Wednesday, February 1, 2012

Society of Jealousy or Society of Justice?

It is a well documented fact that human beings, and many animals, have since early childhood an ingrained sense of justice. Chimpanzees as well as year old babies are readily capable of discerning whether they’ve been cheated or not. Give a chimp or a baby less food than their companion, and they are likely to react in unambiguous ways that this is not “ok”. Moreover, studies have found that both chimps and human babies also are inclined to want thieves to be punished – even if they themselves were not the one stolen from. And therein lies a problem.
In Switzerland, as in much of Europe, one often encounters talk of a “society of jealousy”. This term is applied to the public outrage at the large bonuses, golden parachutes, and financial and taxation acrobatics available only for the privileged few (interestingly, however, only few seem bothered at the horrendous incomes of athletes or other celebrities…). The basic premise is that this outrage is fueled primarily by jealousy and that could the rest take advantage of the same benefits, they would do so without any qualms. Consequently, this resentment is unwarranted. This logic is commonly held by much of the wealthy elite and many economists who view human affairs solely through the lens of “rational economics”.

A concrete example of this is Switzerland’s lump sum taxation practice. This is where a very high net-worth individual goes to a Swiss Gemeinde (County) and negotiates a special income tax significantly below the usually applicable rate. Thus you have billionaires who pay a pittance of their annual income in tax when compared to the average working citizen in the same Gemeinde.
In an indignant article in the Neue Zürcher Zeitung (17. Feb. 2010), Charles Blankart, then professor of economics at the Humbolt-Universität zu Berlin, made a strong case for the economic logic of such lump-sum taxation for the wealthy and lamented this “society of jealousy”. He grounded his argument in the fact that such taxation policies make perfect rational sense for the Gemeinde (as otherwise they would forego the watershed of money the billionaire would bring in) as well as the notions of competition and liberty, i.e. that each Gemeinde should be free to choose how to manage its own finances and compete with other Gemeinden. He called this with some haughtiness “Economics 101”.

Now, the problem with such a conception of economics is that it completely misses the point that human beings don’t function according to what used to be (change is on the way!) taught in “Economics 101” and that structuring our society only on such a hypothetical economic model has a plethora of nefarious side-effects.
First, what we observe in Switzerland and much of Europe is not the outcry of a “society of jealousy” as much as the outcry of a “society of justice”. Our deeply engrained sense of fairness gets systematically trampled on by taxation policies as are commonplace in Switzerland (and elsewhere!) today. Second, while such taxation policies are by all means “rational” from a purely financial standpoint of a single Gemeinde, they are highly corrosive for the trust citizens have in a democratic, law-prescribing republic.

This lack of trust in the legitimacy of the laws of the state then sooner or later manifests itself in the (mis-)behavior of its citizens, so that for example income from clandestine work remains undeclared or cheating on your tax returns is readily justified: “If the rich get to cheat, why not also the rest of us?”. At the end of the day, such policies and the cynicism they create undermine the very foundations of a functional collective as any modern democratic state is. And at a later stage, it brings out the worst in us: an “everybody for him or herself society” and a society where not just justice is demanded, but increasingly also punishment.
Because at the end of the day, we are all still driven by the same evolutionary levers as we were as babies and as our relatives the Chimpanzees are.

In my next blog post I will attempt to delve into the great mystery of why this “society of justice” seems to be remarkably absent in a large portion of the American population when it comes to politics: I doubt that Mitt Romney and his 13.9% income tax rate makes much of a dent in his popularity among his base of Republican voters – even if they are amongst the economically struggling.

Manuel Heer Dawson

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