Opinion Sur
There are those who think that putting the economy in order implies reducing or postponing social inclusion objectives. They believe, some honestly and others defending their own interests, that it is necessary to put the house in order (a house with too many privileges and inequalities) to, then (a then of grief and pain for the people), see to improve the livelihoods of the majorities. Far from it, if the issue is transformation it is not only possible but indispensable to make the economy’s organization converge with the deepening of social inclusion. Here is an example to illustrate this challenge.Approaching this issue first and foremost requires making it explicit what it means to put the economy in order and for whom it is done. What happens is that there are very diverse conceptions about the nature and purpose of putting an economy in order. Do we organize what is disorganized to restore a lost situation? If that is the case we would be facing a process of reinstatement of a longed past. Or are we seeking to arrange the economic variables in some other way as to give way to a dynamic that is different than the previous one? In this case we would be facing a process of transformation in terms of our society’s course and way of functioning.
This is a first significant watershed: putting the economy in order to return to a socioeconomic dynamic that generates an enormous wealth concentration, massive inequality and recurrent economic instability or, instead, organizing the economic variables to transform that dynamic.
From this last perspective there are many dimensions and areas of the economy that need to be reconsidered. However, in a brief article it is impossible to cover that totality so we opted for choosing a single field of economic policy to use as an example of the suggested approach: the subset of economic, political, social and environmental variables and relationships that play a role in a policy of public revenues and expenditures. Other critical fields not tackled in these lines include the allocation of savings that flow in a country (actors, channels, consumption allocation, accumulation, productive investment, speculation, capital flight), the relations between exports and imports, capital movements, those who shape expectations, the structure of real power, the political system and its representativeness, prevailing values, among many other areas conditioning or over-conditioning the economic functioning.
Fiscal solvency
Fiscal solvency is one of those basic economic relationships that are necessary to ensure; if not, very serious problems are generated in the economic functioning. This solvency comes from the relationship between public revenues and expenditures. Imbalances between both subsets of variables lead to a deficit or superavit in public accounts. But what is critical has to do with how those revenues and expenses are leveled since there are very diverse ways to obtain public revenues as well as to allocate public expenditures. As it will be pointed out, the options implemented in terms of revenues and expenditures reflect the chosen course and the adopted way of functioning to achieve those objectives and secure the trajectory.
With this we point out that fiscal solvency is a sustainability condition of economic functioning but it is not in itself a fetishism to attain regardless of how: what is determining is how it is achieved because the type of revenues collected (progressive or regressive taxes, indebtedness to finance investment or cover growing operational deficits) and the nature of the expenses that those revenues finance will shape different growth paths: from a concentrative one to another of sustainable and inclusive development, going through hybrid intermediates. In other words, it is important to have fiscal solvency but not any kind of fiscal solvency.
Public revenues that will promote sustainability and inclusion
Usually, the majority of public revenues come from the taxes that are established and the debt that is contracted. A regressive tax system (the one that burdens medium and low income sectors relatively more) attempts against inclusion objectives and promotes the wealth concentration that affects inequality, poverty and systemic instability. A significant indebtedness and of wasteful nature compromises the viability of national development by giving way to a current of growing payments without generating higher productive capacity and additional public and private revenues. This kind of tributary and public debt structures go hand in hand: the sectors with higher incomes influence economic policies in such a way that they hinder the attempts to establish higher tax progressiveness and impose an indebtedness that facilitates the materialization and eventual flight of their speculative profits.
On the contrary, a fiscal policy compatible with deepening social inclusion would be achieved by progressively replacing what is collected through taxes that levy incomes and mass consumption with taxes that levy profits, wealth and speculative financial transactions. At the same time, it is necessary to eliminate the tremendous tax evasion of higher income sectors that use a diversity of mechanisms such as commercial triangulations through poorly regulated jurisdictions or tax havens [[See [Differentiating generation, redistribution and extraction of value->http://opinionsur.org.ar/Differentiating-generation?var_recherche=differentiating].]] , certain illicit associations to conceal profits [[Read about a [recent case of illicit association to commercialize cereals->http://www.pagina12.com.ar/diario/economia/2-240406-2014-02-23.html].]], ´creative´ accountings to deceive the public treasury, among many others. The same way it is in order to transform the level and nature of the debts that are contracted.
So, if larger incomes are required and we are referring to a fiscal solvency consistent with the goal of social inclusion, the measures to adopt would be (i) transforming the tributary structure towards another much more progressive one; (ii) eliminating the mechanisms of tax evasion, particularly from concentrated groups; (iii) prudently contracting debt without compromising national development; and (iv) mainly allocating debt into financing social and productive infrastructure and services.
Public expenditure that will promote sustainability and inclusion
The other key variable affecting fiscal solvency is public expenditure. Its importance goes way beyond pure fiscal solvency since public expenditure decisively influences the country’s course and way of functioning. This way, while the level of public expenditure in relation to public revenues defines the degree of fiscal solvency, the nature of public expense, its composition, is a critical variable in terms of social inclusion and the development’s sustainability.
Public expenditure is a powerful tool to drive domestic demand since it adds its purchases and investments to those of private actors. As it happens with almost everything in economy, the moment, the opportunity in which a certain measure is implemented is decisive to achieve the pursued objectives. Therefore, promoting domestic demand is convenient in some cases and less so in others: it depends on whether there are idle productive factors that private demand is not able to mobilize. In the case that there were idle factors, public expenditure plays the role of activating the economy without causing significant unwanted side effects. Instead, if we are in a situation that is very close to the total employment of the country’s productive factors, public expenditure would need to strongly encourage investment (public and private) to avoid that an increase in demand is not accompanied by a higher supply giving way to an increase of inflationary tensions.
This is even more complex if we consider the productive national matrix. There are sectors where there are serious oligopolistic situations facilitating permanent market power abuses to extract value others generated [[See [Market power abuses->http://opinionsur.org.ar/Market-power-abuses?var_recherche=abuses].]] . In that context, a higher demand induced by a higher public expenditure oriented for example to subsidize mass consumption, would allow those who have dominant positions to maximize profit shares by setting prices without the need to broaden their supply; they are the main market-makers in their respective sectors. This is why it matters and very much so, that when public expenditure oriented to subsidize consumption is increased it is accompanied by other measures that will allow to prevent market power abuses; it will be necessary to ensure that productive supply will accompany the growth of demand and that the commercial intermediation does not end up harming both producers and consumers [[An important issue is who ultimately manages to appropriate the larger part of the value they did not generate. In some cases these are the producers themselves of a certain product even though, more frequently, they are usually those who hold dominant positions in the commercialization chain.]].
In addition, it will be necessary to consider the imported component of sectors benefiting from an eventual increase of public expenditure to ensure the availability of foreign currency. If there was a situation of severe foreign currency shortage, measures would have to be adopted to orient the expenditure’s increase towards activities and actors with fewer imported components.
In short, while the levels of public expenditure could affect fiscal solvency, putting the public sector’s economy in order does not imply cutting budget lines that have influence on social inclusion but instead seriously working to improve public expenditure’s socioeconomic productivity; this means, redoubling the effectiveness of the expenditure’s allocation. There are many cases of squandering due to a poor allocation of public expenditure that need to be corrected, on top of eventual inefficiencies in social expense itself. Thus, for example, instead of cutting mass consumption subsidies it is necessary to eliminate the subsidies received by affluent sectors or those who do not need them; and this can be achieved by establishing differential fares (energy, fuels, among others) as well as realistic development taxes to finance infrastructure works that serve affluent sectors and that today are completely or partially financed with budget lines.
Conclusion: fiscal solvency that promotes sustainability and inclusion
From the above derives that fiscal solvency is the outcome of diverse combinations of public revenues and expenses; there is no chance of it emerging from a single possible combination. There are different options to collect incomes and to configure the socioeconomic composition and productivity of public expenditure, each one with different impacts regarding sustainability and social inclusion. It is at that level of disaggregation of public revenues and expenses that efforts need to be focused when the aim is making the economic and the social converge.
The measures suggested for the example of public revenues and expenditure are precisely of the kind that enable arranging the economy while deepening social inclusion; similar approaches for other critical areas of the economic system are equally necessary. Contrarily, when people resort to measures that defend putting the economy in order without affecting privileges, without transforming the concentrative dynamic, is when the kind of proposed economic organization becomes incompatible with sustainability and social inclusion.
Every transformation raises resistances from those who are not willing to give up positions. In this critical area of transforming and making public action and its economic policies more effective, those resistances are multiplied so it is fundamental to work as to attain a strong political support and a permanent elucidation of public opinion. The forces seeking to preserve the established order are always powerful since their economic power works with the complicity of certain sectors of the political system, the media and the judiciary that are aligned with them. It is worth remembering that a country’s course and way of functioning emerge from the prevailing correlation of forces and it is in the bosom of these tensions, crammed with interests, needs and emotions, where the different options of economic policies acquire their real significance.
