America was quick to announce one of the largest fiscal stimuli in the world following the onset of the corona pandemic. Mariana Mazzucato, writing in Foreign Affairs, contends that the government bailout was more for corporates than for ordinary workers.
She writes:
Rather than put in place effective payroll supports, as most other advanced countries did, the United States offered enhanced temporary unemployment benefits. This choice led to over 30 million workers being laid off, causing the United States to have one of the highest rates of pandemic-related unemployment in the developed world. Because the government offered trillions of dollars in both direct and indirect support to large corporations without meaningful conditions, many companies were free to take actions that could spread the virus, such as denying paid sick days to their employees and operating unsafe workplaces.
The CARES Act also established the Paycheck Protection Program, under which businesses received loans that would be forgiven if employees were kept on the payroll. But the PPP ended up serving more as a massive cash grant to corporate treasuries than as an effective method of saving jobs. Any small business, not just those in need, could receive a loan, and Congress quickly loosened the rules regarding how much a firm needed to spend on payroll to have the loan forgiven. As a result, the program put a pitifully small dent in unemployment. An MIT team concluded that the PPP handed out $500 billion in loans yet saved only 2.3 million jobs over roughly six months. Assuming that most of the loans are ultimately forgiven, the annualized cost of the program comes out to roughly $500,000 per job.
Bailouts that benefit corporates are part of a larger problem in the US. The relationship between government and the private sector is flawed. The government supports basic research that benefits private corporates but the success of those corporates does not translate into any flow of income for the government or any larger public benefit:
The California-based company Gilead developed its COVID-19 drug, remdesivir, with $70.5 million in support from the federal government. In June, the company announced the price it would charge Americans for a treatment course: $3,120. It was a typical move for Big Pharma. One study looked at the 210 drugs approved by the U.S. Food and Drug Administration from 2010 to 2016 and found that “NIH funding contributed to every one.” Even so, U.S. drug prices are the highest in the world.
It is the same story with Silicon Valley companies:
The U.S. Navy did the same for the GPS technology that Uber depends on. And the Defense Advanced Research Projects Agency, part of the Pentagon, backed the development of the Internet, touchscreen technology, Siri, and every other key component in the iPhone. Taxpayers took risks when they invested in these technologies, yet most of the technology companies that have benefited fail to pay their fair share of taxes.
Mazzucato argues that the relationship between government and the private sector must be set right: socialisation of risk and privatisation of profit is untenable. If the government funds pharma research, this must be reflected in the funding of pharma products. If the government provides financial support to start-ups with guaranteed loans and the like, it must benefit from the upside to these companies.
She moots the idea of a citizen's dividend, as distinct from a universal basic income. Wherever the state supports private initiative, it must be entitled to the benefits that flow from the initiative. The state can then the share the wealth that accrues to it with all citizens.
This is a terrific idea. Much of private wealth creation rests on a support system created by the state, whether through land given at a concessional price, tax benefits, public investment in research, guaranteed loans, etc. Wherever there is a subsidy built into wealth creation, the state must get a share of the proceeds. The same goes for companies that are bailed out by public funds.This is not to be confused with taxes that are applicable even where no special dispensation is given by the state.
Do you see any of these ideas in the debate between Trump and Biden?
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