Lees hier het pdf van dit artikel. The European Union is often perceived as an anomaly in international law and relations. Whereas once sovereignty was one and undivided, the European Union has developed its own model of governance beyond the Westphalian system of international relations. By Jaap Hoeksma In Europe in the Storm, the outgoing President of the European Council Herman van Rompuy gives a detailed account of the efforts of the EMU member states and the EU institutions to save the euro. More than just an insiders’ tale, his story may have reverberations beyond daily politics. From a philosophical point of view, the book can be regarded as a deliberate confirmation of the new paradigm in international law and international relations that the EU is bringing about. This paradigm shift originates from the distinctive approach to the concept of sovereignty that the EU and its predecessors have introduced. Whereas the system of international relations that underlies the organisation of the United Nations is based upon the principle that sovereignty is one and indivisible, the EU embodies the idea that states may share the exercise of sovereignty in order to achieve common goals. Traditional sovereignty The UN model of international relations came into existence after the 1648 Peace of Westphalia, which brought an end to the Eighty Years War between Spain and the Netherlands and to the Thirty Years War in Germany.1 Before that time, in the Middle Ages, sovereignty was blurred and cities introduced their own coins and currencies. Against that background, authors such as Jean Bodin (1530-1596) stressed the need for clarity in the public domain. States were to become the dominating entities in the organisation of Europe and the world at large. This traditional presumption that state sovereignty is absolute also has major implications for the system of international financial relations.2 In the prevailing approach, currencies must be backed by states, which are the sovereigns behind the currency. States have the prerogative of raising taxes within their territories; they have “deep pockets” and are therefore able to support their currency whenever needed. Debts owed by states are described by the markets as “sovereign debts”. According to the traditional theory, a currency without a state is doomed to fail.3 In this paradigm, sovereignty has an internal and an external aspect. States are free to enact their own laws; they don’t have to recognise a higher authority, be it Pope or Pontiff. Sovereign statesare also free to determine their own form of government.In the 19th and 20th century, Europeanstates increasingly developed into democracies and subjects became citizens, protected by the rule of law. As a result of this progress, it was assumed that the concepts of democracy and the rule of law could only thrive within the boundaries of a national state. In foreign affairs, states dealt with each other on equal footing. They had to refrain from interfering in each other’s affairs and had to respect the integrity of each other’s territories. While the relations between states belonged to the domain of diplomacy, war was regarded as an acceptable means of conflict solution (“bellum iustum”). Actually, the conduct of war forms an integral part of the Westphalian system of international relations. This state of affairs was highlighted by the Prussian general Von Clausewitz, who argued in his book On War (1832) that war is the continuation of diplomacy by other means. New concept of sovereignty The process of European integration, which was initiated after the two World Wars of the 20th century, may be regarded as a careful attempt to overcome the deficiencies of the traditional system. Sixty years onwards, European states and citizens are still trying to come to terms with both the intended and the unforeseen consequences of their common endeavour. Obviously, the initial goal has been achieved. The Nobel Prize for Peace was awarded to the EU in 2012, but it could also have been granted to the ecsc in the fifties. By sharing the exercise of sovereignty over coal and steel, the member-states of the First European Community succeeded in establishing lasting peace amongst themselves. By deviating from the classical model of international relations, the founding states of the eu demonstrated that they had ceased to regard war as an acceptable means of resolving conflicts. In line with the suggestions of the German philosopher Immanuel Kant, war was replaced with the rule of law.4 In his writings, Kant also formulated the thesis that states wishing to cooperate in order to avoid war have to either form a confederation of states or merge into one federal state. Consequently, a debate between the proponents of a federal Europe and the protagonists of a “Europe des Patries” has been raging on for half a century. After the rejection of the ill-fated Constitution for Europe in 2005, however, it became clear that the EU was neither to be a federal state nor to remain a confederation of nation states. Consequently, the EU found itself at a theoretical impasse. This existential dilemma was aggravated by the outbreak of the financial and sovereign debt crisis in 2008, which threatened to undermine the very existence of the single currency. The domino theory, floated by critical commentators at the height of the crisis, held that if the euro was to fall, the EU would collapse as well. Eurosceptic politicians and influential newspapers, notably the Financial Times, have been advocating a return to “Westphalia” ever since.5 From a theoretical perspective, these combined crises have led to an increasing awareness that the EU can no longer be explained in terms of the Westphalian system of international relations.6 The experiment with the joint exercise of sovereignty is resulting in the emergence of an unprecedented polity of states and citizens.7 Within the limits of the prevailing paradigm, it is impossible for such a polity to exist. However, taking into account that it has been the very intention of the founding fathers to overcome that out-dated system, a vocabulary should be developed with which the EU and the EMU can be described in a coherent manner.8 In doing so, it should be acknowledged that the novelty of the EU lies in the application of principles of democracy and the rule of law to an international organisation. In the old approach, it is theoretically impossible for international organisations to function in a democratic manner. The breakthrough achieved by the eu is that it has effectively removed this philosophical obstacle. A common democracy This conclusion paves the way for the submission of an entirely new hypothesis. The new proposition holds that, if democratic states decide to share the exercise of sovereignty in order to achieve common objectives, the Union which they establish for this purpose, should be democratic too. This suggestion is underpinned by the 2009 Lisbon Treaty which demonstrates that the EU does not only consist of democratic states, but also aspires to function as a democracy in its own right.9 The kind of democracy which the EU constitutes may be described with a new term as a “common democracy”.10 In the classical system, a common democracy would be an anomaly. In the new approach, however, the term is meant to characterise the EU as a polity of states in which the citizens are entitled to participate both in the national democracies of their countries and in the common democracy of the Union. In the same vein, this approach sheds fresh light on the functioning of the common currency of the Union. Whereas the euro is described by advocates of the old model in negative terms as a currency without a state, the new perspective allows for the common currency to be described as a currency beyond the state. The EU and the member- states of the eEMUmu may now be regarded as the joint sovereign behind the euro.11 Replacing outdated paradigms with new models of thought is a tedious process which requires patience and perseverance. From this perspective, the importance of Van Rompuy’s book is that it shows in detail how the evolution of the euro from a currency without a state to a currency beyond the state has taken place.12 He accentuates that the decision of the European Council at the summit of June 2012 to establish a banking Union gave the President of the European Central Bank sufficient ground for making his famous statement that “he would do whatever it takes to save the euro”. The markets believed him indeed and that signalled a return to normality. The emu member-states and the eu institutions had publicly demonstrated that they regard themselves as the joint sovereign behind the euro and that they are determined to act accordingly. Draghi described the decision of the European Council as a “game changer”.13 Obviously, one game changer doesn’t account for a paradigm shift. The combination of measures taken by the European institutions during the financial crisis in order to save the euro certainly does. In conclusion, it may be recalled that the process of European integration has been dominated from the start by the dilemma of whether it should result in the creation of a federal state or in the establishment of a confederal union of states. Even today, some politicians plead for the construction of a United States of Europe while others prefer to portray the EU primarily as a free trade zone. This debate about the end goal of European integration has had a paralysing effect on the European Council and the eu as a whole. The paradox of the finalité politique that emerged implied that progress could only be made if and as long as the end goal remained unspoken.14 The most important conclusion that may be drawn from Van Rompuy’s account is that the EU has liberated itself from this perennial dilemma. The EU is neither a federal state nor a confederal union of states. Instead, the European Union has developed its own model of governance beyond the Westphalian system of international relations. The essence of the new model is twofold: states can share the exercise of sovereignty without losing statehood at the same time as enjoying the benefits of a common currency without having to merge into a federal state.   Jaap Hoeksma is a philosopher of law and the director of EuroKnow. He is also the creator of the board game Eurocracy.   Heeft dit artikel uw interesse gewekt? Klik hier voor meer info en abonnementen.   Notes 1 Brinkhorst, L.J. (2008). ‘Europese Unie en nationale soevereiniteit’, Universiteit Leiden. See also Cooper, R. (2003). The Breaking of Nations – Order and Chaos in the Twenty-first Century. New York. 2 Lastra, R. (2006). Legal Foundations of International Monetary Stability. Oxford University Press. 3 Padoa-Schioppa, T. (2010). ‘Markets and Governments Before, During and After the 2007-20xx Crisis’, Per Jacobsson Lecture. Basel: Bank for International Settlements. 4 Kant, I. (1796). Zum Ewigen Frieden. Köningsbergen. 5 Stevens, P. (2011). ‘Europe’s Return to Westphalia’, Financial Times 23 June 6 Curtin, D.M. (1997). Postnational Democracy. The European Union in search of a Political Philosophy. The Hague. 7 Gerven, W. van (2005). The European Union: a polity of states and peoples. Stanford. 8 Dickson, J. and Eleftheriadis, P. eds (2012). Philosophical Foundations of European Union Law. Oxford University Press. 9 Bogdandy, A. von (2011). ‘The European Lesson for International Democracy: The Significance of Articles 9-12 EU Treaty for International Organizations’, EJIL Vol. 23 no.2 10 Hoeksma, J. (2013). ‘Back to or Beyond Westphalia’, Blog on the website of the Peace Palace Library, www.ppl.nl 11 Hoeksma, J. and Schoenmaker, D. (2011). ‘The Sovereign behind the Euro’, in: idem, A polity called EU, Nijmegen 12 Cf. Riet, A. van, (2014). ‘The future of the euro at 15; rounding the corners of the holy trinity?’ Tilburg University and European Central Bank 13 Rompuy, H. van (2014). Europa in de storm, Dutch edition, p.22 14 Rood, J. e.a. eds (2008). Nederland, de EU en het Verdrag van Lissabon. Clingendael Institute The Hague. – – Dit artikel verscheen in idee nr. 6 2014: A Divided World, en is te vinden bij de onderwerpen Europese Unie en internationaal.Lees hier het pdf van dit artikel. By Adjiedj Bakas Worldwide the concern about rising inequality is growing. When asked by the Pew Research Center what problem forms the biggest threat to the world, 32 percent of Europeans and 27 percent of Americans mention rising inequality. For the rest of the world this is 18 percent. The Global Attitudes Survey 2014 reported a comparable outcome: together with the problem of religious and ethnic hatred, rising inequality is seen as the biggest threat to the world, with 24 percent of respondents mentioning it as their top concern. The statistics about rising inequality in our societies are well known: in 1973 the richest 1 percent of American society earned 25 percent of the generated wealth; they now earn 40 percent. The popularity of Thomas Piketty’s magnum opus Capital in the 21st Century is not a surprise. To me, inequality per se is not the problem. To some people a world where everybody earns exactly the same would be a paradise. Not to me. I think God abolished paradise because it was too boring. Of course there is one large “but”. Inequality is only ok when rising on the social and financial ladder is open to everybody. In recent years this has not been the case, mainly because elites had the disproportionate advantage of the globalisation of our economies and the deregulation of our financial markets. In the olden days, when an entrepreneur made a lot of money with his business, he spent his wealth by employing construction workers who built him a new house. He gave parties, and thereby brought work to the bakers and wineries in town. He employed gardeners, cooks and other employees who, by earning a livelihood, benefitted from the wealth he gathered. Nowadays elites cream off their profits and stick the newly accumulated wealth in bank accounts and in warehouses. In Switzerland old bunkers are now used to store their expensive wines and whiskeys, their gold bars, jewellery and the like. There are more paintings by famous painters stored away in places like the Swiss bunkers then there are hanging in museums. This way, the created wealth is extracted from society and nobody benefits from it anymore. The constant introduction of new, disruptive technology is also a very visible reason for the growing inequality in the world. Technological innovation has always been a driver of economic growth – it makes production more efficient and cheaper, and thereby creates wealth. It has been like that since the industrial revolution. But now technological disruption is piled on technological disruption. Companies and society at large do not have the chance to find a new equilibrium, because after the disruption there is no longer a stabilization of the new situation. One of the effects of is that the wealth created by new technology is only accessible to a small group of privileged: the disruptors, the minds behind the new technology, be it the inventors and implementers or the investors. We see that with a company like Whatsapp. In February 2014 the company was bought by Facebook for $19 billion, it has 600 million users and employs only 55 people! The profits are not distributed among thousands of workers but shared between the 55 employees and the shareholders. With these changes, worldwide unemployment surges, wages stagnate or drop and productivity and corporate profits rise. These visible indications that we live in a time where abundance is not distributed in a fair way explain the popularity of Piketty’s book. People think that the cause of this inequality must be in the working of our financial-economic system. So they turn to the theory of economics, to better understand what is wrong with the world today. Another reason for Piketty’s popularity is the emancipation of the masses. People nowadays accept less than they did twenty, thirty years ago. It is a revolutionary time, and Piketty’s book is like a weapon that people add to their arsenal, to fight the injustice they experience but do not yet understand; they fight to overcome the hell of not having a fair chance.   Adjiedj Bakas is a Trendwatcher, author and speaker   Heeft dit artikel uw interesse gewekt? Klik hier voor meer info en abonnementen. – – Dit artikel verscheen in idee nr. 6 2014: A Divided World, en is te vinden bij de onderwerpen kansengelijkheid en ongelijkheid.Lees hier het pdf van dit artikel. Democracy as we know it is a recent phenomenon that should not be taken for granted, according to Francis Fukuyama in his new volume on the political order. A compelling book in which he warns against the continuous risk of political decay, the process where political institutions become incapable of overriding basic human biological impulses towards corruption and nepotism. By Wouter Dol With the recent 25th anniversary of the fall of the Berlin Wall we might be reminded of Francis Fukuyama’s seminal 1989 essay “The End of History?” which stated that the end of the Cold War was the final triumph of liberal democracy over authoritarianism. It propelled the American scholar to world fame – and also into controversy, especially due to his affiliation with the early neoconservative movement in the United States (from which he later forcefully distanced himself). A quarter century later he presents us with the second volume of his vast scholarly project to tracé the development of political institutions to the emergence of liberal democracy. In Political Order and Political Decay: From the Industrial Revolution to the Globalisation of Democracy he very thoroughly analyses why some countries become consolidated liberal democracies and others not. Fukuyama builds on the framework he presented in the first volume of this mammoth project: The Origins of Political Order: From Prehuman Times to the French Revolution (2011), which consists of focusing on three types of political institutions that have evolved over time: the state itself, the rule of law and democratic accountability, or the process by which leaders are answerable for their decisions. This evolution of these political institutions, Fukuyama emphasises, is remarkable since it goes against the basic human biological urges for “kin selection” – our preference for people with the same DNA (i.e. family), and for “reciprocal altruism” – the inclination to exchange repeated favours with others around us (i.e. friends). When institutions are able to provide the right incentives, we are more able to do things such as hiring a competent stranger over a cousin, or making a shift from patrimonial states run by leaders as private enterprises to impersonal states that safeguard the wellbeing of their citizens and neutralise elite interests. Nevertheless – and perhaps triggered by his disappointment that liberal democracies have not spread quite as fast as he had hoped in 1989 – Fukuyama laments the large differences that exist between contemporary states in delivering basic services and in controlling corruption, and that many states are still doing quite badly. Since he asserts that a political system resting on a balance between the three institutions of state, law and accountability is both a practical and a moral necessity for all societies, he now poses the question of how other countries will be able to “get to Denmark”? Not to the actual country, but to a prosperous society where this balance exists. In the first part of the book, he analyses the political development of several countries that were exposed to rapid industrialisation and comes to the conclusion that the sequence in which political institutions evolved matters greatly. Most importantly, the manner in which states reformed their bureaucracies relative to opening up to wider democratic contestation proves to be essential. When democracy arrives before strong institutions and a basic rule of law, politics will almost inevitably be captured by clientelism, where politicians provide individualised benefits only to political supporters in exchange for their vote or other favours. Greece and Southern Italy serve as examples of Western states that remain to this day marred by corruption, patronage relations and clientelistic politics. In these countries, the rule of law never consolidated due to low levels of trust in government and democratic accountability arrived before a strong state could ascertain itself. Likewise, the American political system, which began with a strong focus on restraining executive power combined with the Founding Fathers’ thinking on basic rights, freedom and democracy, actually created an intricate system of clientelistic political parties that dominated appointments to the bureaucracy. It therefore took significant effort and external events to ensure that an independent and professional public service eventually emerged in the mid-20th century. Fukuyama thus rightly ascertains “No country, the United States included, ever leaps to a modern political system in a single bound.” In the second section of the book Fukuyama continues to show how this also holds for states that emerged out of colonialism. Here, Western thinking and institutions were transplanted into foreign lands, often replacing indigenous political structures. Leaving aside geographical and climatic influences, the differences experienced after decolonisation between countries in Latin America, East Asia and Africa were mostly determined by the level of indigenous state capacity that existed before the arrival of Europeans and the colonial powers’ level of commitment to building strong local institutions. Continuing on this topic, the third section focuses on why democracy managed to evolve and spread. He refers to Huntington’s Third Wave of Democracy, or the growth in the number of (electoral) democracies from 35 to 120, some 60% of current states, between 1970 and 2010. He points to the central role that mass political parties have played in mobilising social groups and in advocating shared interests, rather than providing shortterm favours under clientelism. Also, industrialisation, or rather the emergence of an urban working class instead of more conservative agrarians, seems to have been a important impulse in adopting democratic practice. Relevant for the discussion on inequality is the role Fukuyama gives to the middle class. This class emerged during the Industrial Revolution and was an essential driving force in promoting democracy and the modern state because they wanted to protect their assets from elite predation (push for the rule of law), and to increase their voice in decision-making (push for democratic accountability). When middle classes are squeezed, there is a risk of elites seeing more opportunity to capture control of the state and turn back democratic gains. In the fourth and final section he describes this regression process by the concept of political decay, and using the illustration of the contemporary United States. Describing the US as “a state of courts and parties” where the executive is weak and has to share decision making with parties in Congress and with judges that are used to enforce legislation instead of independent state institutions. He then describes the increased negative influence of organised interests groups (lobbyists) on effective governance, and concludes that the current democratic set-up in the US no longer relates to the reality on the ground and is decaying. Although Fukuyama remains a firm believer in the power of liberal democracy as a guarantee for the most optimal human development, his analysis of political decay in the United States contains important observations. The risk of re-patrimonialisation, or the weakening of impersonal institutions and the capture of the state by private interests, remains ever-present. This seems especially relevant for the European Union, which looks more and more like the US politically, and is also facing increased influence by organised interest groups on the legislative process. Fukuyama’s book is an incredibly well researched and rich narrative that is convincing about his basic model of political order. It is therefore an interesting and rewarding read. Although he claims that the book is backward looking and mentions he does not want to present any policy advice, this seems like a missed opportunity. If he indeed is the supporter of the spread of liberal democracies worldwide that he claims to be, some more direction seems appropriate. For instance, on how the active citizenship or inspired leadership that he mentions only as a side note might take root in contemporary weak states. Thus, the masterful work that Fukuyama presents in the two combined volumes is a highly readable bird’s eye view of human political evolution, but does not provide the roadmap for the massive challenge of getting everyone to Denmark.   Wouter Dol is Programme Manager at the Netherlands Institute for Multiparty Democracy (www.nimd.org).   Heeft dit artikel uw interesse gewekt? Klik hier voor meer info en abonnementen. – – Dit artikel verscheen in idee nr. 6 2014: A Divided World, en is te vinden bij de onderwerpen literatuur en staatsinrichting.Lees hier het pdf van dit artikel. Between thinkers and acts Libraries are full of enlightened theories about politics and governance and about justice and freedom. From Aristotle to Rawls, history is filled with thinkers who want to improve politics. But do politicians care for these abstract theories? Does the political thinker stand on the sideline or is he a valued advisor? Idee presents a series of interviews in which historian Coen Brummer interviews (liberal) political thinkers on the tension between theory and practice. This interview is the last in this series. By Coen Brummer

“The superficiality of current events is also their depth”

In his 1999 masters thesis Luuk van Middelaar (1973) was already sure that political ideas based solely on principles, and not on political reality, are not good political ideas at all. He therefore did not lock himself up at university after he graduated in history and philosophy but instead switched to politics. His entrance to the European political stage was accompanied by the publication of his thesis as the award winning book Politicide: de moord op de politiek in de Franse filosofie [Politicide: The Assassination of Politics in French Philosophy]. As a junior clerk in the Private Office of European Commissioner Frits Bolkestein he saw the difficulty with which prime ministers completed the negotiations on the first European Constitution in 2004. Van Middelaar then moved to The Hague, where he advised VVD leader Jozias van Aartsen. Here he saw that same Constitution die in the referendum of 2005. After the parliamentary elections of 2006, Van Middelaar turned his back on politics. He wrote a column for the newspaper NRC Handelsblad and he got his PhD at the University of Amsterdam. This resulted in the book The Passage to Europe: How the Continent Became a Union (Yale U.P.), an acclaimed and widely translated book on the formation of the European Union. In 2010, Van Middelaar began working as a speechwriter for Herman Van Rompuy, President of the European Council. What follows is an interview about philosophers who place themselves outside of politics and the European political game. Some philosophers go into politics with a specific agenda and are often disappointed. Did you enter politics more as a researcher? That’s right. I want to understand how politics works. If you get slapped in the face once in a while, you can get fed up with it, but that is just how politics works. Sometimes I see processes where political decisions are not based on the idea of a public interest; sometimes they are based on the sum of personal, political party and national interests – and then hoping for the best. Of course, I am disappointed for a while then, but this does not lead to an expression of public outrage. That doesn’t interest me. You once said that analytical political philosophers like Tocqueville and Machiavelli appeal more to you than normative philosophers such as Kant and Rousseau. People like Machiavelli and Montesquieu wrote wonderful books about political action. Although the former is often dismissed as a cynic, both had visions and ideals. Machiavelli had a vision about a united Italy, Montesquieu about the separation of powers. Before he wrote his book, Machiavelli had been the highest official of the Florentine state for fifteen years. He was a top diplomat, travelling constantly to negotiate, and had to run a whole administration. And at night he was reading Roman history. You can “taste” that political experience in everything he wrote. Montesquieu also had political responsibilities. Of course Tocqueville had no political experience when he wrote his first book, the one about America, but he travelled a lot and became a Minister later. Your book Politicide is also imbued with the idea that political philosophy does not accomplish much when it does not consider political practice. Politicide showed how it should not be done, even though, admittedly, I did not know yet how it could be done. The book is more of a polemic against a philosophical approach that depends wholly on a certain concept of man. It is about post-war French philosophers who were obsessed with Hegel’s notion of struggle: man only becomes free in a struggle of life and death. In this way, someone like Sartre could justify the misdeeds of evil regimes, but you also lose sight of some essential political questions. This also often happens with more “gentle” thinkers like John Rawls. His Theory of Justice is regarded as a twentieth-century masterpiece, though I do not really consider it political philosophy, more applied moral philosophy. Take, for example, Rawls’s famous thought experiment: “the veil of ignorance”. Put ten people in a group and pretend no one knows whether he is rich or poor, black or white, Young or old. And then let them think about what a just society is. This is really purely theoretical. Because it removes the basic problem of politics: how do we deal with differences! People generally know very well whether they are young or old, rich or poor, black or white. And therefore they have conflicts, different views, different values and interests. And politics is about organizing those differences. In that respect, I am much more inspired by Hannah Arendt. Then what is the value of normative political philosophy? Let me illustrate it with verbs. The normative philosophers see the world in terms of what should be. And that is indeed a relevant question, also in the real political world. But political decisions also revolve around what can be, what is possible, what must happen. In some situations a decision has to be taken under great time pressure because not acting is no option. I have seen many examples of that in recent years. During the euro crisis certain decisions had to be taken that people knew were not always one hundred percent well thought out because they had to be made very quickly. The Dutch minister of Finance Wouter Bos who bought the bank SNS REAAL over the weekend? Exactly. Or when 750 billion euros had to be found on a weekend to keep the euro zone together. This leads to a lot of criticism afterwards, from both economic and constitutional perspectives, who complain it is a shaky way of doing things. In some ways that is correct of course, but at such moments there really is no alternative: something must be done. When a country is about to go bankrupt, as happened with Greece, you do not first consult all stakeholders to come up months later with a Green Paper. Time pressure is a major factor in politics. Is that not a failure of academic political philosophy? No, it still is important to think about what is possible. There is definitely a place for academic philosophical thinking. Sometimes it can be very important and it can definitely have influence. But the drier types? To be honest, even I do not read them very often. I find them quite meaningless. Your career seems like it was planned in advance: you look for an interesting environment and write a book about it afterwards. In this way you alternate theory with practice. To what extent is this based on a grand design? It is mostly biographical coincidence. When I was 26 and wrote Politicide, my main goal was to continue my studies in Paris. Because of an idea for a thesis on economic power, I ended up with Bolkestein, who offered me an internship. I liked it so much there that I stayed and dropped the initial plan for the thesis. When I arrived in Brussels, the European Convention for an EU constitution had just started. As a junior clerk I could wander around freely there. That fascinated me, because it actually was about basic political philosophical questions. What are the relationships between countries? How does representation work? Is Europe a state or not? That trail eventually led to The Passage to Europe. Europe is the perfect case for a political philosopher. What did you learn in Brussels and The Hague? A young historian and philosopher with no political experience sees a lot of new things in the centres of national and European power. The Hague has been a better school for me than the European Commission was. I started in a very turbulent period. My first day was April 1, 2004, the day that party chairman Van Aartsen was hit by a car by an activist. In September, Geert Wilders left the party. In November, Theo van Gogh was murdered. Van Aartsen and VVD Member of Parliament Ayaan Hirsi Ali were also threatened. Immediately afterwards came the referendum on the European Constitution. There was a constant, simmering government crisis. I was brought to the VVD to think with Van Aartsen about liberalism at the beginning of the 21st century. But when I cycled to work in the morning, I did not know what I would do that day. There was always an urgent problem or crisis to solve or a leak to the press. The first months I was sometimes thinking: when are we going to do the real work? I had come there, after all, for that reflection on liberalism. But one morning on the bike I understood that this was the real work. This is political life in The Hague for the most part. Was that a disappointment for you? No. The superficiality of current events is also their depth. As I theorized later on, it is about the importance of unpredictability, of “Lady Fortune”. The famous “events, dear boy, events” of the British statesmen Harold Macmillan permeate each day in politics. The American historian John Pocock once described government as a “series of devices that deal with contingent time”. Politics is what a society needs to deal with change. Politics would hardly be necessary in a static society. But in a dynamic one, like modern Europe, you need a place where interests meet and are dealt with. The current criticism of politics is that it often is too pragmatic. Principles are supposedly thrown overboard quite easily. A politician with principles is obviously much more credible than one without. He or she can provide a beacon in turbulent times. If you want to effect change, than you have to point in the direction you want to go. In that way, people are presented with a vision, a prospect. Then you have to convince them. At a minimum you have to convince people that a certain decision is needed. Take for instance raising the retirement age. Everybody can understand that this might be necessary because of rising life expectancies. As Spinoza said: “Freedom begins with the acknowledgment of necessity”. It becomes more difficult, and hence more interesting, when you have to convince people without this necessity, if there are many possible paths and you have to pick just one. Then you need a story in addition to bare facts and arguments. This underlines the importance of political storytelling – and my love for it as well. The debate on Europe in the member states is often very principled. It is about sovereignty and identity. How do pragmatic European politicians deal with this? There is a strong tendency to de-politicize European issues but that does not always work. And that is perhapsfortunate. One of the major European issues for the coming years, both for them and for us, is British EU membership. Pragmatic and identity considerations come together and often collide on this particular issue. It is evident to most Brits that it is economically better for the uk to be part of the internal market. But there are also strong arguments against it that appeal to British identity and democracy. Last year, that tension crystallized in a speech by Prime Minister David Cameron – the famous speech in which he promised the British people a referendum on eu membership. This promise soothed the Eurosceptics in his party, but he wrapped the message in a convincing plea for eu membership. At the same time he threatened his partners that the eu had to change in order for him to advise a “yes”. A true balancing act! Coincidentally, President Van Rompuy gave a speech six weeks later in London, where he was one of the first to put words on the psychology of the situation. Everyone in Brussels can think of reasons why Great Britain is better off as a member of the EU. But the question is how you say that. Van Rompuy said at the time that a British exit would not only change their relationship with Brussels, but also their relationships with the 26 other Member States. He consistently spoke about the United Kingdom in Europe and not about the United Kingdom and Europe. He also stressed that the very fact that London mentioned the exit option was already changing its relationship with Europe. “How do you convince a room full of people, when you keep your hand on the door handle? How to encourage a friend to change, if your eyes are searching for your coat?” That phrasing hit a few nerves there.” How do you cope with the tension between form and content as a speechwriter? Your own ideas as a philosopher and the views of a politician may vary, but then his views must also be shaped into a proper speech. When Van Rompuy had to give a speech in small and impoverished Moldova that tension was very tangible. The European Union is very important there. He had to give his speech in a kind of leftover Soviet palace with a complete orchestra and a red carpet at the entrance. I felt tension as a speechwriter most deeply there because I knew that the audience only wanted to hear one thing: that membership in the eu was a prospect for their country. On substantive grounds that seems a bad idea to me. But as a speechwriter you want nothing more than to inflame the audience, and all that would have taken was a couple extra beautiful sentences about the prospect of membership. That time I really had to restrain myself! What exactly is your motivation to keep publishing during your political career? Machiavelli only actively began writing when his political career was over. I see myself as a writer. I am currently a political writer because I write speeches and texts for my profession. After this, I will go back to being a writer who writes about politics. These sides also reinforce each other. I believe that I write better books on politics because I have seen it from the inside. This gives me a better feel for the dynamic of the situation, for political relationships, for people’s interests. And if this also helps readers to get a better understanding of the political game, I think that is very valuable.”   Coen Brummer studied history and philosophy. In January 2015, his book Vuile Handen; Michael Ignatieff en andere politiek denkers over de strijd tussen ideëen en macht (Dirty Hands; Michael Ignatieff and other political thinkers on the battle between ideas and power) will appear at Elsevier Boeken.   Heeft dit artikel uw interesse gewekt? Klik hier voor meer info en abonnementen. – – Dit artikel verscheen in idee nr. 6 2014: A Divided World, en is te vinden bij het onderwerp interviews.Lees hier het pdf van dit artikel.

“We have to organise the intellectual acuity within our party”

On 1 November 2014, the Van Mierlo Stichting welcomed its new Chairman, Mr Jan Willem Holtslag. Idee spoke with him at length about the role of a think tank, the main challenges ahead of us, and his ambitions for the Van Mierlo Stichting. By Mark Snijder The invitation for an interview was quickly accepted. But the date had to be confirmed later, dependant on his schedule for taking care of his grandchildren. Although he is retired, Jan Willem Holtslag (66) is still a busy man, acting as a chairman and board member for various organisations. He has had a long career in government service. At the age of 27, he started working for the Ministry of General Affairs (the Prime Minister’s ministry). After twenty years, he moved to the Ministry of the Interior and Kingdom Relations, acting as a director general and, then, for the last eight years, as the secretary general, the most senior civil servant in the ministry. He finished his career at the Scientific Council for Government Policy (Wetenschappelijke Raad voor het Regeringsbeleid, WRR), where he led two research projects on the future of public administration and on labour migration in the European Union. His professional fields of interest are reflected in an impressive library in his apartment in the small village of Warmond. While talking, he often refers and points to certain books in various corners. This illustrates his approach to grounding political ideas on a thoroughly intellectual basis. How would you describe your own career? My level of curiosity is enormous. I read a lot and always try to be well informed. So I worked on many policy areas during my career. I graduated in political science, and after finishing my military service, I applied for a job at the Ministry of General Affairs. I stayed in government service for almost forty years. First I performed junior tasks, like taking notes at the council of ministers. I still benefit from that experience. After six months, I was assigned to the policy areas of foreign affairs, defence and kingdom relations. That position offered me fantastic opportunities. I participated in nato summits and joined the Prime Minister on his visits to three presidents of the United States. Later on, I was directly involved in the formation of new cabinets, including the one with D66 in 1994. And then I worked at the Ministry of the Interior, where I dealt with many issues of public governance and administration, safety and security. In sum, I feel privileged to have worked in such diverse spheres. In what ways have you been involved in D66? In 1966, on the day I received my student grant, I bought a copy of the Appèl [public appeal to support the foundation of D66, ed] in a local bookstore. And I participated in the very First congress in Amsterdam. I was an active member of the local branch in Amsterdam. Putting up posters, distributing flyers, walking around with a sandwich board and being harassed, I did it all. I was member of the local board in Amsterdam, and for a short time I joined the national board. But when I started working for the ministry in 1975, I stopped being active in D66. I only worked on one chapter of the 2010 election programme. What should be the role of the Van Mierlo Stichting in your opinion? In recent years, the Van Mierlo Stichting has worked hard on the richtingwijzers [guiding principles], as the starting point for thinking about the political ideas within our party. Obviously there was a need for them, and they are well balanced and thought out. But I’ve always been a little sceptical about whether it is possible to translate these richtingwijzers into concrete policy measures. In my view, methodologically, you always need to confront yourself with reality, to be able to translate the abstract into the concrete. My approach has always been to create a feeling, as robust as possible, of the near future, based on scientific analyses. What developments will we face in the coming decades? What issues will be at stake in future elections? And what choices will we have to make? In my view, a political party does not derive its identity from its ideological differences with other parties, but from wellconstructed and thought-out analyses about the (near) future. I think D66 needs a think tank which is a bit closer to its classic role: giving research-based input to the internal debate on the political programme. In 1982, when employers’ organisations and the labour unions had signed the famous Wassenaar Agreement, our Member of Parliament Maarten Engwirda criticised the proposed measures for early retirement. He analysed perfectly why these measures were not well thought out and why they would have a severe negative impact on the longer term. How? Because he looked towards the future. Unfortunately, we had to wait until this century before the early retirement policy was changed. But we have to start thinking at an early stage. Our role, as a think tank, is to discuss those issues which are not discussed by others. The richtingwijzers will play a role in this process, but it should be balanced. Yes, we think and act internationally, because it fits so well in our ambition to provide opportunities for the individual. But what exactly do we have to do in order to work on this in the coming years? In our party, pragmatism is an important approach. Basically, this is about doing what will work. If we focus too much on the abstract principles, they might become articles of faith. So which are the issues at stake in the coming years? There are two main challenges ahead of us. First, international relations are changing rapidly. I am not happy with our undeserved image as Europhiles dreaming of a European federation. We have put forward important issues for the future of our continent. But we also have to look at the real Europe of today. The real Europe is nice for students on an Erasmus exchange programme. But it’s a different picture for the truck driver who has just lost his job to a Polish driver. That’s the real Europe as well, which provides us with many challenges. Especially since we’re part of the large Eurasian region where things have recently changed dramatically. What will be the impact of our trade sanctions against Russia when we always been have involved with the Russians as much as possible? We make money in China, but how will this be affected by China’s approach towards Hong Kong, Taiwan, and in the East China Sea? I am worried about the absence of these issues in the political discourse. What is changing in international relations, and what does this mean for us? The second issue is at the national level. In our country, there is a large population of higher educated people in their forties who are currently losing their jobs. They have a mortgage, children, and they just have been informed they have to work until the age of 67. But for the educated middle classes, the labour market doesn’t offer many opportunities. There is also a large group of self-employed professionals, who often do not build their own pensions. In ten or fifteen years, we will face social problems we have never faced before. And this is a large part of the electorate, for whom we need to have a “social story”. In what way should the Van Mierlo Stichting work on these issues? My idea would be to draft some short papers, just a few pages. What are the main developments and challenges, how do international and domestic developments relate to each other, and what answers are needed from us? This is not about wide perspectives, but just about things which are needed today. We can publish these papers and discuss them with people inside and outside our party who should tell us why we might be wrong, whether we missed elements and whether we have clearly described the challenges ahead of us. They shouldn’t be PhD theses. But I think we should challenge ourselves with research-based justifications, which can be used later by the party for drafting the political programme. We have to organise a certain level of intellectual acuity within our party.” Do you see a role for the Idee in this process? We could make a few issues of Idee dedicated to the topics resulting from the main challenges, with statistical information and review articles. For example, we could have an issue on redefining the national defence policy, based on the changing international relations. Idee could picture the situation of today, the challenges ahead, and the possible answers. And then again, we can use the richtingwijzers: if we want to think and act internationally, what does it mean, and which options do we have? The former chairman, Mr Joris Backer, started his term when D66 was in a difficult situation, with just a few seats in parliament and a bad standing in the polls. Now, the situation is much better. Does it make any difference for being the chairman of the Van Mierlo Stichting? It should make a difference for the role of the Van Mierlo Stichting. Currently, D66 is among the larger political parties. More than ever we therefore have to think about what we want to achieve. So far, we have mainly focused on much needed reforms as our political agenda. But we need to continue our thinking, in particular for future elections and the possible formation of a new cabinet. We need more intellectual input to better understand our own and the other parties’ ambitions. So we will have to work hard in the coming years, with limited resources. It’s part of our responsibility now.   Mark Snijder is the editor of Idee.   Heeft dit artikel uw interesse gewekt? Klik hier voor meer info en abonnementen. – – Dit artikel verscheen in idee nr. 6 2014: A Divided World, en is te vinden bij het onderwerp interviews.Lees hier het pdf van dit artikel. Social-liberals seek a just distribution of welfare. Our starting point is equal opportunities for all: each individual should have equal opportunities to build his or her own life. But what happens when this results in major social and economic inequality in practice? Is this still a just distribution of welfare? In other words, if we all start with equal opportunities, do we just have to accept unequal results?

If based on equal opportunities, unequal results are just to be accepted

Many participants in the discussion seem to accept the existence of inequality. But it should be limited. “Unequal results are to be accepted until a certain level”, says a biomedical researcher. “If the level of inequality is too high, it is unhealthy for our society. The question is to what level inequality is accepted.” An advisor in the field of spatial planning underlines that inequality is just part of reality. “But too much inequality threatens the sense of solidarity on two sides: the richer part will isolate itself from society, and the poorest part will feel excluded, and might therefore radicalise.” A D66 city councillor shares this realistic approach, referring to the logic of inequality. “We have to accept there will always be unequal results, since there are unequal starting points. And there is the factor of fortune.” An economics student does not only accept the existence of inequality, but supports it as well. “An equal distribution of welfare is needed to keep the economy balanced. It must be worth it to take the risks of entrepreneurship or to accept large responsibilities.” At the same time, the level of inequality must be limited. “But we should not aim to fully level out the distribution of welfare. We should only aim to make it a little less unequal.”

Unequal results are hard to accept, since the very idea of equal opportunities is an illusion

Some of the participants in the discussion did not focus as much on equal results, but rather on the difficult concept of equal opportunities. The very idea of equal opportunities is not realistic, because of “natural circumstances” and “individual chances and threats” which, by default, create unequal opportunities. A sculptor underlines the inequality right from the beginning. “To offer equal opportunities for all is an illusion. All individuals have a different start in this world. This already is unequal. We can only try to decrease the differences in opportunities as much as possible.” A financial controller joins his view. “Equal opportunities is not the way it works in life. We were all born with different talents. And the exact place of birth is important as well. Besides, in the system of capitalism, it is not about equal opportunities. It is about equal access to money, and equal access to knowledge.” A few alternatives to the concept of equal opportunities were introduced in the discussion. “The distribution of power is the key element”, according to the financial controller. “More money, more knowledge, a better network, good health and more talents result in more power. More power means the capacity to live your life the way you wish. But the concentration of power in a small group might hamper others in living their lives.” A communication professional stresses the difficulties of equal opportunities for the sustainability of our planet. “We have to leave the idea of equal opportunities for all to increase our welfare. We should talk about equal opportunities to live and to develop ourselves. The unrestrained pursuit of welfare destroys our natural resources.” An information management professional keeps it short and simple: “Equal opportunities for all is a wonderful ideal. But we all know we will never achieve this ideal situation.”   Heeft dit artikel uw interesse gewekt? Klik hier voor meer info en abonnementen. – – Dit artikel verscheen in idee nr. 6 2014: A Divided World, en is te vinden bij de onderwerpen debat, kansengelijkheid en ongelijkheid.Lees hier het pdf van dit artikel. What can Piketty’s book tell us about the future of capitalism itself ? The crucial question for the future of capitalism is how we can achieve a more balanced wealth distribution without impeding the growth of capital. Remarkably, this question is seldom considered. By Paul de Beer Thomas Piketty’s Capital in the Twenty-First Century is a book full of paradoxes and incongruities, starting with the title. Actually, the book is neither about capital nor really about the twenty- first century, but mainly about wealth in the 19th and 20th century. Moreover, what many consider to be the central message of the book – that the inequality of wealth is again approaching the concentration among the happy few that characterised the 19th century – is in no way supported by Piketty’s own data. For example, the share in total wealth of the richest 1% in the United Kingdom increased from 23 percent in 1970 to 28 percent in 2010, while it stood at 69 percent around 1910. What he does show is that the income share of the top 1% is now, at least in the us and the uk, of similar size to what it was in the early 20th century. But, although he presents a much discussed theory about the growth and concentration of wealth, he has nothing new to add to the already abundant literature on increasing income inequality. And his theory of wealth accumulation and concentration has been rightfully criticized by many commentaries as overly simple and even naïve. Asking the question of how to cope with Piketty’s conclusions should then always be preceded by the question to what extent those conclusions are accurate and why they seem to be so widely supported. So, what is the fuss all about? Why is this book such a huge success? And why do some of the world’s most famous economists – Krugman, Stiglitz – praise the book and hardly conceal their envy that they haven’t written it? I think the book offers two important contributions. First, Piketty has collected, in collaboration with some other economists, a very rich data set –– wealth and income data spanning over a century. Secondly, he offers an explanation for the trend in wealth and income, and, thus, for the evolution of capitalist society itself, over a period of two centuries. Even though his theory may be wrong, or at least incomplete, the attempt shows that it is still possible to tell a grand story of global developments. In this respect, the book could be compared to Fukuyama’s The End of History, which appealed to a widely felt need for a new interpretation of the world after the fall of the communist system. Now, what can Capital teach us about the future of capitalism? Although Piketty has been criticized for his determinism, his book actually offers a strong argument for the power of politics, and for the great role of unforeseen historical events. The strong decline of the inequality of wealth and of income in the Western world during the 20th Century – between 1910 and 1970, to be more precise – is, according to Piketty, partly explained by events, such as the two World Wars, the Great Depression of the 1930s and the strong economic growth and high inflation after the Second World War, and partly by deliberate policies, in particular the imposition of very high tax rates on top incomes, large fortunes and bequests in the post-war period. It is particularly interesting to note that the period of declining inequality coincided with a period of unprecedented economic growth. Therefore, the message that has been transmitted by economists for a long time, that there is a tradeoff between equality and efficiency (or economic growth), is clearly at odds with these figures. If current policies are continued, Piketty anticipates that the development in the next decades will be the mirror image of the post-war period, that is, sluggish economic growth will be accompanied by increasing disparities in income and wealth. However, this is certainly not a preordained future. Although some underlying mechanisms may push the economy in that direction, Piketty spends the final hundred pages of his book discussing alternative policies. This is certainly not the most original part of Capital. Actually, he mainly reiterates old policy recipes such as a generous welfare state and progressive taxation on income and wealth. His much discussed proposal for a global wealth tax he himself calls “utopian”, admitting that this is not a very realistic option for the foreseeable future. In my view, other policy options are more promising. These are related to one of the points I made at the start, that Piketty’s book is not about capital but about wealth. While wealth refers to the value of someone’s possessions, less the value of their debts, capital concerns the value of the means of production, such as machinery, factories, offices, computers, raw materials as well as non-physical means of production, such as intellectual property rights. A considerable part of wealth consists of the direct or indirect possession of capital goods, which explains why both terms are often conflated. A progressive wealth tax would put a brake on the accumulation of wealth. If we look at the other side of wealth — capital — it is questionable whether that is desirable. As a production factor, capital is, after all, an important source of prosperity. The more capital we have, the less effort in terms of labour we have to put forth in order to achieve a certain level of prosperity. The problem is therefore not the amount of wealth, but its highly lop-sided distribution across the population. The crucial question for the future of capitalism would thus be how we can achieve a more balanced wealth distribution without impeding the growth of capital. Remarkably, this question is seldom considered. The best way to achieve a more equitable wealth distribution would not be to tax the largest fortunes, but to promote the accrual of wealth among the largest part of the population that currently has little or none. This could be done in various ways. One interesting option would be to allow employees to share in company profits in the form of shares. Even if the distribution of company proceeds were to remain the same between labour and capital, the employees would in this way gradually acquire an ever-increasing share of the capital income. If employees were to become co-shareholders in their own company, the dividing line between employees and shareholders would gradually become less pronounced. A crucial factor here is that the employees would not sell their shares, but build up ever increasing stock. The best way to achieve this is to issue the shares not to individuals, but instead to place them in a fund administered jointly by the employees. There is much more to be said about the advantages and risks associated with employee share ownership than the scope of this article allows. One of the most attractive consequences would be that employees as shareholders would acquire more influence on company policy, but at the same time would also have to bear part of the risk of their decisions. They would be able to raise their voices at the shareholders’ meetings in relation to such matters as the remuneration for the top executives, for example. Moreover, since more equity would remain in the company, it would be less dependent on external capital providers, who are often more interested in short term yields. Thus, collective employee share ownership might result in both a more equitable wealth and income distribution and a business sector more oriented towards a sustainable future, in short, a more balanced wealth distribution for current and future generations in the twenty-first century.   Paul de Beer is the Henri Polak Professor of Industrial Relations at the University of Amsterdam, co-director of the Amsterdam Institute for Advanced Labour Studies (AIAS) and director of the Scientific Bureau of the Dutch Trade Union Movement, De Burcht. Part of this article is based on the AIAS working paper 2014-16 “Piketty in the Netherlands: the first reception” (Amsterdam: AIAS/UvA, 2014).   Heeft dit artikel uw interesse gewekt? Klik hier voor meer info en abonnementen. – – Dit artikel verscheen in idee nr. 6 2014: A Divided World, en is te vinden bij het onderwerp kapitalisme.Lees hier het pdf van dit artikel. Redistributive policies are unable to counter rising income inequality. A reorientation of taxes and transfers is needed from the individual to the household, argues economist Wiemer Salverda. By Wiemer Salverda Inequality has risen in most countries over the last three decades. A broad set of countries, ranging from Denmark, Finland, Sweden and the Netherlands to the Baltic states and other countries in Central and Eastern Europe, and including the UK, Australia, Canada and the USA, have seen inequality rise by an average of 28% since the early 1980s. In this article I briefly consider the nature of this rise and subsequently ask the question of whether income redistribution can change this outcome. Rising inequality A surprisingly large part of the rise in inequality (19%) was concentrated in the 1990s (see Table 1). The measurement is of inequality in net Household income – this is market income with the addition of social transfers and the subtraction of income taxes. Two factors thus combine to cause the increase in inequality: a growing inequality in market incomes and a declining redistribution of income through taxes and transfers. Market incomes have indeed become significantly more unequal, with notorious gains in top incomes in recent years. For a broad range of countries we find an average 21% growth in the top 10% shares since 1980, with more than half of this concentrated in the 1990s. The top 1% incomes trump this growth with a 37% increase and an even stronger concentration in the 1990s. Though, in principle, the increases in both market income and net income equality would seem sufficient to warrant the conclusion that the redistribution of incomes has diminished, direct research can support this claim. For instance, the Review of Economic Dynamics (2010) shows that the disposable income inequality of households with earnings has trended up. In Canada, research suggests that less than half of the increased market income inequality has been taken away by transfers and taxes since 1980 (Sharpe and Capeluck 2012). In Finland, the effects of redistribution declined during the mid-1990s despite the increasing role of transfers (Blomgren et al. 2012). Other research on net income inequality in Denmark (Bjørnskov et al. 2012) or market income inequality in the uk (Brewer and Wren-Lewis 2012) show similar results. This suggests that even if redistribution is increasing it is usually insufficient to compensate for the growing disparities in market incomes. Household employment and earnings Not all households are equally affected by this rising inequality. It has been a long and still unfinished adieu to the world of the single breadwinner (if it ever existed in a pure form). Currently, dual- and triple-earner households are a majority (57%) of all households receiving an income from paid labour in Europe. Importantly, and unsurprisingly, those households are concentrated in top decile of household earnings. Single-earner households, on the other hand, make up 88% of the bottom decile and only 15% of the top (Salverda and Haas 2014). The share of single-person households has roughly doubled in the same period. This has given rise to a complex situation that institutions and income redistribution policies are still grappling with. It is a change which is permanent in nature (Debacker et al. 2013). Shorter working hours and a lower level of (hourly) pay now correlate more strongly than before: part-time jobs are concentrated at lower levels of pay and occupation, especially in the private sector. At the same time the “new normal” of multiple earning has pulled the additional job growth of the 1990s and 2000s towards households that already had a person in employment, resulting in a limited reduction in Household joblessness at best – if not an increase. Thus the personal employment to population rate could grow while the household employment rate lagged or even declined. The uk provides the sharpest example of this separation. In 1980 the two employment rates were roughly equal at 72-74%, but  by 2005 the personal employment-to-population rate increased by 5 percentage points while the household employment rate fell by 7 percentage points, opening up a 12 percentage point gap (Blundell and Etheridge 2010, in red 2010). The new situation has several important implications. First, these developments blunt the use of the traditional unemployment rate as a helpful labour market indicator. Second, as a result of the increased combination of individual (annual) earnings in a household, low-wage workers may now be found in households high up in the income distribution. This blunts individually focused tools for limiting wage inequality, not only traditional tools such as the minimum wage, but also newer ones such as tax credits for employed individuals or exemptions from employer contributions. It makes the case for targeted, household- dependent taxation of individual earnings. For example, households in the top decile in the Netherlands pay an average effective tax rate of slightly less than 20% of gross income but this rate diverges significantly between second earners (12%), first earners (22%), and single earners (27%-28%). The flip side of this is that it may affect solidarity: why should you pay more tax as anindividual with another earner as a partner and a higher household income than another individual who earns the same amount but has a non-earning partner or no partner at all? Redistribution What role do policies of redistribution play in this overall inequality picture? These include social transfers (social assistance and socialinsurance), on the one hand, and taxation on the other hand. The weights and effects of the two differ significantly between countries. However, certain changes in recent decades have been widely shared. The levying of income tax has been reduced significantly. In particular, top marginal rates of personal income tax have declined by a quarter, from 56% in 1981 to 41% in 2005. This has lowered current tax receipts and thus the funding of redistribution. Equally important, it has increasingly had a long-run behavioural effect – stimulating high pay in firms and the growth of top incomes (Piketty, Saez and Stantcheva 2011). It may also stimulate savings and the long-run building up of wealth. For Finland the growth of top incomes is attributed to rising capital incomes and the reduced taxation introduced in 1993; despite growth, redistribution has been unable to compensate for the concomitant rise in inequality (Blomgren et al. 2012). However, income tax is only half the story of direct taxation. Many countries levy non-progressive contributions to social security. The overall progressivity differs little between countries, even high-tax ones (oecd 2012). Indirect tax, or the value-added tax (vat), is another important factor – it is regressive, or felt more by those with lower incomes, who consume a larger part of their incomes (if not more than their incomes), and so contribute relatively higher amounts of vat (Figari and Paulus 2012). In addition to taxation, transfers are the main artery of redistribution aimed at lowering inequality. Its importance varies across countries. In Canada, 70% of lower inequality is ascribed to transfers and only 30% to taxation (Sharpe and Capeluck 2013). In Great Britain the increasing inequality of market incomes (74%) was accompanied by increased mitigation by taxation (+77%), which remained insufficient, while the mitigating effect of transfers trailed far behind (+11%) (Brewer and Wren-Lewis, 2012). In many cases, the reduction of redistribution was the main reason for rising inequality after the mid-1990s (Marx and Van Rie 2014). In conclusion Redistributive policies have continued to reduce inequality, but even when their size has grown the effect has diminished in the face of strongly rising inequality in market incomes, particularly household earnings from labour. It puts the need to directly address inequality in market incomes on the agenda, for example by introducing or augmenting minimum wages or by taking away the undue rent seeking (seeking to obtain benefits in the political arena) that seems to have overtaken the highest levels of pay. Though the minimum wage certainly helps improving the living wage of households, its effect on income distribution has become more muted. In addition, the effects of taxes and transfers on the growth of inequality in market incomes have to be scrutinised, such as the long-run behavioural effects of reduced taxation on high incomes, capital incomes, and inheritance. International coordination seems highly advisable in order to put an end to the existing leapfrogging of tax-rate setting which, as it is going in a downhill direction, can only end in a disaster of broken legs and bones. The same holds for the effects of individually based taxation on household outcomes. There is no reason to reorient away from individual towards joint household taxation; instead general tax credits should be checked for their Household effects and replaced by targeted credits where desirable. Beyond the immediate effect on the distribution of earnings and incomes, the longrun focus should be on the household distribution of employment, explicitly including the working-hours dimension. Equally, the long-run view of benefits and social transfers reflects the strong effects of enduring, intergenerational inequality as a result of cuts that are motivated by the short run. By taking these considerations into account, the efficacy and efficiency of the redistributive apparatus may be significantly, and simultaneously, improved.   Wiemer Salverda is Professor Labour Market and Inequality at the University of Amsterdam. The article draws on his contribution to Progressive Economy, No 2.   Heeft dit artikel uw interesse gewekt? Klik hier voor meer info en abonnementen.   References Bjørnskov, C., I.Neamtu and N. Westergård-Nielsen (2012). Growing Inequality and Its Impacts in Denmark. GINI Country Report. Blomgren,J., et al. (2012). Growing Inequalities and Their Impacts in Finland. GINI Country Report. Brewer, M., and L. Wren Lewis (2012). Accounting for changes in income inequality: Decomposition analyses for Great Britain, 1968-2009. ISER Working Paper No 2012-17. Debacker, et al.. (2013). ‘Rising Inequality: Transitory or Persistent? New Evidence from a Panel of U.S. Tax Returns’. Brookings Papers on Economic Activity, 46:1, 67–122. Marx, I., and T. van Rie (2014). ‘The Policy Response to Inequality: Redistributing Income’. In: Salverda et al. (eds), 2014. Chapter 10. OECD (2012). ‘Income inequality and growth: The role of taxes and transfers’. Economics Department Policy Note No 9. Paris. RED (Review of Economic Dynamics) (2010). ‘Special Issue: Cross-sectional facts for macroeconomists’. (with contributions on USA, UK, Sweden, Spain, Italy, Germany and Canada). Piketty, T.. (2014). Capital in the 21st century. Harvard University Press. Piketty, T., E.Saez, S. Stantcheva. (2011). ‘Optimal Taxation of Top Labor Incomes: A Tale of Three Elasticities’. NBER Working Paper No. 17616. Salverda, W., and C. Haas (2014). ‘Earnings, Employment and Income Inequality’. In: Salverda et al. (eds) (2014). Salverda, W., et al. (eds), (2014). Changing Inequalities in Rich Countries: Analytical and Comparative Perspectives. Oxford University Press. Sharpe, A., and E. Capeluck (2012). ‘The Impact of Redistribution on Income Inequality inCanada and the Provinces, 1981-2010’. CSLS Research Report 2012-08. Ottawa. – – Dit artikel verscheen in idee nr. 6 2014: A Divided World, en is te vinden bij de onderwerpen belastingen en ongelijkheid.Lees hier het pdf van dit artikel. Rising inequality is often attributed to the “neoliberal model”. And indeed, wage equality does not easily fit the liberal objectives of fiscal discipline and high levels of employment. What is the liberal way out of the “trilemma”? By Tom Papworth Politicians of all persuasions are increasingly worried about rising income inequality and the extent to which growth is failing to benefit everybody within the economy. The concept of “inclusive growth” is built on a belief that growth should be “shared”, “pro-poor”, “broad-based across sectors” and “inclusive of the large part of the country’s labor force” (World Bank 2009). This presents particular challenges for liberals. Firstly, liberalism takes a generally positive view of economic growth, seeing it as a widely beneficial process emerging from the mutual gains from trade that result when individuals, guided by (enlightened) self-interest, collaborate and exchange. Narratives that suggest that growthcould be harmful to marginalised groups, or even that some groups could simply be left behind, are therefore disturbing for liberals. Secondly, typical responses to what might be termed “exclusive growth” tend to emanate from a familiar list of illiberal, anti-market, protectionist interventionists from both conservative and socialist traditions. Recommended responses tend to include punitive taxation, maximum wage legislation and even public ownership of whole industries, as well as more general opposition to trade, immigration and market relations. This article will consider the challenges facing modern, developed economies, building on the analysis of Iversen and Wren (1998). They arguethat service-sector economies struggle to create sufficient high-wage service sector jobs, and that as a consequence they face a trilemma; governments are able to achieve up to two, but not all three, of the competing aims of job growth, income equality and budgetary restraint. Globalisation Explanations for changes in employment, equality and fiscal conditions in the late twentieth century have usually centred on the impact of globalisation. However, globalisation primarily impacts the traded sector of the economy, which to a large extent is synonymous with manufacturing. In developed economies, the significance of manufacturing has fallen dramatically over the past half century. Figure 1 reproduces a chart from Pilat et al. (2006) showing the decline in the proportion of jobs in manufacturing in G7 countries. Every G7 country has seen a dramatic fall in the contribution that manufacturing makes to employment. This decline represents a combination of two factors: an absolute decline in the number of manufacturing workers in most OECD countries, and rapid employment growth in the services sector (Wölfl 2005). It is important to note that this decline in manufacturing employment has not been accompanied by a fall in manufacturing output. In the UK, for example, output grew by about a quarter over the 25 years from 1980 despite a near halving of manufacturing employment. The key to this is the rising productivity of industrial workers, which has been aided by technological improvements/ innovation. However, as Iversen and Wren (1998) describe the process, increased output leads eventually to market saturation and a shift of demand towards quality rather than quantity – rather than consumers demanding more manufactured goods, they demand better goods. They also increasingly shift demand to services. But as Baumol and Bowen (1966) argued, increasing productivity in the service sector is not nearly as easy. Many service sector jobs are resistant to productivity growth: innovation cannot increase the number of haircuts a barber can provide, or increase the rate at which care nurses help old people in and out of bed. Consequently, as economies become more service intensive it becomes harder to achieve the virtuous circle of increasing wages and prices. Real demand is increased only by reducing costs in the provision of services. Thus increasing employment in the service sector is achieved only through creating additional, low-paid service sector jobs, which increases inequality. Conversely, wage equality is generally achieved through keeping unproductive workers out of employment altogether. For example, Belgium, Ireland, France, Luxembourg and Norway had the highest productivity levels in the OECD area in 2004, with levels at or above those of the United States (OECD, 2005). Yet all except Norway also had employment rates well below that of the us and indeed below the OECD average (OECD, undated). Public sector jobs Governments have traditionally tried to square the circle through creating substantial numbers of relatively well-paid service sector jobs in the public sector. However, this has an inevitable impact upon the public finances. For example, the New Labour government in the UK increased public sector employment by 15.7% between 1997 and 2010 (Bach and Stroleny 2012) and the general government pay bill grew by 4–6% per annum in real terms from 1998 to 2006 (Bozio and Johnson 2010). Yet productivity in the public sector remained flat (Massey and Caul 2014) and from 2001 the UK ran a public sector deficit that meant that it underperformed comparable countries in a period when public sector debt was falling among most leading industrial nations (Chote et al 2010). Iversen and Wren (1998) argue that the governments of modern, industrialised economies are therefore caught in a trilemma: they cannot achieve the three objectives of high employment,income equality and fiscal restraint simultaneously.

• The Neoliberal Model looks to maximise employment growth while maintaining fiscal discipline, which is achieved through liberal market policies such as flexible labour markets and low or no minimum wage. Labour market participation is high, but low-skilled workers are locked in poorly paid jobs with few prospects for advancement, and so inequality is high.
• The Christian Democratic Model combines high wage employment and fiscal discipline though fiscal restraint and inflexible labour markets. High levels of job security incentivises employees to train and improve their productivity. This raises wages but limits job creation, thus locking low-skilled workers out of the workforce and creating insider-outsider conflict. Put simply, wage equality is achieved by preventing the low-skilled from earning a wage at all. In particular, this tends to equate to low levels of female labour market participation and high youth unemployment.
• The Social Democratic Model combines high levels of job creation with high wages through expanding the public sector. This enables relatively high levels of income equality both through providing generous pay to (often low skilled) service-sector workers and through taxing away the gains of highly productive, high-income workers. This also creates insider- outsider conflict – in this case, between highly taxed private sector workers and highly remunerated public sector workers – and leads to tax revolts, inefficiency and government failure in the socialised service sector, poor competitiveness and to unsustainable budget deficits.

We should note that the above models are three ideal types, and that countries are able to adopt middling positions. Thus (for example) a highly Christian Democratic country could generate some employment growth at the expense of sacrificing some income equality or fiscal discipline. This is arguably the approach that was adopted by Germany with the Hartz reforms, which allowed the creation of “mini-jobs” that offered low wages, short employment duration, were exempt from social security, and were treated differently in income tax law. This led to the creation of large numbers of jobs but has also been accompanied by widening income inequality (Marsh and Hansen 2012). Neoliberalism This trilemma presents a major challenge for governments in developed economies. But it also presents a challenge to critiques of “neoliberalism”. Typical objections focus on rising inequality, but it is at least questionable whether wage inequality is a worse social challenge than high levels of unemployment, low female labour participation rates, insider-outsider conflicts, inefficiënt publically-owned services or unsustainable fiscal deficits. While “inclusive growth” is almost axiomatically a good thing, we should be wary of assuming that egalitarian policy prescriptions will lead to better overall social outcomes. There is also a possibility that liberals may be able to find a solution to the trilemma, at least in the long term. Iversen and Wren (1998) themselves note in conclusion that: “the severity of the trilemma depends on the continued inability to increase productivity in the services sector. Increases in services productivity would allow prices to fall and wages to rise simultaneously, as in the golden age of manufacturing.” While it may be true that many service sector jobs are resistant to productivity increases, it does not follow that individuals need to be trapped in these jobs. The route out of the trilemma must surely depend upon upskilling the workforce and so providing an expansion of highly skilled service sector jobs, potentially accompanied by an automation of low-skilled service jobs akin to the automation of so many manufacturing jobs in the previous century. While this solution is not quick, and it may not be possible to provide this escape for many of those currently in work, there is a strong case for concentrating public policy effort on developing a highly skilled future workforce.   Tom Papworth is Associate Director for Economic Policy at CentreForum, the UK’s liberal think tank.   Heeft dit artikel uw interesse gewekt? Klik hier voor meer info en abonnementen.   Bibliography Bach, S. and Stroleny, A. (2012). Social dialogue and the public services in the aftermath of the economic crisis: strengthening partnership in an era of austerity in the United Kingdom. King’s College, London on behalf of the European Commission project ‘Industrial Relations and Social Dialogue’, VP/2011/001. Baumol, W. and Bowen, W. (1966). Performing Arts – The Economic Dilemma. A Study of Problems Common to Theater, Opera, Music and Dance. M.I.T. Press. Bozio, A. and Johnson, P. (2010). ‘Chapter 9: Public sector pay and pensions’, The IFS Green Budget: February 2010, IFS Reports (C112). London: Institute for Fiscal Studies. Chote et al (2010), The Public Finances: 1997 to 2010, 2010 Election Briefing Note No. 6 (IFS BN93). London: Institute for Fiscal Studies. Hall, P. A. and Soskice, D. eds (2001). Varieties of Capitalism: The Institutional Foundations of Comparative Advantage. Oxford: Oxford University Press. Iversen, T. and Wren, A. (1998). ‘Equality, Employment, and Budgetary Restraint: The Trilemma of the Service Economy’, World Politics, Vol. 50, No. 4: pp. 507-546. Marsh, S. and Hansen, H. (2012). ‘Insight: The dark side of Germany’s jobs miracle’, Reuters, http://www.reuters.com/assets/print?aid=USTRE8170P120120208. Massey, F. and Caul, S. (2014). Public Service Productivity Estimates: Total Public Services 2010, Addendum. London: Office of National Statistics. OECD (2005). International Comparisons of Labour Productivity Levels – Estimates for 2004. OECD (undated). Employment Outlook 2004: How does the United States compare?, http://www.oecd.org/employment/emp/32504422.pdf. Pilat et al (2006). The Changing Nature of Manufacturing in OECD Economies, STI Working Paper 2006/9, DSTI/DOC(2006)9, OECD. Wölfl, A. (2005). ‘The Service Economy in OECD Countries’, Enhancing the Performance of the Services Sector, OECD. World Bank (2009). What is Inclusive Growth?, http://siteresources.worldbank.org/INTDEBTDEPT/Resources/468980-1218567884549/WhatIsInclusiveGrowth20081230.pdf – – Dit artikel verscheen in idee nr. 6 2014: A Divided World, en is te vinden bij het onderwerp ongelijkheid.Lees hier het pdf van dit artikel. Door Wouter Koolmees Last month, French economist Thomas Piketty, author of the best-selling tome Capital in the Twenty-First Century, made a guest appearance in the Dutch Parliament. Having been on the receiving end of this visit, I can safely say that it was a truly surreal experience. Mr. Piketty’s visit brought to mind images that are more often seen in connection with a Justin Bieber concert than with a parliamentary briefing from an economics professor at the École d’économie de Paris. I myself had not seen so many photographers and cameras together since the presentation of the Dutch Cabinet. One of the Members of Parliament stood in line to score an autograph from the star economist. And did I mention that mp was from the conservative VVD? In the newspapers it seemed like the 70s and 80s were back. De Telegraaf headlined that “The hero of the Left” was in the Netherlands, to plea, like a modern Robin Hood, to confiscate money of rich people, to share with the poor. “A Rock Star without Rock Music”, said Trouw. “Thomas Piketty on tour!”, said the NRC. As is the case with Lord Voldemort, just mentioning his name will create a storm of emotion and discussion in financial and political circles. But what about the book itself ? Well, it especially states that in the United States income and wealth inequality has significantly increased in recent decades. Moreover, Piketty argues that the return on capital in the future will be higher than the growth of the general economy. This means that an increasing share of “the cake” will end up with owners of capital and thus will lead to increasing inequality. The theory, of course, is very interesting. But even if Piketty’s “law” were true, it still begs the question whether or not it will turn out bad for the Netherlands. That’s because of one distinctive Dutch fact: our strong pensions. Through our collective pension funds, we have built up a monument of collective power. Because of this, we are collectively able to invest globally, which in return means that we take advantage of the fact that elsewhere additional returns on capital are made. In Piketty’s terms, that means that at least in the Netherlands, everybody is a capitalist. And studies indeed do show that when it comes to inequality in the Netherlands, the gap between the so-called ‘haves’ and ‘have- nots’, both for income and capital, is limited. Reading Piketty from front to back takes quite a while, but I found it to be worth the time. It paints a picture more nuanced than some newspapers and blogs might suggest. Piketty again and again argues that forming larger governments is unwise, that government spending will not create heaven on earth, and that investing in education is the best remedy to combat inequality. Especially in a globalized world where capital is volatile and plants are relatively easy transferred to lower wage countries. As a social-liberal, I share the bulk of his analysis, and the bulk of his remedies. Because in the end, equality of opportunity is what trumps all.   Wouter Koolmees is a Member of Parliament for D66.   Heeft dit artikel uw interesse gewekt? Klik hier voor meer info en abonnementen. – – Dit artikel verscheen in idee nr. 6 2014: A Divided World, en is te vinden bij het onderwerp ongelijkheid.