited liability company, stock corporations or trade associations) reduces the differences between rich and poor. This leads to greater equality of opportunity. This is because wealth and private ownership contribute significantly to economic, social and also political inequality in a society. Today, the rule is: those who are rich get richer. Those who are poor remain poor. 
More democracy: In Austria, 90 percent want a new economic order—in Germany, the figure is 88 percent (Bertelsmann Foundation survey, 2012). People want change, but in the current model they have no voice. It’s quite different in the common good economy: here, they would vote together on every aspect of the economy. Everything would be up for debate: Is it fair, for example, for a manager to earn 300 times that of a regular employee? Wouldn’t 10 times be enough?     
Less lobbying: Lobbying and corporate influence on political decisions would simply no longer be possible, as the common good would be the ultimate goal. As a result, global corporations and extremely wealthy individuals would lose the basis of their power and influence. 
Human dignity: No more exploitation, as the economic consequences (more taxes and duties) would make it no longer worthwhile.
Disadvantages would arise mainly for those who exploit the current situation and profit from the fact that people and the environment are exploited, that political influence is possible and that there are no real consequences for it (yet).
The Criticism: The Effort and the limited Freedom
The Austrian Chamber of Commerce criticizes the bureaucratic effort that this could create. Not only would one have to draw up a common good balance sheet for every company, but one would also have to define the tax and social advantages and disadvantages that result from this. 
But if you think back, you will see that the introduction of general accounting also involved a lot of effort. So should we really ask ourselves whether it would be too burdensome? Or shouldn’t we better ask: does a company benefit the environment, peace, people? Does it contribute to the general welfare of society, or does it do more harm?
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Of course, a new balance sheet would be a costly undertaking—but one that would be worthwhile for companies and society. It would help them reflect on their own actions, classify them and, if necessary, adjust them to contribute to a better society. Which, at the end of the day, is also in their best interest. 
It is also often criticized that the common good economy would restrict the freedom of companies and individuals too much. However, it is questionable how much of a restriction there can be when entrepreneurial freedom means the exploitation of people and nature. 
Our society is built on restrictions—that’s the only way coexistence and freedom work. For example, we do not race through the inner city at 200 km/h because that would be too dangerous for everyone involved. We also do not solve conflicts with violence, but in court. Restrictions are necessary—but only we as a society should decide on them.
The Economy for the Common Good: Examples
Worldwide, there are nearly 60 practicing cities and communities, 175 active regional groups, and 200 universities committed to the common good economy. These people have chosen it because they no longer want to watch large corporations destroy the environment and erode democracy. They want to see meaning in their work again, and working together for a better society gives them just that. The reasons and the exemples for their commitment are numerous and could not be more different, but they all have one thing in common: dissatisfaction with the current situation and the will to change something. 
Good Practices:

Valencia: Since 2021, the autonomous region has been promoting companies that produce sustainably and that have drawn up a common good balance sheet. A total of 700,000 euros in funding will be awarded.
Hamburg: In the future, public companies will be required to comply with the United Nations’ Sustainable Development Goals. To monitor compliance, they are to draw up a common good balance sheet.
Common good balance sheet in banks: Vorarlberger Landesversicherung, Raiffeisenbank Lech and Dornbirner Sparkasse already prepare common good balance sheets. The pioneer in Germany was Sparda-Bank München. Former Chairman of the Board Günter Grzega: “In the course of our common good reporting, my successor abolished all bonus payments at Sparda-Bank München. As a result, two out of a total of 700 employees left the company. And that was a good thing.”
Common Good account: The “Gemeinwohl Konto” is a cooperative project between the “Genossenschaft für Gemeinwohl” and the environmental center of Raiffeisenbank Gunskirchen. The goal is to use money specifically for undertakings that serve the common good and thereby contribute to a change in the monetary and financial system. This is made possible by a rather simple step: a separate accounting cycle guarantees that money to the value of all deposits in common good accounts is allocated as financing for common good-oriented projects. This way, all account holders know that their money contributes to the common good.
Faced with the climate crisis, the gap between rich and poor, and the crisis of confidence in politics and democracy, transforming the current economic system towards a common good economy could defuse, if not solve, many global problems.
Constraints will result from this. However, these restrictions will not curtail our freedom, but will set in motion a democratic process that can make all our lives better.  Läs mer…