Citizens’ anger is palpable, global, often misdirected
An awesome 6.7 percent of Iceland’s resident population took to the streets last month to demand the resignation of their prime minister. The rallying cause was his perceived duplicity regarding offshore investments in banking tax havens, as revealed by the “Panama Papers.”
More than a little bit of this anger is no doubt driven by the fact that perceived tax avoidance was discovered while the nation is still recovering from a serious fiscal and financial crisis that was tied to the global financial meltdown of 2008. The savings of 50,000 Icelanders disappeared and 25 percent of the nation’s homeowners fell into mortgage default.
Prime Minister Sigmundur Davíð Gunnlaugsson came to power on a wave of anti-bank sentiment and was widely credited for leading an unbelievable success story in Iceland. The country after letting its three big banks fail, imposing strict capital controls, sending bankers to jail and essentially concentrating its government on social programs. People no doubt felt betrayed when the media reported that Gunnlaugsson had hid millions while the country was collapsing. By introducing a 39 percent tax on creditors of the country’s failed banks and basically guaranteeing deposits of his Icelanders (but not the foreigners who invested in their risky offerings) he could have been a hero at least to his countrymen and women. Instead, he was forced to resign last month over his perceived undisclosed personal gain after he had led the fight for transparency.
Just to put this protest into perspective, if the same percentage of Americans had gone out to protest some malfeasance – or even just to celebrate the 4/20 “holiday” a couple of weeks ago, perhaps at the prospect of Canada legalizing recreational drugs – that would be 21 million people. That is roughly the entire combined population of Nevada, New Mexico, Nebraska, West Virginia, Idaho, Hawaii, Alaska, Maine, Vermont, Rhode Island, New Hampshire, Montana, Delaware, both of the Dakotas, Alaska and Wyoming.
We know other people are mad out there. Widespread public disaffection with those in charge has been pretty much a constant theme in American politics, especially in the presidential sweepstakes, but there also are signs of global discontent.
As I write this, Brazilian President Dilma Rousseff has been suspended from office, as the Brazilian Senate voted 55-22 to put her on trial for breaking budget laws and a corruption scandal. One byproduct of this mess is that Brazil has just sacked its sports minister, who was overseeing preparation for the 2016 Summer Olympics, along with every other minister except the central bank governor. The government will now be led by Vice President Michel Temer, who promises an austerity program, including reform of the unaffordable pension program.
But people don’t seem to be mad about costly pension systems, even though so many jurisdictions around the world that are in fiscal trouble can trace those difficulties to paying public employees greater benefits than the taxpayers themselves are earning. Citizens are clearly mad about “government spending,” according to the polls, but this is apparently spending only on other people they don’t care about.
Puerto Rico is the latest case for public mood regarding reform efforts to fix unsustainable fiscal conditions. As recently as 1998, former Gov. Pedro Rosselló, a dentist and University of Notre Dame graduate with a masters’ degree in public health, was president of the Council of State Governments and simultaneously chair of the Democratic Governors Association and Southern Governors Association. The much-admired governor had proposed an economic model which reduced working families’ income tax rates by 30 percent, while unemployment had been slashed to its lowest level in two decades. The explosive crime rate had been reduced as well. He was the last two-term governor of Puerto Rico.
Luis Fortuño, who came to politics during the Rosselló administration as executive director of the Puerto Rico Tourism Co., teamed up with Rosselló in 2004 to be elected Resident Commissioner and then ran against him in 2008 and was elected governor. A graduate of Georgetown University and the University of Virginia Law School, his background in government had been all about economic development.
As a candidate, Fortuño swore he would not lay off a single government employee, but once elected, he quickly noted that extraordinary measures to confront the $3.2 billion deficit might require the sacrifice of nearly 30,000 government workers. Since the government employs more than a quarter of the workforce, this was to be expected in any kind of fiscal reform. Two months after he was sworn in, Fortuño announced a fiscal and economic recovery plan that included reducing the government’s annual expenditures by more than $2 billion. Workers took to the streets, but Fortuño stuck to the plan.
The cost-containment and revenue-generation measures resulted in a $2 billion structural deficit the first year, which fell to $1 billion the next, $610 million in fiscal year 2011-12 and $332.7 million in 2012-13. Fortuño set out a goal of achieving a structurally balanced budget during the first year of the governor who succeeded him.
But the debt remains. In fact, more debt than any state except California and New York. Heroic attempts to manage the island’s public finances are generally still winning approval and honors from people who care about government, (Fortuño was also president of the Council of State Governments) but mostly opprobrium from the citizens. Current Gov. Alejandro Padilla Garcia, who came to office with a plan to cut another $1 billion of public spending, has a 12 percent popularity rating and announced six months ago that he is not running for re-election. The commonwealth is reportedly dead-ass broke, and can’t pay $2 billion in debt payments due next month.
Puerto Rico doubled its debt in 10 years by selling more than $126 billion in bonds, first to cover budget deficits and then to pay for operating expenses. A 2006 sales tax was enacted to stabilize the local economy because multigenerational “bootstraps” tax breaks had been phased out over a decade. Since that time, the Puerto Rican economy has shrunk every year but one, and the poverty rate is double the poorest U.S. state.
David Walker, the former U.S. comptroller-general, suggests we got to this crisis situation via “the politics of avoidance.” He was, of course, referring to the shopworn metaphor of “kicking the can down the road,” but public officials seem fixated on avoiding public wrath.
Last month, I had a chance to visit with the two top state legislative leaders – the Senate president and House speaker – in a state which had held its primary the weekend before. This was a caucus state, the form of primary that supposedly allows political parties the greatest control over the process. Both leaders were surprised by the result, and both said it’s hard to advise their members how to vote and how to run for election this year. These are both longtime lawmakers who meet with constituents every day to ascertain what mainstream citizens expect from government.
The constituents care about sustainability as practiced by Wal-Mart or ExxonMobil, but not necessarily as attempted by government. Unfortunately, their anger is not always directed at the breach of promises to fix the state, city, commonwealth or country so that it will last a while longer, but it surfaces regularly at any suggestion to curtail continued benefits.
Most people – with certain tea party members as exceptions – don’t seem to be mad at government in general, but furious at those who hold levers of power, particularly when they sense hypocrisy or not delivering on promises to make things better. Even if the objects of this disaffection have strong records of achievement in some areas, it’s all about figuring out what the constituents really care deeply about. Which, it should be noted, is not always well-managed government.
