Christoph
Strawe
Where
to go with the Social Systems?
Safeguarding
the Future by Restructuring the Financing of Social Security from non-wage
Labour Costs to a Consumption-related Social Rate[1]
Translation
by Prof. Hellmut Fischmeister
Safeguarding the Social Systems is a matter of economic expediency just as much
as of
fundamental human rights
Until
the 1980s, the level of social expenses was regarded as a success indicator for
advanced societies. With the promotion of a neoliberal concept of globalisation,
circumstances - and public (or rather, published) opinion - have changed
dramatically.
GATT
in 1947 promoted the reduction of customs duties. The main instrument for this
was the Most Favoured Nation Clause. In 1995 WTO was founded: Following GATT,
the GATS and TRIPS initiatives were started. In
the WTO philosophy of globalisation, everything is regarded as a
commodity.
Non-wage
labour costs for social purposes have become part of the prices in the
world market for the enterprises which have to pay them. Consequently, low
non-wage labour costs are becoming more and more important among
the competition factors in the global economy. In Germany their level is
presently about 41%.
Thus
the conventional systems of ensuring social security find themselves under
increasing financial pressure. This situation,
described as the "globalisation trap", involves
an export of jobs into countries with low wages, low taxes and negligible
social contributions. These states now compete among themselves to become
attractive locations for production and business by keeping social costs as low
as possible.
At
the same time, we have a permanent increase of labour productivity, and the
phenomenon of jobless growth. Limits of growth have become visible, while more
and more people are trying to sell their labour on the worldwide manpower
market. For increasing numbers, classical gainful occupation is giving way to
unemployment.
Consequently,
social income is becoming more and more important for an increasing number of
people, and efforts to reduce these costs are becoming a serious
danger for the democratic societies. They offend the basic rights of human
beings.
In
our days, economy tends to make itself the master of society, instead of its servant,
who strives to provide people with goods. Considering the economy as a whole, the
production of income for the population is not a cost factor, but the overall
aim. The economy depends on the infrastructure which society has created for it.
Moreover, the income of the people is needed as buying power.
How
can we escape the dilemma created by these conflicting trends?
- We must find a form of financing social security which cannot be endangered by the conditions of a
global competition, in other words a competition-neutral form of financing the
social systems.
Back
Labour
- Productivity - Income
In
many developed countries the social insurance systems are financed - at least to
a certain degree - through non-wage labour costs which are imposed as
contributions to social insurances. In Germany 1997: Pension insurance 20,3%,
health insurance 13,6%, unemployment insurance 6,5%, long-term care insurance
1,7, amounting to 42,1%. In Germany one half of this sum is paid by the employees,
the other half by the employers. Thus from the gross wage, the wage tax and half
of the social insurance contributions (ca. 21%) are withheld. The other half of
the insurance contributions must be added to the gross wages as so called
employers’ contributions.
So
the development of the revenues of the social systems is directly tied to labour
productivity, the number of employed, their income and their labour time. Public
servants, self employed and similar groups do not take part in social solidarity
in the present form of the system.
In
Germany, productivity per working hour increased from 29,73 DM in 1970 to 61,70
DM in 1995, and this trend is continuing. So it is in other
countries. The volume of labour is going down, more people are unemployed and
their income must come from the contributions of a decreasing number of
employed. That cannot work.
It
is necessary to share the fruits of productivity in a reasonable and fair way.
Increasing productivity means that we can produce the same quantity of goods -
or even more - in less time and with less manpower. There is no reason why
certain groups of people should be denied their share in the of the economy. In
other words: There is no just reason to refuse to share. The only visible reason
could be the disadvantages in global competition which arise from the non-wage
labour costs. So the only way to avoid job exports a reduction of social costs
-
that is the eternal argument. But is it really true?
A consumption-related social rate would be a way out of the "globalisation
trap"
The
starting situation is quite clear: Globalisation in the form of liberalisation
of trade leads to international comparability of products, wages, taxes and
social contributions.
Obviously,
the method by which the social systems are financed plays a key role. We have to
find a way to eliminate the social costs from the price calculation. How can
this be achieved? And does it mean that the overall social costs have to be
decreased? It does not. The level of social security is not a responsibility of
the economy. It has to be determined by the people themselves, by
democratic decision. What are we willing to do for our poor, our sick, our
elderly, our children etc.? Presently, the threat of competition is making such
decisions nearly impossible. Finding a form of financing which does not affect competition would
return to the people their right of decision in such matters.
When
production is looking for the most favourable business location, social
financing becomes a distorting factor. This distortion would disappear if the
social system could be financed in a way not affecting labour costs. Prices
could then be decreased correspondingly. And there would be no difference for
the consumer, if the social contributions were to be set upon these decreased
prices, as an expense oriented or
consumption oriented social compensation. For brevity, we will call this the social
rate
from here on.
It
would work in the same fashion as an added value tax, the only
difference being that the social
rate is earmarked and is not
misappropriated as a general
contribution to government outlay. Since the added value tax paid is subtracted
from the added value tax owed, the burden is effectively shifted to the final consumer at the end
of the chain. In this way, it becomes, in fact, a consumption tax.
An
employer can export jobs, but to sell his product, he must go back to the place
of consumption. All inland sales
are charged with this specific consumption tax, as a result of the democratic
consensus about social security in
the country concerned. (The level can be adjusted from time to time by
Parliament or by direct vote.) All sales
abroad are charged with the social consumption rate of the foreign country in
which they are sold; the domestic rate can be refunded "at the
frontier". So the social rate supports the social security level which the people of
that country have decided for themselves.
In
this way, social contributions globally would become neutral with respect to
competition, but also cost neutral.
From
the enterprise’s point of view the most important aim - equal chances in
competition - is reached. But there will be opposition against this solution
from other parts: investors, who want to minimize any kind of social security
expenses in
the interest of private profit. But property and
profit can never have a higher relevance than people and the requirements of social
development. Thus this argument can never be accepted.
Another
objection may come from the employed. They feel that excise duties are ominous
because they hit the "poor" while leaving the "wealthy
corporations" untouched. This argument, however, is weak: 1. The
corporations devolve all taxes into their prices, so in the end the consumer
pays it all, anyway - the only difference being in visibility. 2. If we do not
succeed in creating a new form of social protection, there will be decreasing
income and buying power for the very groups, who ask for protection. 3. It is not difficult - assuming that
we are able to create the necessary social consensus - to compensate people of low
income by suitable income tax exemptions. Another
possibility is to scale the consumption taxes for different kinds of goods, as
it is being practised in some countries
(Germany 7% VAT for food and books, 16% for other goods). Consumption taxes can
be shaped to assist social fairness
just as income taxes can be shaped to such ends by
suitable progression scales.
A
more fundamental problem arises from the injustice of any money system which
gives money owners special benefits over those who have to spend everything on necessities. In this context we underline that our proposal is only
a starting point for the necessary reform of social life.
Back
Start
with unemployment insurance
For
Germany we have proposed that the reform of social financing should begin with
the unemployment insurance. The annual costs for this in 1997 amounted to almost
100 billion DM (1
billion = 1.000 millions. 1 DM = 1.95583 Euro). The contributions of the insured (about 43 billion DM)
together with those of the employers (about 47 billion DM) left a deficit of about 10
billion DM to be covered by an allocation of public means. Replacing the
unemployment insurance contributions of 6,5%
by a social rate of 6,5 % on sales
would result in an amount of 6,5 x 15 billion = 97.5 billion DM. Thus the
expenses can be covered.
Positive
job-creating effects are to be expected from such a reform. They arise, firstly,
from a relative lowering of German export prices, and in addition, from
substituting the use of capital by the employment of human labour.
If
the financing instruments are rearranged appropriately, structural effects
regarding the sectoral and regional aspects of production need not play a
substantial role. The same applies to effects in different income brackets.
Besides, a relief for the lower income brackets can be provided within the wage
and income tax system. Reduced expenses for unemployment insurance will make
means available for this.
However,
the positive effects of the reform will be realized only if all groups und
individuals concerned work together in its spirit. On the basis
of the experiences gained in the process, the model - which helps to revitalize
the welfare state’s capacity for action -
can be expanded to other areas of the social system. In this connection,
one may point to Swiss studies on the reform of the pension system based on an
analysis of experience with the “second column”.
Of
course this is only one of the possibilities to implement the reform. Another
possibility could be for instance to restructure the financing of a certain
percentage of all social insurances every year.
Consumption oriented social rate as the key to new ways towards meaningful
employment of “surplus” labour
In
view of the continuous growth of productivity , the problem of unemployment cannot
be solved primarily by creating new jobs. However, if its gains are put to
suitable use, this increase of
productivity opens new possibilities to convert - unemployment into work in the
non-profit sector. There is no lack of important tasks for such work in our
societies! The limits of growth are, in fact, limits to producing ever more
without regard to the real needs of men and nature. There are no such limits for
new fields of effort within the social services, education, health care,
culture, environmental protection etc. etc. Sharing the fruits of increased
productivity by creating new forms of social income also means
creating job opportunities in these fields, providing an income which
allows persons to devote themselves to societal
tasks.
The
80:20-society, in which 20% of the people are gainfully employed while 80% are
tranquilised by "tittytainment", is not an inescapable fate. We can
use the chance offered by the growth of productivity to make new things
possible, because we have won the work capacity to do them. Instead of
bureaucratically administering unemployment, an “activating” welfare state
will enable, above all, the self-determined activity of mature people in the
non-commercial, non-profit area, which today is inadequately provisioned.
But
all this depends on our safeguarding the financing of social needs. Let us try
to regain the capacity to act!
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Situation
of less developed countries
In
many parts of the world there are no social systems, or they do not
work, or they can only afford to give alms. So isn't it an act of
compensatory justice, when the level of social security is found to dwindle in
the rich countries? Granted that there is a necessity within those countries to
focus social assistance on those who really need it. But the reason for
the lack of social security in the poor countries is not the level of social
security in the rich ones. Far from it! The forces which try to bring down
the level of social security in the developed countries are at the same time the
promoters of a neoliberal exploitation of the less developed countries.
It
is the less developed countries which suffer most from the fact that social
contributions have become a competition factor. Their low wage level is their
only advantage in global competition. By establishing social systems based on
non-wage labour costs, they destroy this very advantage. This vicious circle
amounts to an insurmountable barrier to the establishment of care systems in
these countries. A form of financing social security such as proposed here is the
only chance for those countries to build a system of social security.
But
there is more: When those countries have to buy products from the rich
countries, they are forced to pay part of the social contributions of those
countries, because these costs are included in the prices they have to pay. This
money disappears into the rich part of the world. The money gained by a
consumption oriented social rate remains in the country and helps - as
purchasing power - to strengthen the domestic market. And the situation of the
domestic market is the main problem of the developing countries!
Summary and perspectives
Instead
of paying wage and salary related contributions to the social system, we suggest
financing, in the same amount, by a consumption-related social rate. This
neutral form of financing would permanently relieve the sphere of competitive
business from
non-wage labour costs
improving global competitive power. At the same time it could
bring about a lasting change of the job market situation, counteracting the
disappearance of solidarity within society, eliminating the pressure on the
unemployed, and enabling meaningful and lasting employment of the work
capacities set free. This is not only a matter of economic expediency but a
fundamental requirement of human rights, since a democratic state must not
exclude part of its population from reasonable activity. The introduction of
such a social rate is at the same time also an urgent necessity for poorer
countries in establishing an adequate social system.
The
realisation of such a kind of social rate could be one of the entry points for
the development of a society guided by the concept of Nazim Hikmet (1902-1963):
To
live! Like a tree alone and free
Like a forest in brotherhood
This yearning is ours.
Civil
Society should be a motor of this development.
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