Wednesday, June 22, 2005

BBC - Rebate

EU, and, for that matter, the world, should raise taxes and transfer money to well chosen points in economy. Those taxes can be on income, individual or GDP, or GNP, or on the value added, or on property, or a combination of these, and should show equal tax rates among nations. The transfers should go in several important places, not all of them to agriculture.

Politically, there should be, let's say, three elected rooms, one with representatives proportional to population, another proportional to GDP, another proportional to income per capita. It is important to allocate political decisions among these rooms in a way that protects lives of people (unbearable decisions are not made) and still initiatives are followed. For example, in US, the Senate can defend, to some extend, the interests of smaller states, which are less represented in the Congress.

First of all, there should be transfers to the individuals, rather than agriculture. Then, there should be macro motivated transfers, to initiate projects that would not spring from private enterprise.

As a rule, Europe went wrong. Continental Europe made bad decisions, like small inflation for euro, during a recession, and UK has not proposed anything sensible (even though they could, coming from a healthy capitalist economy and a good school of economics), while it preferred to stay out of the game. All players lost. Another problem with euro is that there was no provision for fighting recession on small regions, since national currency inflation was no more possible. For example, there could be regional tax reductions (rebates) or money transfers.

Another obvious problem is the complete lack of feedback to and control of the EU administration. Top officials gained financially and politically from the increase in value of euro while they were cutting social aid in EU countries. The Constitution draft provided indeed institutions for a more efficient production in EU, but when I looked on the Internet I had a surprise: the social assistance was to be provided according to whatever national law is in place. First of all, the Constitution is above the national laws, so the five lines chapter could have been missing altogether, and secondly I could not find any link for a comment, feedback, or forum on the official page containing the Constitution draft. Better control systems of the EU administration could use IT technology and Alvin Toffler's proposals in his book "The Third Wave".

It would be a good idea to reduce subsidies for agriculture in Europe, while passing the money saved to the poor. That should allow for higher quality and diversity of food on the market, and higher standard of living for most people. However, in places where bureaucracy and justice are costly (inefficient), one could expect big companies taking over small farms, in spite of the fact that new technologies make small farms economically feasible. Big companies and big bureaucracies make good friends. Still, a small and gradual reduction in subsidies for agriculture should be tried, I think, provided that the money saved from this go to the poor to make up for the inevitable increase of prices for food.