Constructing a greater globalization
Trade barriers and immigration restrictions cause great collateral damage; such “cures” are worse than the disease. If economic nationalism is not the answer, what is it? We need better policies to support workers and communities, as well as real tax reform that ensures that the gains from economic growth are more widely shared. We also need to modernize the tax system to adapt it to our global, technologically advanced economy. Beyond these steps, we need to rethink society’s partnership with business. Our aim should be to reconcile the needs of business with those of society and to recognize their interdependence.
We are at a crucial moment in our economic history. Thirty-five years of increasing economic inequality and wage stagnation have left too few Americans benefiting from economic growth. While GDP per person has risen sharply, median household incomes have fallen. This economic record has fueled economic dissatisfaction and the search for simple answers. The Trump administration’s response has been primarily to blame our trading partners and immigrants, and to put up barriers and walls.
But I believe nationalist economic policies are dangerous for both peace and prosperity. Trade barriers and immigration restrictions cause great collateral damage; such “cures” can be worse than the disease.
If economic nationalism is not the answer, what is it?
In my book, Open: The Progressive Case for Free Trade, Immigration, and Global Capital, I argue that we need better policies to support workers and communities, as well as real tax reform that ensures that the gains from economic growth are more widely shared. We also need to modernize the tax system to adapt it to our global, technologically advanced economy.
Beyond these steps, we need to rethink society’s partnership with business. Our aim should be to reconcile the needs of business with those of society and to recognize their interdependence. Today’s declining confidence in the economy is largely a symptom of its role in disappointing economic outcomes such as wage stagnation and income inequality. Of course, most business leaders recognize that trade barriers and immigration restrictions are not good policy answers. So how can companies contribute to a healthier economy, where the interests of business are more aligned with those of society in general?
I see five focal points to improve the partnership between business and society. Overall, this package should be able to receive considerable support from business. If corporate America is to maintain its legitimacy, it has a role to play in introducing these reforms.
Open Economy Advocate. Businesses rely on global supply chains to compete in the global economy. International capital markets are an important source of funding. Welcoming immigration policies provide both important sources of entrepreneurial talent and skills that are scarce in the US workforce. That is why many companies loudly reject protectionist rhetoric and politics.
However, business leaders need to better relate their arguments to the common good. Ultimately, an open economy is also in the interests of most employees. Tariffs create new sources of labor market shocks; If steel prices rise due to tariffs, someone at a US company that uses steel as a raw material could lose their job. When trading partners take revenge on our tariffs, American farmers will be hurt. For consumers, tariffs are regressive consumption taxes – they make products more expensive and reduce workers’ purchasing power. Finally, lower immigration flows mean fewer business new hires, less innovation and growth in the United States, and a higher demographic burden due to the aging of the population. These are arguments that companies have to put forward.
Follow fair regulations. Regulations are important to ensure health, safety and environmental protection. But they should also be constantly tightened and improved to meet the needs of society, as was the goal of previous initiatives such as “Reinventing Government” during the Clinton administration. In some places, green taxes can replace regulations. For example, a carbon tax encourages both conservation and innovation in alternative energy sources while providing price signals for companies that they can easily understand and respond to. Tax revenue from this source enables lower tax rates elsewhere in the system. Companies will continue to lobby and provide information on how regulations affect their business. However, when they attack regulation in general or overestimate the harms of regulation, they damage their reputation as a productive partner in society.
Pay a fair share of the taxes. The corporate tax cuts from the latest tax law of 2017 (known as the Tax Cuts and Jobs Act) were too big to be affordable; Both Republicans and Democrats had previously proposed more responsible revenue-neutral reforms. However, given the new starting point created by the 2017 law, we need to raise taxes on the economy. As a starting point, I would suggest removing both the continuous income deduction (which artificially skews investments in all sectors) and our international tax rules (which favor both profits and investments in low-tax havens compared to the US). Closing loopholes can increase revenue without resorting to excessively high rates.
I also propose more transparency on taxation and, in particular, a sunshine tax report requiring companies to share the basic aggregates (sales, employment, income and taxes paid) with the public in each country and state in which they operate. Businesses are reluctant to share this information, in part because they have embarrassingly high revenues in tax havens. But this is precisely why such disclosure is important. By providing investors, consumers, and workers with information about corporate tax practices, it serves as a market-friendly push to view tax payments as a social responsibility, not just a cost that should be relentlessly minimized. The sunshine tax reports would be available to all interested parties on a uniform, annual basis and reported on a government website.
Submit a sunshine work report. Similar to the tax report I proposed, a Sunshine Labor Report would require companies to publicly report information about the wage structure and employee representation. This could include information on managerial salaries, the distribution of salaries across the company, and methods of work integration such as employee participation or employee representation on boards of directors. (Some measures in this direction, such as employee-CEO pay disclosure, were a requirement from Dodd-Frank.) Again, this is a market-friendly nudge that would give companies reputational “cover” if they wanted to make life better of their workers as consumers, investors and potential workers would pay close attention to the reports. Even if companies could oppose such transparency, they would certainly prefer it to more intrusive regulations that directly cap executive salaries or restrict companies from hiring and firing decisions. (Of course, changes to labor law are necessary in some areas to enable employees to plan working hours and to adapt to changes such as the “gig” economy.)
Rethink antitrust law. There are many indications of increased corporate concentration in all sectors. The corporations’ market power is increasing and the corporate sector has increased its share of total savings by around 30 percentage points. Antitrust laws have often focused on the effects of market power on consumers, but antitrust laws should also focus on how market power affects labor markets and innovation. Protective mechanisms such as the Consumer Finance Protection Bureau should be expanded, not weakened. Businesses can play a role in these reforms; Small and medium-sized companies should participate in the discussion about increasing market power and industry concentration.
As a package, these five ideas strike a balance between the needs of society and the needs of business. I understand that many of these ideas are tenaciously opposed by members of the business community. But businesses benefit from an open economy, global market access, a productive workforce, affluent consumers, inclusive economic growth, and simple, fair regulations and taxes. In return, society benefits from less tax avoidance (and more taxes from some companies), more tax and labor transparency, more support for employees, necessary regulations and robust antitrust laws. If American corporations want to avoid a turn to more harmful policies such as protectionism and excessive regulation, they must be partners who can compromise.
Ultimately, it is important to recognize that the interests of society and business often coincide. Everyone can benefit from an open economy with an economically sound middle class and strong and stable institutions.
This article is from Open: The Progressive Case for Free Trade, Immigration, and Global Capital.