Scottish-born economist - Angus Deaton - recently published his new book - An Immigrant Economist…
There were regional elections in the autonomous community of Andalusia (Spain) over the weekend which saw the Spanish Socialist Workers’ Party (PSOE) hold onto power. The results showed that the left-wing political party – Podemos – which received nearly 8 per cent of the Spanish vote (5 seats) at the European Parliament elections in May 2014, was third in the Anadulusian election, gaining 15 of the 109 seats. The parallels with Syriza in Greece are now routinely being made. I am forming the view, however, that unless things change rather dramatically in Greece, Syriza may actually end up only undermining progressive agendas in Europe as they self-destruct under the iron fist of the Troika (I do not use the terms “the institutions” or the “Brussels Group”). This is of great interest to me at present because I am sketching out a 2016 book project at present with a co-author, which broadly focuses on the demise of the left and social democratic movements in the World, although we might pare the scope down with more discussion to concentrate on Europe. Of particular interest is the morbid inferiority of the French left relative to the Germans in the Post World War II period and the way in which American Monetarism has infiltrated and built on that inferiority. Much of the design of the monetary union can be understood through that sort of lens. So a broad canvas right now but that is always the case. Of immediate interest, though, is the possibility that Syriza will set progressive causes back rather than become the spearhead for a sweeping change in Europe and the end of this destructive era of neo-liberalism.
By way of background, the Socialists (PSOE) have been the ruling party in Andalusia since 1982 when the region became an autonomous community and held elections for the first time.
Some press reports have claimed that Podemos “made spectacular inroads in elections in the Spanish region of Andalusia” and that the “vote showed the anti-austerity sentiment that brought Syriza to power in Greece has now taken root in Spain” (Source).
But with the region the epicentre of the housing collapse, entrenched mass unemployment and a range of – corruption scandals – miring the Socialist Party, one wonders whether the result for Podemos is really as strong as some are suggesting.
As an aside, the most recent corruption scandal concerned the abuse of the so-called – ERE – which was a retrenchment fund designed to assist firms in sacking workers. The Socialists established the fund in 2001.
Evidently, many workers were paid out who had never worked at the companies involved, subsidies were paid to companies who had not even applied to retrench workers and various commissions and kickbacks (bribes) were paid to insurance companies, consultants, law firms and government officials. These corrupt payments are seemingly the tip of the iceberg with dodgy land sales
So a real ‘snouts-in-the-trough’ exercise.
This is also region that has the highest unemployment rates in Spain (currently 34.2 per cent) and more than 60 per cent of the 15-24 year olds are without work.
In 2013, the Atlantic Magazine referred to the region as the – The Most Doomed Part of Spain, in 2 Charts
And still the Socialists were able to hang on to power. So how strong is the progressive challenge from Podemos.
The demise of the left in Europe didn’t begin with the onset of the GFC. One might actually posit that the GFC was the culmination of a steady move to the right by political parties everywhere, which allowed ridiculous labour and financial market deregulation to occur and fiscal policy to be eschewed.
I have been reading a book by published in 2000 by Dutch academic Ton Notermans (who works at the Tallin University of Technology in Estonia) – Money, Markets, and the Stae – which explores the evolution of Social Democratic economic policies since 1918 (published by Cambridge University Press).
The opening chapter is entitled – Social Democracy in the Macroeconomy – which is the perfect place to start an analysis like this because the macro focus gave the leftist parties meaning and scope in the immediate Post World War II period that they have now lost.
The essence of his argument is that social democratic parties can only survive in a Capitalist system if they can mediate the class conflict and deliver full employment to workers while maintaining price stability.
Notermans says (p.1):
The social democratic vision of society envisaged a world in which human beings control their circumstances rather than being controlled by them. One essential characteristic of such a society would be that it guaranteed its members a decent livelihood. Rather than large sections of the population being condemned to inactivity by recurring economic crisis, all those able to take up employment should have the possibility of doing so. Those who temporarily or permanently lack the ability to provide for themselves should be able to count on the solidarity of society to provide them with the means for a decent livelihood. The inability to work should not be a condemnation to live a marginalized existence.
There are many other requirements including that the “society should be democratic”.
Notermans concluded that:
In short, the social democratic program aimed to reform the market economy so as to combine political and economic liberty.
In this vein, consider the recent letter written by European Commission functionary (one Declan Costello) to the Greek government –
The Irish Times article (March 20, 2015) – EU mandarin Declan Costello faces Greek wrath over ‘ultimatums’ letter – outlines what happened.
I love the use of the word “mandarin” to give the impression of importance of the person in question. Mutton disguised as Lamb is closer the mark.
Costello is, in fact, one of the Troika ‘monitoring team’ in Greece. The heavy boot from Brussels.
The journalist Paul Mason has evidently seen the text of the letter and explained in this article – Don’t pass new anti-poverty law, commission tells Greece – that text said:
During our teleconference last night, you mentioned the planned parliament passage tomorrow of the ‘humanitarian crisis’ bill. We also understand that other policy initiatives, including the instalment scheme law, are in train that are to go to parliament shortly.
We would strongly urge having the proper policy consultations first, including consistency with reform efforts. There are several issues to be discussed and we need to do them as a coherent and comprehensive package.
Doing otherwise would be proceeding unilaterally and in a piecemeal manner that is inconsistent with the commitments made, including to the Eurogroup as stated in the February 20 communiqué.
So democratically-elected Greek government – get back in your hole and do as we tell you not as you were elected to do!
The bill in question, by the way, was to provide free electricity to impoverished households and provide some income grants to other poor and homeless families.
The Irish Times article notes that:
Costello is one of the most powerful bureaucrats in the European Commission’s finance directorate, but he is also one of its most despised bureaucrats among the Greeks. One of the first things Tsipras did upon entering office was to decree that elected politicians would no longer meet unelected mandarins such as Costello.
He apparently also drafted another letter, which was leaked and gave the impression it had been written by the Greek Finance Minister, to corner him into accepting the unacceptable at the crisis meetings in February.
Moreover, Costello (a senior figure in the European Commission’s Finance Directorate) is on the public record as endorsing even more “surveillance” of national government economic policies and harsher sanctions that “have real bite” and can be invoked early before a government determines to act in accordance with its elected mandate (Source).
In the same evidence, he also said in relation to changes in EMU governance that “The proposals on EMU governance will take care of fiscal policy as well as macroeconomic imbalances and competitiveness, but you also need something to drive growth in our economies”.
So fiscal policy rules that impose austerity have nothing to do with driving growth! That is the mantra.
This sort of nonsense has become the mainstream as social democratic movements have declined and changed into shadows of their former selves.
Notermans considers the 1970s to be the breaking point for the “golden age” of social democratic parties because they were:
… unable to provide an economic policy program that could effectively address stagnation, unemployment, and inequality. Rather than providing an effective remedy against mass unemployment, social democratic policies seemed to make matters worse. Improving the income of labor and extending welfare state arrangements appeared to threaten the prosperity of the business sector on which the well-being of labor ultimately depended.
This is a very contentious claim and will need to be explored more fully. I will do that in a number of blogs over the next several months.
In my 2008 book with Joan Muysken – Full Employment abandoned – the Post World War II consensus in terms of what we called the Full Employment Framework. We juxtaposed it with the neo-liberal replacement, which we termed the Full Employability Framework.
The Great Depression taught us that, in the absence of government intervention, capitalist economies are prone to lengthy periods of unemployment, the Second World War experience proved that full employment could be maintained with appropriate use of budget deficits.
The employment growth following the Great Depression was in direct response to the spending needs that accompanied the onset of the War rather than the failed Neoclassical remedies that had been tried during the 1930s.
The problem that had to be addressed by governments at War’s end was to find a way to translate the fully employed War economy with extensive civil controls and loss of liberty into a fully employed peacetime model.
That context solidified the centrality of social democratic parties.
The Post World War 2 economic and social settlement in most Western countries was based on three main pillars. First, the Economic Pillar was defined by an unambiguous commitment to full employment.
Second, the full employment commitment (the Economic Pillar) was buttressed by the development of the Welfare State, which defined the state’s obligation to provide security to all citizens. Citizenship meant that society had a collective responsibility to ensure that the well-being of the population was a high priority.
This Redistributive Pillar was designed to ameliorate market outcomes and defined much of the equity intervention by government. It recognised that the free market was amoral and intervention in the form of income support and wage setting norms was a necessary part of a sophisticated society.
That concept replaced the dichotomy that had been constructed previously between the deserving and undeserving poor. The Redistributive Pillar recognised that the mixed economy (with a large market-component) would deliver poor outcomes to some citizens, principally via unemployment.
Extensive transfer payments programs were designed to provide income support to disadvantaged individuals and groups. But this support was – as noted – considered to be ephemeral given the commitment to full employment.
Third, the Collective Pillar provided the philosophical underpinning for the Full Employment framework and was based on the intrinsic rights of citizenship.
The rights of citizenship meant that individuals had access to the distribution system (via transfer payments) independent of market outcomes.
Furthermore, a professional public sector provided standardised services at an equivalent level to all citizens as a right of citizenship.
These included the public sector employment services, public health and education systems, legal aid and a range of other services.
But did this framework break down because it failed? That is Notermans’ contention and basically the contention that underpins those who justify the so-called ‘liberal approach’ which claimed (in Noterman’s words) that “generous welfare arrangements, a strong union movement, and extensive political management of the economy undermined the well-springs of economic prosperity”.
The answer is that the framework did not break down because it failed but was usurped by a growing resurgence of ideas that had been simmering for all the Post World War II period.
The corporate sector, the monied class, were continually struggling to shift the pendulum back in their favour as full employment and welfare arrangements clearly reduced income and wealth inequality and gave workers some power in the labour market.
The employers resented the more equal sharing of national income between workers and capital. But given the experience of the 1930s and early 40s where societies struggled against dictatorships, the social democratic parties had room to move because the citizens were empowered through the ballot box.
The simmering hatred for more sharing and worker power by capital was overwhelmed by the power of the vote – we liked growing wages, better public services, mass education, public hospitals and the capacity to gain employment whenever we desired to work.
The employers still, ultimately, ruled, but faced limited opportunities to be capricious and maintain dangerous and poorly paid working places such was the scrutiny of the state, as the mediator of the class conflict.
Capital funded academics to produce a plethora of material which alleged to show how dangerous trade unions were or how wage rises would kill growth etc. Nothing much has changed except during the full employment period with growing real wages (in line with productivity) it was hard to mount a case that disaster was about to strike.
All that changed when the Arabs retaliated against Zionist aggression and pushed up the oil prices in 1973.
The outbreak of hostilities in the Middle East in October 1973 (the 1973 Arab Israeli War) was accompanied by the oil embargo imposed by the Organization of the Petroleum Exporting Countries (OPEC).
A few days later, on 16 October, the Arab nations increased the price of oil by 17 per cent and indicated they would cut production by 25 per cent as part of a leveraged retaliation against the US President’s decision to provide arms to Israel.
The price of oil rose by around three times within eight months.
That political event was exploited by the growing literature from conservative economists about the dangers of the welfare state and full employment – they were arguing that it would result in accelerating inflation.
The economic models themselves are spurious (and nonsensical) but it was the serendipitous outbreak of inflation associated with the oil crisis that allowed them to dupe governments (and the voters) into believing that the inflation was the direct result of the full employment and wage equity.
Monetarism (championed by Milton Friedman and his colleagues) displaced Keynesian thinking as the dominant economic policy paradigm. How that infiltrated the European debate is an interesting story and will be part of our book narrative. Blogs will appear on this theme in due course.
The rise in acceptance of Monetarism and its new classical counterpart was not based on an empirical rejection of the Keynesian orthodoxy, but was according to Alan Blinder in 1988:
… instead a triumph of a priori theorising over empiricism, of intellectual aesthetics over observation and, in some measure, of conservative ideology over liberalism. It was not, in a word, a Kuhnian scientific revolution.
The reference to a Kuhnian scientific revolution meant that there was no superior knowledge in Monetarism that displaced errant understandings of the Keynesian paradigm.
It was a power grab by the conservatives who then proceeded to dupe the citizenry into thinking that Keynesians were making “matters worse” (in Notermans’ words).
The reality was the problem was (and remains) that the coincidence of unemployment and rising inflation in the 1970s was not a problem of excess demand. The fact is that that the price instability came from the supply side as the OPEC sheiks drove up oil prices.
The policy response to cut aggregate demand and thus increase unemployment was exactly the wrong response. The Monetarists exploited that policy error and claimed that it demonstrated a categorical failure of the Keynesian approach.
Any Keynesian remedies proposed to reduce unemployment were met with derision from the bulk of the profession who had embraced Monetarism and its policy implications. They claimed that the economy would always tend back to a given natural rate of unemployment (which was associated with stable inflation), no matter what had happened to the economy over the course of time.
Time and the path the economy traced through time were thus irrelevant. Only microeconomic changes would cause the natural rate to change. Accordingly, the policy debate became increasingly concentrated on deregulation, privatisation, and reductions in the provisions of the Welfare State.
The so-called structural or supply-side remedies.
Unemployment continued to persist at high levels and soon, underemployment entered the scene.
This is the world we now live in.
The problem is that the media concentration, the billions given to right-wing think tanks and the academic programs pumping out characters like those who enter the multilateral economic agencies (like the IMF), the European Commission, and the treasuries and central banks, has entrenched such a pervasive Groupthink that little alternative debate is possible.
They have choked the policy space available to social democratic parties and infiltrated their ranks. Examples of ideological change within social democratic movements during the 1970s and early 1980s abound.
In France, for example, François Mitterrand – shifted in a diametric fashion after he introduced a neo-liberal austerity program in 1984-84. He had rejected the earlier Barre Plan introduced in 1976 by French Prime Minister Raymond Barre, under President Valéry Giscard d’Estaing, which was the first Monetarist regime in the world.
Mitterand’s shift showed how far the French had shifted from their Gaullist ‘Keynesian’ days.
Which brings me to Syriza – in terms of my contention that it runs the danger of damaging any hope of a return to progressive, social democratic policy regimes for years to come.
There was an interesting article in the Jacobin magazine yesterday (March 23, 2015) – Time Isn’t on Our Side – that bears on this contention.
The article by London academic Stathis Kouvelakis provides the best account of what is happening within Greece and between the new Greek government and its European masters.
It claims that Syriza politicians are engaging in “media spin” to proclaim a “victory” after the February 20 negotiations with the Eurogroup.
But even without going into a detailed analysis of the commitments undertaken by the Greek government while signing the agreement, it’s clear that it didn’t take long before reality refuted the main points of the preceding argument … it became clear that the government’s hands were tied …
As a consequence, during the first month of the left government, a period of unprecedented legislative inaction prevailed, a vivid reflection of the long-prepared “iron cage” in which the European Union (EU) had imposed on the undisciplined Greeks …
In essence, this means that the redistributive measures that could provide genuine relief to the working class and other popular strata, and would allow Syriza to stabilize its social alliances, are deferred indefinitely.
He also says that the first few months of Syriza have already “highlighted the contradictions of the Thessaloniki Program, on the basis of which it was elected and which it was supposed to implement without negotiation.”
As the Costello letter demonstrates, the Troika won’t let them do anything that is “unilateral” – that is, which the Greek government determines itself is in the best interests of the Greek people and consistent with its elected mandate.
Then he gets to his main hypothesis:
The plan – or rather, the range of strategies – currently being considered by the Europeans can be summed up as follows: either trigger in the short term the collapse of the Syriza government, or, and this appears to be the prevailing option, drag it into a new strategic retreat in April, which will prepare the ground for a final capitulation in June.
This is consistent with the way the Eurogroup is behaving, the astounding “no, no, no” intervention by the ECB boss, the press briefings by the likes of Wolfgang Schäuble, Angela Merkel and the arrogant letters from Costello.
Syriza has been caught in a “deadly trap” because it refused to advance the obvious alternative – exit.
This is part of another strand of the demise of the left in Europe which our book will explore – the obsession by the educated left in Europe with the concept of ‘a grand Europe’ as an expression of modernity and sophistication.
They cannot see that the way they have acceded to the creation of this ‘Europe’ is the antithesis of sophistication. It has created increased poverty, mass unemployment and spawned a revival of populist fascist-type political movements.
Unless Syriza changes the internal Greek dialogue to educate the people about the exit option and the opportunities is has if it restores its currency sovereignty and leads the nation out of the austerity trap, it will be squeezed by the Eurogroup into becoming just another ‘social democratic’ vehicle for austerity and income distribution from wages to profits.
It will thus either collapse from internal tensions or become a servant of the austerians. Either way, its earlier progressive narrative will be discredited and the neo-liberal TINA mentality will be reinforced.
Kouvelakis says that Syriza is fighting a “war” – and he quotes, approvingly, the Greek Interior Minister:
… the country is at war, a social and a class war with the lenders” and that in this war “we will not go like cheerful scouts willing to continue the policies of the memorandum.”
He urges Syriza to use this kind of language and eschew “the language of facile optimism that creates illusions and causes confusion that tomorrow may prove costly”.
He considers that:
From this point of view, the most reasonable proposal is a negotiated exit from the euro, which would be combined with a writing-off of the major part of the debt, and would free both sides from the negative effects of a forced Grexit and from the endless preoccupation with an unsustainable Greek debt.
Syriza needs to broach this formally with the Greek people and to stop the “PR stunts and rhetorical contortions”.
The stakes are high. The left has a sorry record in recent decades for resisting the class hegemony of capital (and its financial elites) and the politicians and ‘mandarins’ that are paid more than they are worth as enforcers.
Syriza is like a line in the sand. I hope they stay on the left side and restore the hope that social democratic governments delivered for 3 decades before they were usurped by a hostile ideology.
That is enough for today!
(c) Copyright 2015 William Mitchell. All Rights Reserved.