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Revue Française des Finances Publiques

Single financial account : an opportunity for local financial governance?

RFFP n° 144 – 2018

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Editorial

 Editorial

Public finance and social justice
 
Are we gradually losing the meaning of collective, general interest,
solidarity and lastly social justice? This question emerges when
observing how the public financial system has evolved over the past
40 years.
Although public finance plays a central role in the operations and
debates of contemporary society and constitutes a key part of the social
and economic political system, over the past 40 years the spotlight has
primarily been on managing public finances in relation with the impact
of public spending and mandatory contributions on the economic
market. Mindsets were and remain fully focused on controlling
spending, reducing deficits and mobilising fiscal resources. The result
is an endless quest for increasingly sophisticated technical systems
which progressively lead to a structure and practices of unparalleled
complexity requiring more and more artificial intelligence and the
automation of procedures to operate and control. Energies are drained
with this focus on the search for the ideal technician offering the perfect
model for management control. At best, they deteriorate by isolating a
fundamental aspect, a question that should be taken into consideration
inclusively, that is to say within a well identified social project that
would not hesitate between solidarity and free competition. Such a
dilemma has until now remained unanswered other than ideologically
or technically at the risk of resulting in financial cybernetics that would
mean the end of free political decisions.
The major question in public finance is now how to achieve
sustainability, a balanced budget meaning balanced accounts, without
ever wondering about the relationship between this balance and social
justice. This situation is in part due to the fact that public finance is part
of an environment that is continuously in transformation and at a rapid
pace. This results in a crisis of how to recognize and understand its own
new challenges. It is as if the social and economic complexity prohibits
a large-scale approach and reduces any discussion to quantifiable levels.
This objective for balance that drives discussions and practices
overshadows any interest in defining the role of social justice in
contemporary society. Firstly is the question of whether public finance,
public expenditure and revenues must remain neutral in relation to
such an objective or on the contrary if their function is to ensure social
justice. However, in this case, the question remains of how and what
social justice? What is the meaning? Yet the answer is not simple.
It encompasses ethical, philosophical, social, political and economic
aspects. Accordingly, social justice represents a particularly challenging
issue to resolve especially if it is not accompanied by a philosophy and
general ethics. It is a volatile and abstract notion. It depends on the
forms, functions and meanings that are attributed to the public sector
and the market at a given time and in a given place.
Regardless, several questions should be answered:
Firstly, what social justice do we mean? Redistributive? In other words,
social justice that aims, through a redistribution of wealth by public services
or progressive tax rates, to reduce income inequalities. The legitimacy
of this type of social justice was recognized virtually by all during the
“Trente glorieuses” (30-year post-war boom) as one of the key attributes
of the welfare state. Distributive? A proportionate approach based on the
principle that wealth must be distributed on the basis of individual merit.
Social justice therefore means the equality of the ratio between what is
contributed and used by each person as a result of the effort by all. In this
case, the citizen must receive from society the same proportion as what he
contributes; as a result this same citizen, as a taxpayer, must be taxed more
or less in relation to whether he benefits more or less from the wealth
produced. The most fitting tax system for this type of reasoning would be
based on a proportional-rate spending tax such as VAT.
And what type of public finance are we talking about? The type that
falls under the State’s neutrality and that favours distributive justice?
The type that benefits from relatively intensive public intervention
based on redistributive justice?
It is surprising in recent times that a topic as important as social
justice has not been the subject of a major debate given that the social
and territorial divide are increasingly apparent. As everyone knows, the
question does not only concern the sustainability of public finance but
also social cohesion, a balanced society. Modern society can no longer
be or think of itself as collectively-minded without being convinced
that justice and equality, like the pursuit of the greater good, can
actually be achieved. For this reason, debating on what social justice
could be in today’s world in light of the diverse concepts that exist is
essential for the future. It is the alliance between citizens and taxpayers
that is at risk of suffering if a consistent formulation is not developed.
Whether we like it or not, once again public finance is at forefront. Not
only is the equality of people as regards public expenditure and taxes at
stake but also the choice of public policies and the way they are financed.
It is through budget and fiscal choices that social justice is defined, takes
it shape and materializes for a given society at a given time.
But behind the question of the relations between public finance and
social justice lies another question regarding the respective role of the
public sector and the market in society or even the future of the State.
It should be recalled that contemporary public finance, having arisen
from crises and the evolution of social demand after the Second World
War, has progressively undergone a change in scale that transformed
its relations with the general economy. The State, or rather the entire
public sector, has had increasing influence on the economy, on the
structure of goods made available to citizens, and on the distribution of
wealth1, in other words on economic and social development.
This change in the dimension of public finance that is due to a
constant increase in consumption and collective redistribution was
reflected in modern times by two necessarily connected phenomena:
the continuous growth of public spending and mandatory contributions.
This change is firstly quantitative: the financial burden of the State
and its components in relation to GDP has considerably increased. But
there are also qualitative aspects that are just as important. It is not
only the volume of public financial flows that has increased but also
their content, the nature of decisions to which they are subject and
the way in which they are implemented that have undergone profound
transformations. This results in traditional notions with increasingly
obscure borders being called into question; those such as public
spending raise for example new problems, specifically future spending
that was the topic during our symposium last June.
It is also necessary to recall that the crisis of the 1970s called into
question, not so much the principle of the State’s intervention in the
economic and social life, but the scale and level that has been reached
in the last 30 years. It raised a question on the effectiveness and the
legitimacy of this intervention.
For example, during the second half of the 1970s, owing to the
two oil shocks of 1973 and 1979, many States embraced a logic that
 
1. See Bouvier M., Esclassan M.-C., Lassale J.-P., Manuel de Finances publiques
(Public finance manual), LGDJ-Lextenso, 2018, 17th edition.
 
systematically limited its regulatory function as regards the economic
market in order to restore the “freedom of choice”2 of individuals on
this market. The governments of numerous countries challenged the
assumptions of budget and financial policies that had until then prevailed.
A process of deregulation followed that spread across the world and that
continues to grow stronger today in the context of the digital economy.
The State that had been considered as a provider of welfare and social
justice over the thirty years following the Second World War was
suddenly discredited. It was at this time when a profound transformation
started to take shape, first intellectually then in reality, resulting in a
political metamorphosis of policy that continues today.
Over the past few decades, this direction has been widely shared
by a majority of economists as well as political decision makers, as
part of the main stream. In summary, an idea took hold that the State
and its finances should leave more room for the economic market. The
State was denounced as a burden on society which was standing in the
way of individual initiative and slowing corporate development and
therefore economic growth.
Based on this perspective, the “financial phenomenon is an integral
part of the general economic phenomenon”3. It is a point of view that
aligns financial and political facts on the principles that should govern
the market.
Trust in the State’s regulatory role for the economy and society
therefore shifted to a belief in the market which also placed public
finance at the heart of all debates. It was argued that the only remedy
to a progressive paralysis of the system and the only possible solution
would be to pass a regulation by the State to lower public spending
and the tax burden. The grounds of such an approach are, as previously
stated, the combination of the digital economy and globalisation that
threaten taxation. Pursuing this approach any further would result in
undermining the State as the political model and even incarnating the
boldest theories developed by ultra-liberal thinkers.
This is why it is necessary to question the merits of condemning all
public sector intervention that would implicitly lead to the conclusion
that voluntary policies that were conducted for example in the 1960s in
terms of public investments were at best useless and at worst damaging.
On the contrary, we believe it is best to think about and conduct these
 
2. Milton and Rose Friedman, La liberté du choix (Freedom of choice), Belfond, 1980.
3. Di Viti de Marco A., cited by Dehove G., « Science et finance » (Science and
Finance) in Deux siècles de fiscalité française (Two centuries of French taxation), edited
by Bouvier J. andWolff J., Mouton, 1973.
 
interventions skilfully; it is not wise to reject them on principle at a
time when very serious economic and social issues abound4.
Accordingly, in addition to jumping to a negative opinion on
interventionist policies as being decidedly excessive, a total withdrawal
to the benefit of the economic market may even be irresponsible. This is
why a public investment policy developed by the State and the regional
authorities has proven to be vital in hindering the development of problems,
primarily social, likely to spill over into economic and political life.
In other words, it comes down to redefining the concept of the
structure and the role of the national and local public sector. In a
globalised and digital world, this involves reconciling the control of
public finance and social solidarity, in order to build a State for the
21st century. A State inspired by generous and compassionate ideas at
the origin of the welfare state. A new institutional and political model
must be imagined, a model designed around a public financial structure
that does not separate but integrates the sharing of public spending and
taxes based on the inclusion of the two concepts of justice, distributive
and redistributive.
The transformations of contemporary State needs to be thought of
together with transformations of the public financial system, and vice
versa, based on an approach that focuses both on the individual and
collective good.
In other words, our objective and the objective of our political
representatives should be to build a structure that reconciles social
justice and competition. This objective is not simple as it consists of
organising an idea of society for public and private actors and structures
in a harmonious manner based on different and occasionally conflicting
models. This involves nothing less than redesigning the framework of
our current world to invent a model helping to redefine the legitimacy
and finances of the public sector aimed at social solidarity.
The intellectual effort to design such a project is already substantial.
The financial effort required to make it happen will undoubtedly be too
and will require certain sacrifices to be made. Yet, it is worth it since
it is essential for reducing social and territorial divides, for ensuring
the future of democracy and for defining our legacy, that is to say our
humanity.
 
Michel BOUVIER
 
4. On these points, see Heilbroner R. and Milberg W., La crise de la pensée économique
moderne (The crisis of modern economic thinking), Economica, 1997.
 
 

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