A sovereign government needs to cut the Gordian knot of the huge drain of surpluses

The drainage of surpluses via sovereign and commercial over indebtedness, tax evasion, ill-gotten capital flight, oligopolistic markets, criminal export and import operations, financial speculation, among others, generates lockdowns that hinder sovereign development. It constitutes a huge and constant loss of resources carried out with the complicity of political, media, and judicial sectors. It is a Gordian knot [i] that democracies need to resolve.

The legend of the Gordian Knot belongs to the Phrygian civilization that existed in what is now Turkey. According to the oracle, anyone who arrived in a cart would be consecrated as king; the man thus erected leader was called Gordias. Centuries later, the cart of Gordias, tied to a column with a knot formed by ivy roots, became a legend because it was believed that whoever could unknot the knot would be the one who would dominate all of Asia. In 334 BC, Alexander the Great addressed the situation by cutting the knot with his sword and then conquering the Persian Empire and beyond, including being recognized as Pharaoh of Egypt. After retreating by trying unsuccessfully to advance into India, he died in Babylon at the age of 33. His legacy did not survive but was divided among his generals. There are those who related his early death to his impatient attitude in cutting rather than untying the Gordian knot.

What emerges from this allusion to the Gordian knot is that, in contexts of serious and complex challenges, partial solutions do not solve them. At present, efforts need to be directed towards dismantling everything that punishes humanity and attacks the planet but doing so in such a way that the legacy of what has been achieved can survive the initial transformations and adjust according to the changing circumstances of every reality.

In the following lines, we characterize what would be a contemporary Gordian knot and then we share some comments on possible options to overcome it.

A Gordian knot that oppresses peoples and countries

The oppression of peoples and countries is not a new fact in the history of mankind. There have been permanent struggles and all kinds of tensions between minorities that accumulate power and wealth using force or with legal artifices imposed by them, and majorities that are submitted to allow for appropriation. Historians, anthropologists, and other specialists have documented the use of various forms of appropriation over the centuries. In more recent times, the appropriation of wealth materialized with the colonization of nations that made central countries destroy societies, decimating populations and looting out everything they could; its effects still endure.

With the liberation of the colonies, the modalities of appropriation changed, although without affecting the concentrator march. Local accomplices facilitated the theft and draining of resources. The cases followed each other with countless singularities and with some common denominators. In one phase, military coups induced by civilians entrenched in their privileges prevailed, then more subtle modalities focused on co-opting certain strategic sectors of the media, the judiciary, and politics appeared. On this basis, they succeed in persecuting, intimidating, or eliminating those who seek to resist appropriation. The result was and is dramatic, the concentration of wealth and decision-making power was magnified globally and within countries. It is worth noting the modalities of appropriation that prevail today.

Sovereign and commercial over-indebtedness is a bloody drainage mechanism. A significant part of this over-indebtedness was illegally or illegitimately targeted by local actors associated with those who concentrate wealth in the world. Closing this drain requires investigating and denouncing debts that have been incurred. There is indebtedness used to finance social, environmental, or productive infrastructure projects necessary for the development of countries; if they were legitimately contracted, it is necessary to honor them.

Another huge drain of surpluses is done through tax evasion or elusion. An army of professionals, lawyers, accountants, and other specialists assist evaders, particularly affluent families and large and medium-sized corporations, to avoid paying their fair share of taxes. The impact is devastating, disrupting economic functioning. For now, this drain underfunds the State that does not obtain the income required to deliver on its policies. Without the resources appropriated by evaders, great differences emerge between public revenues and expenditures, the fiscal deficit. When it happens, the dominators demand to close the gap by reducing social expenses (actually investments) such as pensions, public education, health, environmental sanitation, among others. They do not consider combating evasion and elusion to solve the deficit with the resources stolen from the treasury, that is, from the entire society. What they consider “their patrimony”, concealing that it was achieved through appropriation, is not touched. Yes, the burden of closing a deficit that they helped generate ends up falling on popular sectors and middle sectors in decline.

However, this is not the only consequence of the drain due to tax evasion and elusion. All or a good part of these ill-gotten resources flight to tax havens and other lax tax jurisdictions and in identifying who their owners are. The serious thing is that these surpluses are a constituent part of national savings that, by flighting, reduce the country’s ability to genuinely finance its investments, something that does not unsettle the dominators who are blinded by the criterion of maximizing their profit at all costs. The circle closes because reducing local financing of investment leads to more debts to sustain economic functioning. The criminal drainage of surpluses generates conditions to turn to predatory indebtedness.

Now, how do the surpluses originate, those that then grow by evading and flighting them? A good part results from the appropriation carried out by large corporations operating in oligopolistic markets. They use their market power to abuse suppliers and consumers via prices and commercial conditions. They manage to extract and retain for themselves resources that do not belong to them, affecting the assets of suppliers and the budget of consumers.

There are other mechanisms of appropriation of surpluses that end up swelling the enormous drain of resources such as manipulating export prices (under-invoicing of sales) and import prices (over-invoicing of purchases) both in bribery with subsidiaries based outside the country, exit and entry smuggling of products, modalities of concentrating and fleeing the results of financial speculation in collusion with institutions in the sector. Good analysts have documented these drains that we have used in several texts of Opinion Sur.

Options for dismantling the Gordian knot.

The size of the surplus drains is monumental and, however, no action is taken to close such a leakage of resources. Moreover, dramatic problems such as poverty, indigence, inflation, the fiscal crisis, public health, budgetary restrictions, manipulation of public opinion, cultural subjugation, among many others, are faced without considering what conditions any solution. Let’s look at an example that illustrates this nonsense, the way in which inflation is proposed to be solved.

Neoliberalism approaches it as a financial problem resulting from uncontrolled monetary issuance. They argue that low or no new issuance would solve inflation, something that has been repeatedly imposed without success. Other more appropriate approaches point out that inflation has a multicausal origin and, as such, needs to be addressed from several fronts. They resort to several complementary policies, among which stand out an exchange rate policy with a downward devaluation rate, an income policy with parity that ensures a fair real wage, and a prudent tariff policy for public services that reconciles good provision with the ability of users to pay. Other factors stand out that, although they do not generate inflation, drive and aggravate it. This is the case of the increase in food prices, the permanent recomposing of corporate profit margins, the impact of inertia and inflationary expectations.

All this is acceptable, but it is worth asking why the cunning drains of resources are not incorporated as decisive inflationary factors. Little is said about dismantling over-indebtedness, tax evasion and elusion, capital flight, foreign trade crimes, oligopolistic concentration that seeks to maximize profits at all costs without addressing consequences, burdensome financial speculation. It is true that it is needed to properly manage the income, exchange, and tariff policies, but it is inadmissible to discard the drains that over condition the economic functioning, inequalities, and the decapitalization of the country. Perhaps they do not consider it out of ignorance, for fear of confronting powerful interests, or because they believe that the bottom line is only affordable in the medium term and never in the suffocating present. However, it is today when the journey of substantive decisions must begin, which then, in that permanently distant medium term, can be expanded and improved.

A critical aspect is to ensure the viability of a transformative program, however consistent. Without political support there are no conditions to put it into practice. It requires a government that acts with firmness, determination, not authoritarian, a government that is a faithful representative of an increasingly enlightened, mobilized, and organized people. The popular base is essential, also a leadership that does not betray or devalue that popular will.

People and government are responsible for choosing options that mobilize the potential that nests in society as a whole. These will be options born from their own cultural torrent oriented to general good living and environmental care. Such a march would fulfill the expectations of building a sovereign country where equity and justice prevail. Whatever the option adopted, care must be taken that the new does not collapse because it is ephemeral or vulnerable. In the ideology of simplicity it may be easier to cut the knot with a sword (violence) than to unknot it. Sometimes, blunt impositions do not build a collective future because of the risk of displacing leadership and constituencies. Perhaps, firmly untying what makes up the Gordian knot could serve to integrate different sectors strengthened in clarification.

[i] Problem or question of impossible solution that is only saved in a categorical way.

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