Vanni Pettinà: the crisis of neoliberalism and the G20 summit 

The official portrait of President Biden by Adam Schultz

Vanni Pettinà is associate professor at the Centro de Estudios Históricos de El Colegio de México. He is currently a visiting professor at Ca’ Foscari, where he has taught International Economic History at the Department of Linguistics and Comparative Cultural Studies. Professor Pettinà is an expert in international history and his teaching focuses on the relations between the United States and Latin America, and in particular with Mexico. His research explores how the international context of the Cold War influenced the process of economic development of peripheral countries in their quest for greater autonomy from the USA. His most recent publication is Latin America and the Global Cold War, edited with Stella Krepp and Thomas C. Field Jr. (University of North Carolina Press 2020).

In an article published on the Spanish newspaper El País, Professor Pettinà observes that some of the proposals that have recently been made by the Biden administration had already been proposed in the 1970s by a coalition of developing countries led by Houari Boumédiène, President of Algeria. In 1974, President Boumédiène spoke from the podium of the General Assembly of the United Nations and argued that a New International Economic Order should be created.

We have asked Professor Pettinà to share some thoughts on the crisis of neoliberalism, on the new direction that the Biden administration has taken, and on the possible outcomes of the G20 summit, whose meetings on economics and finance will be held in Venice on 9 and 10 July.  

Houari Boumédiène, president of Algeria in 1974, and Janet Yellen, US Secretary of the Treasury in 2021: what is the link between these two people? 

First of all, I would like to stress that there can be a virtuous dynamic between the process of teaching and of developing ideas: my article is indebted to a lesson at Ca’ Foscari. I started a lesson with two photographs: one was a portrait of Janet Yellen (1946), current Secretary of the Treasury; the other one was a black-and-white photograph of the Algerian president Houari Boumédiène (1932-1978).  

Some students recognised Yellen, while no one recognised Boumédiène. In April 2021 at the Chicago Council on Global Affairs Yellen proposed the creation of a global tax deal, and in particular of a global minimum corporate tax rate. Actually, this proposal had already been made by Boumédiène in 1974. When I saw the students’ surprised reaction to these connections, I decided that more people should know about it, which is why I wrote the article that was published in El País.

What is Yellen proposing, and what did Boumédiène propose?

Janet Yellen is proposing that we implement a new global tax system: a tax on the profits of multinational corporations that will prevent them from evading taxes. The aim is to fight against the current “legal” forms of tax evasion. This would enable countries to gain financial resources that could be invested to redress issues such as social inequality, as well as problems in the education system and healthcare. 

Boumédiène wanted to regulate capitalism by means of international regulations, with the creation of a New International Economic Order. The president of Algeria represented an heterogeneous group of countries, which in the past used to be called the “Third World”. Even though these countries were quite different from each other, they were united by a common goal: that of reshaping international economic structures. This revolution might have enabled them to escape the yoke of economic underdevelopment. 

The “tragedy” of History is that the possible solutions to this crisis went in opposite directions, and Boumédiène and the countries that he represented didn’t have enough political strength to prevail. In the end, the neoliberalism of Ronald Reagan and Margaret Thatcher was adopted, and at the time this approach seemed to be the most viable solution to the crisis of the 1970s.

In your article you mention the current crisis of capitalism and the need to reform it. What is this crisis like?

Before 2008 the other great crisis of capitalism happened in the 1970s, when Richard Nixon’s administration decided to end the Bretton Woods system. This resulted in a neoliberal turn, which was promoted by Reagan and Thatcher and involved deregulation, privatisation and a reduction of social welfare. In his inaugural address at the White House in 1981, Reagan said: “In this present crisis, government is not the solution to our problem, government is the problem”. 

The neoliberal approach brought about the crisis of 2008, highlighting the weakness of governments against the strength of the financial markets. This weakness has shown that in some countries, including Italy, which had invested less in the public sector and healthcare, faced great difficulties in managing the pandemic from a healthcare and social perspective. 

What measures is the Biden administration adopting to distance itself from the neoliberal model? 

The approach taken by the Biden administration seems to indicate that it intends to substantially modify some of the pillars of the neoliberal model.  

Taxation is a crucial point. In addition to the implementation of a global tax, Biden is suggesting that the tax rates that Trump had lowered should be raised again, albeit slightly. This will contribute to the financing of the infrastructure plan that the USA are launching: federal resources will be invested in the modernisation of the country. In a period of crisis which has been worsened by the pandemic, government intervention, by adding resources to the market, can contribute to the creation of jobs. There is also a plan to increase the pay of federal workers. There is a more open approach to trade unions, which used to be considered the “enemy”  of economic development and social equity. Overall, these measures aim at the creation of greater social equity. In fact, taxation is one of the most revealing indexes of inequity: just consider the astronomical profits that “billionaires” make and the fact that these profits aren’t always taxed proportionally. 

The global tax on multinational companies proposed by Yellen and discussed at the G7 should close the loopholes in the international financial system. This would improve the USA’s tax collection power. This is exactly what Boumédiène proposed in 1974. 

About the global tax on multinational corporations: what might the next steps in this direction be, considering the G20 summit which will be held in Venice in July?

There needs to be a strong political agreement. I think that there is currently a shared intent between the USA and the EU. However, some of the G20 countries may not be in favour of the tax. For example, consider Brazil, whose current president is neoliberal and reactionary: this country may not be an ally, but an opponent. We need to wait and see the configuration of global geopolitics, as well as the European and US leaders’ ability to persuade the leaders of other countries. Now there are also many multinational corporations that belong to emerging countries and that may persuade their leaders to oppose the global tax. 

During the G7 summit, Biden made it quite clear that the position of his administration involves a more decisive containment of China. In this context of greater hostility between the USA and China than during Trump’s presidency, we will need to see if and how China will be willing to cooperate with the G20.

Certainly the G7 countries, which are united on this measure, are an important part of the global economy. This means they will be listened to. Even though it is likely that the countries of the G70 and of the G20 will disagree on some points, the fact that the G7 countries are in favour of a global tax will certainly count.

How will multinational corporations react to the proposal of a global tax? 

Multinational corporations are aware that news on their “tax tricks” may damage their reputation. There is always a risk that tax evasion, even when it is “legal”, will damage a company’s image. This is why I think it’s plausible that multinational corporations will adapt to this reform. In fact, among the reactions to the G7 minimum tax agreement there have already been positive ones by companies such as Google, Facebook and Amazon

However, emerging countries also have their own multinational corporations now, and they may not want to accept this global tax reform. We may witness the same phenomenon we see with pollution: while in Western countries pollution is an “obvious” issue that is addressed even by political parties that are traditionally less concerned about Ecology, this is not always the case in emerging countries. 

Are we witnessing a cultural change with regard to neoliberal capitalism?

The health crisis brought about by the pandemic has shown this quite clearly: if the government doesn’t step in, who else will?

I believe that the combination of political, social and economic crises, which are not all caused by the neoliberal economic model but which are somehow connected with it, are overturning values on a global scale. We are certainly witnessing a cultural change in the USA and the EU. When Boumédiène suggested a global tax, it was one thing. Now, with Biden suggesting it, things are quite different.

Biden’s proposals may appear to be strong choices. However, if we look at them more closely we can see this is not an overhaul. Let’s consider taxation: Biden is asking to return to pre-Trum percentages, which means raising taxes, but still keeping them relatively low. Overall, these forms of intervention seem quite bland, but nevertheless they show that the USA is taking a step in a different direction, from a qualitative perspective. 

As a consequence of the most recent economic and health crises, public opinion has been changing. While in the 1980s and 1990s there was a general view according to which the government was an “enemy” due to its inefficiency,  unions were something from the past, and privatisation and tax reduction were beneficial, now people are starting to change their minds about what is right and wrong

Here in the EU things are changing, too. Let’s consider the Recovery Fund: we’re talking about public money that will be given to governments and will allow them to implement economic policies that may also favour greater equity. 

Finally, if we consider Latin America, we can see that the Pink Tide has already involved some non-neoliberal changes, starting with the election of president Chavez in Venezuela in 1998. We always need to consider geopolitical weight: although other governments, such as Kirchner’s in Argentina and Lula’s in Brazil, were more successful than Chavez’s, none of them had enough political weight to prompt a change in the global agenda.  

As I have already said, now the Biden administration seems to want to go in a different direction. We will see what the global consequences will be, and the G20 summit will be a further testing ground. 

Authors: Joangela Ceccon and Federica Scotellaro / Translator: Joangela Ceccon