Alfred Mifsud

Nobel Laureate economist Prof, Joseph Stiglitz’s latest publication, The Price of Inequality, has brought growing social inequality on the agenda of the 44th World Economic Forum currently being held at Davos, Switzerland. 

According to an analysis report prepared by Oxfam for the Davos meeting, the 85 richest people on the planet have accumulated as much wealth between them as the bottom half of the world’s population. The tiny elite of multibillionaires, who could fit into a double-decker bus, have piled up fortunes equivalent to the wealth of the world’s poorest 3.5 billion people. Oxfam condemned the “pernicious” impact of the steadily growing gap between a small group of the super-rich and hundreds of millions of their fellow citizens, arguing it could trigger social unrest.

Stiglitz passionately describes how unrestrained power and rampant greed are writing an epitaph for the American dream. The promise of the US as the land of opportunity has been shattered by the modern tyrants, who make up the one per cent, while sections of the 99% across the globe are beginning to vent their rage. The anger, seen in Occupy Wall Street and Spain's los indignados, is given shape, fluency, substance and authority by Stiglitz. He does so not in the name of revolution but in order that capitalism is snatched back from free market fundamentalism and put to the service of the many, not the few.

Stiglitz’s arguments apply mostly to the US. There is no doubt that in particular countries globalisation has helped to reduce poverty. China and Brazil are typical examples where governments have spread the benefits of globalisation to benefit the bottom layers helping to extract millions out of poverty. There is an argument to be made that rather than fighting globalisation per se, Occupy movements and Oxfam should be fighting the social policies, or lack of them, in particular countries, the US in particular.

Even with liberal Obama in the White House, the social inequality in the US has continued to grow, showing that politicians seem powerless to reverse the trend in spite of good intentions. The reason may be found in the ability of the top one per cent to use their huge economic power to consolidate their ‘rent seeking’ abilities.

For roughly 30 years after the Second World War, the US top one per cent had a steady share of the US cake. In the five years to 2007, however, the top one per cent seized more than 65% of the gain in US national income. In 2010, their share was 93%. This did not create greater prosperity for all. On the contrary, much of this gain was “rent seeking”, not creating new wealth but taking it from others. The inequality gap is becoming a chasm. Stiglitz demonstrates how, in the US, those born poor will stay poor; yet nearly seven in 10 Americans still mistakenly believe in the American dream.

Rent seeking comes in different forms but the ultimate aim is the same: tilting the playing ground in favour of the top one per cent. Lower tax rates for capital gains as against earned revenues; tax loop holes such as allowing non-repatriated corporate profits go untaxed; monopolies or market distorting incentives working against the consumer; preference to reduce tax rates at the upper margin rather than distribute wealth through social programmes or investment in infrastructure; explicit and implicit state guarantees like ‘too big to fail’ tolerance for large financial institutions; these are all living examples and results of rent seeking lobbying.

This is leading to accumulation of huge cash and liquidity reserves by the largest corporates who rather than invest in organic job creating economic growth, prefer to use the cash for job destructing mergers and acquisitions or share buy backs and dividends that benefit the rich.

Thanks to the social benefit net largely put together by Labour governments of the seventies and which the PN governments of the nineties were obliged to respect and extend under the inspiration of the great mentor the late Fr Peter Serracino Inglott, in Malta we do not suffer from such grave inequality problems. The size of the country is what it is. Here the rich and the poor unavoidably rub shoulders. Inequality cannot be allowed to grow as much as in large countries where the one per cent can live secluded and blind to the needs of the 99%. God bless Malta!

 

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Hats off to Mr Justice J.R. Micallef for handing down two judgements regarding the long outstanding court cases related to the National Bank of Malta saga. In so far as this judge is concerned, accusations of undue delay in giving judgements are out of order, and since the cases came under his tutelage he has advanced them after many other judges, for one reason or another, washed their hands of them. 

As a taxpayer, I continue to oppose any out of court settlement. Only a court judgement in its final format will come with conviction that government has acted in the interest of general taxpayers.

But I smile when I hear the expectations of ex-NBM shareholders following the judgement which confirmed that their rights under Section 37 of the Constitution were prejudiced when “the method how their shares were taken over infringed the basic elements of this article”.

One can agree that the method used was deficient and that due process was not respected. But translating this into fair compensation, something the judge still has to do, cannot be as straightforward as some zealots have recently expressed, because:

Commercial compensation can only apply to those shareholders who did not sign over their shares to the government or who can prove the transfer they signed was legally invalid. The zealots do not mention another case decided concurrently by the same judge, who threw out a case where four shareholders who signed over their shares without compensation tried to argue for invalidity of the transfer. While arguments and circumstances may differ from shareholder to shareholder, there is no doubt that the onus of proof to nullify a signed share transfer has been set very high by the courts. Careful reading of this second judgement, which is conveniently never referred to by the zealots, disproves and buries the myth that then Prime Minister Mintoff had actually threatened shareholders with lifting of their limited liability to force them in signing over their shares.

Commercial compensation has to be based primarily on the value of the shares at the time they were taken over. Mr Justice Micallef, in the second sentence, upheld and respected the judgement passed by the Court’s Second Hall in 1973 when authorising transfer of shares held by minors, which was based on the opinion that at the time the shares had no commercial value.

Reading the two judgements together, the impression I form is that compensation is only due to those who did not sign their shares or who can successfully prove in court that the transfer was invalid for reasons at law, and that given that at the point of takeover the shares had no commercial value, any compensation has to be based on moral considerations.

I continue to respect the due process of law but not the process of rent seeking.

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