13 January 2023
Transformational Economics Commission
In a few days, some of the richest people on Earth will gather in Davos to discuss the most pressing issues facing humanity. However, it is unlikely they will have the courage to discuss the real roots of these issues.
This is a letter to all leaders who are committed to stable democratic societies this century; societies able to take long-term decisions for the common good. Democratic values connect those on the political left and the political right. Yet wealth and income inequality are contributing to an erosion of democratic institutions and values.
The Transformational Economics Commission of the Earth4All initiative says that, left unchecked, wealth and income inequality will continue to grow this century causing rising social tensions. What is needed is a new social contract between citizens and governments founded on greater wealth redistribution: a fair and just taxation policy that taxes wealth to address inequality directly.
Why is this needed now?
Despite the fact that millions of people died during the global pandemic and billions suffered, the ten richest men doubled their fortunes. The richest 10% of the global population now take 52% of global income and hoard 77% of global wealth; the poorest half of the global population earn just 8% of global income and own 2% of global wealth. This gap is expanding.
Despite the fact the world is in a climate emergency, the richest 1%— over 80 million people — are the fastest-growing source of emissions by far. This luxury carbon consumption comes at a time when every single month the world burns through 1% of the remaining carbon budget for any hope of stabilising climate at 1.5°C.
Despite the fact that the world has never been so wealthy, most people are kept in a state of economic insecurity. The world is in a polycrisis and citizens across the globe are suffering from rising costs of living, stagnating wages, a looming recession and enduring poverty all of which help contribute to a dangerous slide back from democracy.
Despite the fact that the world is in the midst of an energy crisis driven by war in Ukraine, fossil-fuel companies are profiting to the tune of hundreds of billions of dollars.
The world is not going to simply grow its way out of this. The crises will continue to evolve, collide with one another and rapidly worsen, with even bigger crises on the horizon: Earth has already crossed six of nine planetary boundaries.
The growing chasm between the handful of super-rich and everyone else is a recipe for deeply dysfunctional, polarised societies. It cannot go on. The concentration of wealth leads to the concentration of power, giving the wealthiest a disproportionate influence over governing institutions. This undermines trust in democracy, which then makes it more difficult for governments to take long-term decisions that benefit the majority of people. On the other hand, more equal countries tend to have better outcomes when it comes to trust, education, social mobility, longevity, health, obesity, child mortality, mental health, homicides and other crimes, drug misuse and attitudes to the environment.
The Transformational Economics Commission of the Earth4All initiative concludes that, left unchecked, wealth and income inequality will continue to grow this century with devastating consequences for societies. Rising inequality will contribute to rising social tensions and unrest.
Addressing wealth and income inequality is key to building resilience to the multiple crises confronting us and to ensuring greater economic security and stability. Fairer wealth and income distribution will reduce social tensions and improve wellbeing. It will also help make democracies more stable so that they are better able to deal with shocks and take rational long-term decisions for the common good.
If we value democracy, if we value stability and if we value our future, governments should redistribute wealth and income more fairly.
We propose that by 2030 the wealthiest 10% in all countries receive less than 40% of national incomes. There are many levers required to affect such a fundamental transformation – but all of them require much higher levels of public engagement and spending. Reducing wealth and income inequalities can be achieved through progressive taxation on both income and wealth for individuals and corporations. Unfortunately, most tax systems around the world are both outdated and regressive. They simply cannot deliver the revenues required, or ensure that the rich pay more than the poor relative to income. But there are ways to fix this, if there is political will to take the right measures. This is why we ask world leaders to take bold steps this year to:
Tax wealth, especially the assets of the extremely wealthy wherever this wealth is held, including tax havens, and make this possible by developing and sharing national registries of assets held in different forms.
Tax income, including income from capital, more progressively
Tax companies – apply a minimum global tax on companies in 2023 that is close to the global average rate of 25%, and make multinational corporations subject to the same rates as domestic companies by introducing unitary taxation of their global profits on the basis of individual country shares of sales, employment and assets held in each country.
Tax windfall profits in all sectors, especially profits made during periods of scarcity and speculation when the rest of the world is worse off.
Tax luxury carbon and biosphere consumption and phase out all tax incentives for fossil fuels.
To complement such efforts, governments must once and for all close international tax loopholes and eliminate perverse taxation structures with a view towards investing all revenues from progressive wealth and income tax in social programmes, gender empowerment, decarbonisation and the transformation of energy and food systems that service people’s needs.
Business leaders gathering in Davos this week may feel that this strategy is against their short term and individual interests, but this is a very limited and ultimately self-destructive view. We call on them to champion this agenda and be a positive force for democracy, stability and the long-term future of humanity.
Endorsed by the Transformational Economics Commission.
Nafeez Ahmed, Director of Global Research Communications, RethinkX; and Research Fellow, Schumacher Institute for Sustainable Systems
Lewis Akenji, Managing Director, Hot or Cool Institute
Tomas Björkman, Founder, Ekskäret Foundation
Sharan Burrow, Former General Secretary, International Trade Union confederation (ITUC) 2010-2022
Robert Costanza, Professor of Ecological Economics, Institute for Global Prosperity (IGP) at University College London (UCL)
Sandrine Dixson-Declève, Co-President, The Club of Rome and Project Lead, Earth4All
Lorenzo Fioramonti, Professor of Political Economy, Director of the Institute for Sustainability, University of Surrey
John Fullerton, Founder and President, Capital Institute
Owen Gaffney, Earth4All Project Lead and Chief Impact Officer Nobel Prize Outreach
Jayati Ghosh, Professor of Economics, University of Massachusetts Amherst
Tim Jackson, Professor of Sustainable Development and Director of CUSP, the Centre for the Understanding of Sustainable Prosperity at the University of Surrey
Garry Jacobs, President & CEO, World Academy of Art & Science
Gaya Herrington, Sustainability Researcher and Author of Five Insights for Avoiding Global Collapse
Andrew Haines, Professor, London, UK
Steve Keen, Honorary Professor at University College London and ISRS Distinguished Research Fellow
Julia Kim, Member of the Executive Committee, The Club of Rome
David Korten, Author, speaker, engaged citizen, and president of the Living Economies Forum
Roman Krznaric, public philosopher and Senior Research Fellow, Centre for Eudaimonia and Human Flourishing, Oxford University
Jane Mariara, President of the African Society for Ecological Economists
Chandran Nair, Founder and CEO, The Global Institute for Tomorrow
Kate Pickett, Professor of Epidemiology, University of York
Carlota Perez, Honorary Professor at IIPP, University College London (UCL); SPRU, University of Sussex and Taltech, Estonia
Mamphela Ramphele, Co-President, The Club of Rome
Jorgen Randers, Professor Emeritus of Climate Strategy, BI Norwegian Business School
Kate Raworth, Author of Doughnut Economics and Co-founder of Doughnut Economics Action Lab
Otto Scharmer, Senior Lecturer, MIT, and Founding Chair, Presencing Institute
Stewart Wallis, Executive Chair, Wellbeing Economy Alliance
Ken Webster, Visiting Fellow Cranfield University and Univ of Auckland Business School
Ernst von Weizsäcker, Honorary President, The Club of Rome
Anders Wijkman, Chair of the Governing Board, Climate-KIC, Honorary President, The Club of Rome.