Too much of a good thing: the end of the Noughties

It's hard to find anyone with anything good to say about the past decade. Mostly, the positives are expressed in negatives: "the end of neo-conservativism" or "bankers have been revealed as the socially-useless bastards we always suspected they were", or (a personal favourite) "no-one can objectively defend the tax havens any longer." Indeed not. But few amongst my friends and colleagues hold out much optimism that useful lessons have been learned from the catastrophic mistakes made during the decade known by journalists as the 'Noughties'.

From an economist's perspective the decade started with the bursting of the dot.com bubble and ended with the collapse of financial capitalism, which even now, two years after the fall of British bank Northern Rock, survives on a publicly-funded drip feed that sustains equity and property market prices at levels which make little sense on anyone's terms. The period in between was largely shaped by Alan Greenspan's monetary recklessness, rising inequality, and the remorseless increase of personal, corporate and state indebtedness.

After the triumphalism of the Roaring Nineties - the fall of communism in Eastern Europe and the ascendancy of Davos Man - the Noughties ushered in a period of untrammelled corruption, social Darwinism, beggar-thy-neighbour fiscal policies involving endless tax breaks for the rich and well-connected, and the inevitable speculative booms that accompany such feckless clientelism.

Most of the people I've spoken with in the past few months seem to identify 2001 as a turning point. And not just for the obvious reasons related to 9/11 and the War on Terror. This was also the point at which personal and corporate debt began to spiral. In the same year US Secretary to the Treasury Paul O'Neill acted unilaterally to pull the plug from the OECD's harmful tax competition initiative. It was at that stage that the fragile consensus between leading industrialised countries that measures were needed to roll-back the untaxed, unregulated tax haven economy simply dissolved. Weak at the best of times, the political will to take action against the global termites evaporated.

The following year saw some progress, in Monterrey, Mexico, towards an international consensus on the need to help poorer countries finance their own development by strengthening the mobilisation of their own resources. But commitment towards that goal, which will require strong measures to counter illicit financial flows and tax evasion, has seldom risen beyond the mere rhetorical.

Responses to the current crisis suggest that most governments in most countries aim to patch Humpty-Dumpty together again, with a few tweaks here and there to persuade public opinion that what happened in 2008 was an unforeseeable mishap rather than an entirely predictable systemic failure. Deep down, however, most people sense that a consumption-led recovery based on piling debt onto more debt, just won't work. There comes a time when trust in financial engineering evaporates, and at that stage the turbo-charged debt-driven model of aspirational consumerism simply runs into the sand. We have reached that stage.

What comes next? For some countries the options seem rather stark. As Warren Buffett has said on several occasions, it's only when the tide goes out that you learn who's been swimming naked; countries like Ireland, Iceland, the USA and the UK fall into this category. Hopelessly over-dependent on tax breaks and lax regulation to anchor foot-loose portfolio capital to their shores, and politically captive to the special interests of financial capitalism, these countries will probably continue to drive the global race-to-the-bottom in both these areas. The coming decade is likely see more of the policies that shaped the Noughties: socialism for the rich and capitalism for the poor.

What the Noughties revealed beyond all doubt is that when it comes to subsidies and special treatment, rich people and powerful corporations can never have too much of a good thing. And despite the post-London G-20 rhetoric, the steps being taken by the OECD against the secrecy jurisdictions are too weak to have any meaningful impact.

But I want to end the decade on a slightly more positive note. Almost everyone I've met in the past two years, during which I've travelled for work related purposes to twenty-four countries in five continents, is agreed that the world of ideas has fundamentally changed. The orthodox economic consensus that ruled the roost for decades has crashed. Homo economicus stands revealed as a naked swimmer. New economic models are required which recognise that unregulated markets (especially financial markets) tend towards imperfect structures and a decidedly sub-prime allocations of resources.

And alongside this recognition that markets perform best when they are effectively regulated to promote public interest over special interest comes another understanding: tax plays an important part in shaping the types of societies we live in. A new tax consensus is emerging which sees tax as playing a positive role in shaping social and economic justice. Tax Justice Network has played a modest role in shaping this understanding, and we will be building on this agenda in the coming decade.

Happy New Decade et Bon Courage

John Christensen