11 December 2018

Piketty’s plan for Europe would mean more power to the politicians


The diagnosis is a familiar one: Europe is divided, besieged by populists, undercut by feckless tax-dodging corporations and crying out for reform, growth and prosperity. Such is the malaise, our cousins across the water have taken to burning Parisian cars in sheer frustration.

Into this apparently hopeless vacuum has stepped a group of politicians, academics and policy wonks spearheaded by ‘rock star’ French economist Thomas Piketty, who have put their names to a new Manifesto for the Democratisation of Europe.

The idea is to reclaim Europe’s politics not only from insurgent populist movements, but also from free marketeers who think that, to quote Piketty, “hardcore liberalism and the spread of competition are enough to define a political project”. And Gordon Brown is a signatory — so you know it’s good.

For the most part, the manifesto reads like a souped up version of the kind of policies we’ve heard time and again from leftwing politicians. Indeed, much of what has been published today reheats ideas Piketty trailed in 2014, when he suggested that “a sovereign European authority needs to be given the power to establish a common tax base that is as broad as possible and strictly regulated”.

That these are the same old non-solutions won’t matter a jot to his fans, who see Piketty as some kind of sage thanks to his wildly popular book Capital in the 21st Century, which postulated that returns on capital outpace the rate of economic growth. His proposal at the end of that book was for a global wealth tax, so he’s got form when it comes to sweeping pan-national state intervention.

The details of today’s ‘manifesto’ make Labour’s Marxist Shadow Chancellor John McDonnell look like a moderate centrist.  Where Labour advocate putting corporation tax back up to 26 per cent, Piketty and co want it hiked to 37 per cent. And while we Brits spent plenty of the Coalition years discussing whether income tax should be 45p or 50p in the pound, the Manifesto goes all guns blazing for a 65 per cent top rate – though only for those earning above 200,000 euros a year.

And, much like Labour’s 2017 manifesto, all this extra cash will simply come from Evil Corporations and the rich, so the masses will remain unaffected – except if those companies compensate for higher taxes by raising prices and holding down wages. Nor do the authors seem concerned that raising corporate taxes will have a dampening effect on investment or growth, which is one of the core problems the Manifesto seeks to tackle in the first place.

In combination, these measures are projected to raise 800bn euros, equivalent to four times the current EU budget. Don’t worry though, the authors are not after a “transfer payment Europe”, so almost all the money member states raise would be returned – it’s just member states won’t necessarily be the ones deciding how it’s spent.

This seems a very strange way to proceed. As Guntram Wolff of the Bruegel think tank observes, if the scheme does not involve transferring funds from richer member states to poorer ones, and is instead more or less cost neutral, why bother doing it at a European level at all?  “Anything we would do at the euro-area level would mean doing something less at the national level and that is politically why it doesn’t happen,” he observes, correctly.

Instead, that will be the role not of the European Parliament but of a brand new European Assembly tasked with doling out the dosh. Perhaps the Assembly could sit in the entirely pointless second European Parliament building in Strasbourg – that would at least have the merit of cutting construction costs.

Piketty and co are right to say that Europe is in a “technocratic impasse” and in dire need of democratisation. But rather than returning power to where it ought to reside, national parliaments, the proposal for a new Assembly simply adds yet another layer of bureaucracy to a project already mired in its own byzantine structures.

And If we assume for the sake of argument that the projections hold and these taxes do indeed raise 800bn, that amounts to some four per cent of European GDP. Whichever way you slice it, that would be a huge transfer of power, not from the rich from the poor, but from taxpayers to politicians. While the word ‘federalise’ does not feature, Piketty says his proposals would “foster convergence between countries”, which sounds awfully like trying to force a one-size-fits-all model on Europe.

Despite being a document proposing radical change, the Manifesto is awash with the kind of platitudinous Euro-speak we’ve become all too used to. Pan-European taxes, we are told will help create a “solidarity-based economy” of “fair and lasting social development”, whatever that means. In reality, this kind of plan would entrench a particular brand of social democratic politics at a European level, weakening the role not just of national parliaments, but of the very citizens Piketty and his colleagues claim to be concerned with.

Then again, Piketty himself doesn’t even seem that sure these ideas are up to much. At one point in the Guardian article he utters the immortal line… “Our ideas may not be perfect, but they do have the merit of existing.”

Not perfect is putting it generously. Whatever Piketty’s credentials as a professor of economics, his political radar seems to have misfired badly.

The idea that Europe’s citizenry are crying out for lots more government spending seems fanciful. It can’t have escaped the Frenchman’s attention that his compatriots are literally rioting in the street at the moment over the cost of fuel. Try telling a gilet jaune that the route out of their disgruntlement is with a carbon tax and more money to integrate migrants.

There is precious little to say about the cost of living, aside from a line that the changes could give “some budgetary leeway to member states to reduce the regressive taxation that weighs on salaries or consumption”.

Add to this the well-worn economic argument that very high taxes do not lead to higher revenues, and the package starts to look flimsy at best. Take corporation tax, for instance. We need only look at the UK, where the Treasury takes in more corporation tax with the rate at 17 per cent than it did when it was 26 per cent.

The saving grace of this set of proposals is, hopefully, that it’s too threatening to existing European power structures to be taken remotely seriously. After all, which MEP worth their salt will sit idly by while their chamber is usurped by a new European Assembly? And usurped it would be – the preamble to the Manifesto explicitly states that “in cases of disagreement, the assembly would have the final word”.

Nor would many heads of national governments be willing to endorse proposals that involve big tax hikes, only for that money to be spent at a European level. The authors also insist, without any apparent irony, that this “democratising” set of changes could be pushed through without any changes to the European treaties, which may be technically true but would surely be an impossibly hard political sell.

It’s not enough, however, for free marketeers to complain from the sidelines about the ineffectiveness of tax and spend social democratic solutions. Economic liberals must make their own case not just for a more dynamic economy, but for one that actually empowers and enriches people. Fundamentally, that must involve returning powers and responsibilities to member states, rather than responding to every crisis with calls for “more Europe”.

John Ashmore is Deputy Editor of CapX.