Winter 2012 - 2013 Issue
Letter from the Chairman Dear Reader, You are a leader who can make a difference. Otherwise you would not be holding this magazine and reading this letter to you! At the World Economic Forum Annual Meeting at Davos in January, world leaders come together to discuss the major issues and tasks ahead. And there are indeed some grave challenges facing the world, such as the sustainability of the earth as an ecosystem, energy policies and the state of the global financial system (see articles about all these topics herein). There is unemployment and underemployment all over the world, including in the emerging economies in Asia, Africa and the Gulf. Job creation via the promotion of SMEs should be a major part of the solution to this problem. In Europe, the financial system has been dysfunctional in providing finance for SMEs. One issue of key importance to CFI.co is unemployment in the “western” or “developed” world. Many emerging economies are creating jobs (e.g. in Asia and Latin America through low taxes) but there is interdependency as they are still partly relying on “old” world prosperity. In Europe in particular, unemployment should be of grave concern. Critical human assets are seriously underutilised. Future generations are being lost to the labour markets. Not only is this a human tragedy, but it is also the case that Europe is losing its competitiveness. Instead of there being resources available to help Europe counter global competition these folks (unwanted as employees) will burden their welfare states – along with the greying population. Youth unemployment in particular is so gravely unfair to new generations who are not themselves at fault but still suffer the consequences of policies of intergenerational selfishness. Also, this idleness threatens the social fabric and undermines trust in democracy and capitalism. And the dangerous sentiments of nationalism (Scotland), fascism (Greece) and secessionism (Catalonia) are stimulated. The socialist and centrist governments’ response has been that of increasing taxation and touting income and wealth equality and redistribution. Unfortunately such fiscal policies only perpetuate the unemployment problem and export jobs East and South. The divergence between growth in advanced and emerging economies is thus very likely to persist. As world economies converge there are new generations that are losing out. Jobs are lost as European governments call for higher taxation and further regulation. The populist policies of soaking the rich by increasing marginal income tax rates have delivered lower revenues to the state (and thus created a greater need to tax labour income). These policies have also resulted in fewer millionaires in certain tax jurisdictions (think of the UK where 10,000 disappeared in a recent reporting year). HNW individuals are also part of the job creation equation. The lack of job creation is not god given but a result of the low priority given to it by politicians. Income and wealth distribution and equality are for some objectives in their own right even if the pie shrinks and jobs are lost (consider France’s planned 75% tax rate and the attitude of the Liberal Democrats in the UK). When labour is taxed, fewer jobs are created. It is plain then, that in order to create jobs taxation on labour must be reduced. Of course the older generation (critical voters) see no need for this as they are running down their meter of retirement. The solution lies in stimulating risk finance for entrepreneurship and innovation. Private capital is available but is not being deployed. In Europe, the system must be simplified with lower taxation on labour (flat maximum 25%-35% rates) but moving higher on consumption (VAT), energy and green taxes. The taxation system must also be seen to be predictable and fair to capital and business (with less populist rhetoric against the rich - or private capital will remain on the side lines). CFI.co believes strongly in free enterprise but when new generations are denied job opportunities they are losing out, they are not free to compete and they are denied their right to self-fulfilment.
CAPITALFINANCE I N T E R N AT I O N A L
Tor Svensson Chairman Capital Finance International CFI.co | Capital Finance International
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