The struggle to establish a coherent progressive position continues

There was an interesting article from Spanish political scientist (and economist) Vicente Navarro (August 4, 2016) – Is The Nation-State And Its Welfare State Dead? A Critique Of Varoufakis – which contested the former Greek finance mininster’s claims that the “nation state is dead” and so pan-international movements are required to restore democracy and provide a bulwark against global capitalism. I have a lot of sympathy for Navarro’s argument given that the topic is closely related to current book manuscript I am working on with Italian journalist Thomas Fazi on the reasons that the Left have vacated the progressive space and adopted neo-liberal economic positions that guarantee its steady demise as a political force. So in that context, the work of the former finance minister in trying to revive a Left narrative is admirable but, as Navarro notes, is misguided. DiEM25 is not likely to form a basic of a progressive manifesto for the future.

It should be said at the outset, that DiEM25 is about Europe, a continent so constrained by the flawed (neo-liberal) monetary system (the euro) that it is hard to argue for any progressive development without the abandonmnent of that monetary arrangement.

The only way the ‘nation state’ can reassert its sovereignty is for each Member State to exit that flawed monetary system. A ‘nation state’ requires control of its own currency in addition to its legislative system to assert its independence and capacity to advance the well-being of its own population.

The only way the Eurozone can generate a sovereign ‘nation state’ is if the Member States further erode their identities and agree to create a federal Europe with full currency control at the federal level in the hands of a democratically European government.

As I explained in my current book – Eurozone Dystopia: Groupthink and Denial on a Grand Scale – that will not happen.

So those observations condition everything I say about the arguments presented by both Navarro and Varoufakis, both of who are avowed supporters of the Eurozone and of the European Project, which has been hijacked by the Brussels-Frankfurt-Washington consensus and fails democracry at the most elemental level.

Both Navarro and Varoufakis concur that there needs to be a “a European-wide mobilization to force democracy upon the institutions that govern the EU” although they are in disagreement about the path that should be taken to achieve that.

Their point of disagreement is that, in Navarro’s words, Varoufakis “believes (wrongly, I think) that the power of nation-states has practically disappeared in the EU” whereas Navarro considers it to be “an exaggeration to say that they have lost all their power.”

I consider both Varoufakis and Navarro to have valuable insights but, notwithstanding that, to be both wrong.

I agree with the former finance minister that (in Navarro’s words):

… governments and parliaments in these nation-states have been transformed into mere transmission belts of whatever is decided by the Troika and associated institutions.

In December 2015, the former finance minister articulated his view on the ‘nation state’ in an interview – Democracy, power and sovereignty in today’s Europe.

He said that:

The sovereignty of parliaments has been dissolved by the Eurozone and the Eurogroup; the capacity to fulfil one’s mandate at the level of the nation-state has been eradicated and therefore any manifestos addressed to citizens of a particular member state become theoretical exercises. Electoral mandates are by design now impossible to fulfil.

Within the Eurozone-context, that is undeniably so. But it stems from the decision by the Member States to surrender their currency issuing capacities upon joining the EMU and then, further signing up to dysfunctional fiscal rules (Stability and Growth Pact and its accompanying additions – two-pack, six-pack, fiscal compact) and allowing the central bank to be beyond democratic control.

When asked in that December 2015 interview whether “returning to a national currency … [will] … at least give more opportunity for democratic accountability?”, he replied:

… the idea that we must recoil to the nation-state in order to create a better society is to me particularly silly and implausible.

He then outlined a rather depressing vision of what would happen if the euro was abandoned including stagflation and even “a major war” – the sort of scare tactics that the Right are experts at propagating but there prognostications never actually happen.

I fundamentally disagree with his vision of a Europe without the euro as long as the neo-liberal blight is also abandoned and nations used their currency sovereignty to advance well-being of all citizens. I outlined all that in my current book (cited above).

The former finance minister’s – Democracy in Europe Movement 2025 or DiEM25 suggest there is a third way (sorry!) between “Two dreadful options” (“Retreat into the cocoon of our nation-states … Or surrender to the Brussels democracy-free zone”):

A surge of democracy … one simple, radical idea … democratise Europe …

And while Greece suffers 25 per cent unemployment into the distant future, DiEM25 is happy to wait until 2025 to achieve its aims.

And how will it create this “surge”?

Well they propose a temporal staging of initiatives:

1. Immediate – “Full transparency in decision-making” of the major EU policy-making institutions (EU Council, Finance Ministers Group, ECB etc). Publication of minutes of meetings, lobbyist register, etc

2. Within 12 months: “Address the on-going economic crisis utilising existing institutions and within existing EU Treaties” – that is, within the neo-liberal straitjacket! Some democratic step forward!

3. Within 2 years: a transnational “Constitutional Assembly” to “decide on a future democratic constitution that will replace all existing European Treaties within a decade”.

4. By 2025 “Enactment of the decisions of the Constitutional Assembly”.

So not a lot upfront.

But moreover, it assumes that the historical and cultural situation in Europe would allow a sort of reformed European Parliament to become a federal institution ruling Europe in the way that the US or Australian governments rule their respective nations.

It assumes that the current ‘nations’ in Europe, with all their current and past antagonisms, cultural diversities, language differences and national identities will agree to become ‘American states’.

They haven’t to date. In all the discussions surrounding Maastricht and beyond, the crunch was that very question. One of the reasons the EMU is such a flawed arrangement is exactly because the Member States refused to surrender much other than their currencies and central banks – the crucial policy institutions.

The notion that Germany would surrender its legislative fiat to a European Parliament where Spanish or Greek representatives would have decision making power of the German provinces is, to use Varoufakis’ own words “particularly silly and implausible.”

That is the problem of the EMU – it is a half-way house. The Member States are no longer sovereign in a currency sense yet they cling to their national policy capacity. The ‘Europe-level’ is not a democratic institution and is not a legitimate ‘federal’ governemnt in the eyes of the citizens.

The worst of all worlds really.

This article by Thomas Fazi (February 9, 2016) – A Critique Of Yanis Varoufakis’ Democracy In Europe Movement (DiEM25) – goes into more detail on these sorts of issues.

Navarro’s argues that while national parliaments in the EMU “are seriously constrained by these institutions” it is:

… an exaggeration to say that they have lost all their power. And it is wrong to accept that governments and parliaments applied their austerity policies (with cuts in the welfare state), claiming they do not have any other choice.

His cites the choices made by successive Spanish governments to cut the public deficits – to prioritise spending cuts and avoid tax hikes – as examples of the discretion national parliaments have within the constraints of the EMU rules.

He also cites the current Portuguese government which “has stopped the application of the austerity policies imposed by the European Commission”.

I agree with that assessment. Even within the draconian and arbitrary rules that were established to ‘depoliticise’ the operation of the EMU, national governments have some capacity to make economic decisions – subject, of course, to the ultimate sanction of the private bond markets, given the Member States surrendered their currency-issuing capacity.

So it is a series of ifs – the nation states still have discretion – as long as they do not violate the fiscal rules and then, only if, the bond markets will still loan them euros to allow fiscal deficits to persist.

In normal times, that ‘flexibility’ might prove to be sufficient – a 3 per cent of GDP deficit may still provide significant stimulus to support growth. It is unlikely the bond markets would boycott a government that had a 3 per cent deficit but was overseeing a strongly growing economy with low unemployment.

Given the ‘flexibility’, what has stopped governments looking after their own citizens better since the crisis (in terms of creating jobs, providing more secure income support etc)?

The answer is the neo-liberal Groupthink. As we see in Britain and elsewhere, nations with their own currencies have also performed badly since the GFC struck.

George Osborne’s record is shocking in Britain. The reason was he deployed the destructive neo-liberal approach to policy making.

That ideology has multiplied the problems faced within the Eurozone and the way ahead has to include both the abandonment of the euro and the acceptance of a more progressive policy-making outlook.

As I argue in my current book – Eurozone Dystopia: Groupthink and Denial on a Grand Scale – merely exiting the euro but maintaining the neo-liberal policy orthodoxy would likely be the disaster that those arguing against abandoning the euro predict.

Navarro would agree with that. He writes:

In reality, many of these governments (particularly the liberal and conservative ones) are achieving, through unpopular policies, what they have always wanted: reducing the power of labor and dismantling the welfare state. What we are seeing is an alliance of the powerful and dominant economic and financial establishments in each country, in support of public policies that come down from the Troika and the EU establishment and that they could not pass in their own parliaments. They are using the European institutions, which lack any democratic accountability, to obtain what they always wanted, justifying it by saying: “There are no alternatives.” It is obvious there are alternatives.

On the one hand, neo-liberalism reinforced with the Groupthink dynamics that blind the policy makers to alternatives.

On the other hand, a progressive vision of policy based on an understanding of the principles of Modern Monetary Theory (MMT), which empower the national government with the capacity to advance the well-being of the people as a primary policy target.

Clearly there are alternatives to the current orthodoxy.

Navarro’s point – that there is some flexibility at the nation state level – is correct – as long as the bond markets don’t close the country down as in the case of Greece.

The bond investors cannot damage a currency-issuing state. But they sure can wreak havoc for a Member State of the Eurozone. That is a defining difference between the two types of monetary systems.

Navarro also disagrees with DiEM25s endorsement of a Basic Income Guarantee (BIG) or “Universal Basic Income (UBI)” as a replacement for “the welfare state”.

Much of Varoufakis’ argument in this respect is based on flawed notions of how public expenditure programs are funded.

At the Future of Work Conference (May 5, 2016), Varoufakis told the audience that:

Basic Income is a Necessity … This social democratic, New Deal Paradigm is finished and it cannot be revived … is dead in the water … the working class can no longer insure itself … because wages have stagnated to such an extent … politics have become quite toxic … artificial intelligence will absorb all repetitive work – a massive displacement effect … overwhelm job creation effect … will reinforce the deflationary process … an even greater level of income inequality …

So one of the arguments is that the working class can no longer expect a welfare state to continue because in the words of Navarro (summarising Varoufakis’ argument):

Its funding is not sustainable because the funds to pay for it come from payroll taxes that will diminish due to the reduction in the number of workers and the decrease in their wages.

If that is a correct interpretation of the former finance minister’s position then he has clearly fallen into a neo-liberal narrative that a currency-issuing government has to ‘finance’ its spending and if a tax base shrinks then it has to cut spending.

The reality is quite different of course.

Any sovereign government is never revenue constrained because it is the monopoly issuer of the currency. Clearly, this does not apply to the Eurozone Member States individually but it still applies to the Eurozone as a whole given the ECB’s currency capacity.

A sovereign government can purchase anything that is available for sale in its own currency any time it has the political will to do so.

That applies to any idle labour.

The task as jobs decline due to robotics etc is to develop new types of employment rather than to assume that the loss of the traditional, repetitive jobs spells the end of wage labour as we have known it.

This surrender position is characteristic of the modern Left and started with the British Labour Party decision to adopt Monetarism and approach the IMF for loans (on the pretext that it could no longer ‘fund’ itself), while eschewing other alternative positions that would have utilised the obvious fact that it issued the pound and could never run short of ‘money’.

The question though extends to the logic. If governments can no longer ‘afford’ to maintain an appropriate welfare state then how can it ‘afford’ to maintain a viable Basic Income system that would provide for adequate living standards?

I don’t intend to go into the BIG debate here. I will write more about it soon.

But I have written a lot about it in the past – please read my blog – Income or employment guarantees? – for more discussion on this point.

I do not consider the advocacy of a BIG to be a progressive position. It is a deeply flawed stance and usually reflects a failure to understand the capacity of the state to expand employment if it desires.

I will also address the robotic/AI issue in a later blog. The point is that the number and type of new productive jobs that can be created in a society is only limited by our imagination, notwithstanding the shifts in employment composition that automation etc will generate.

It is a reflection of a limited imagination to predict the shortage of jobs in the future. We will have to redefine what we mean by productive effort as time passes but that debate will help to cement what I think of as a progressive position in relation to these matters.

I haven’t even got the white flag available to wave such is my outlook. The former finance minister seems to wave white flags regularly in different guises.

That surrender mentality is deeply entrenched in the Left, particularly the European Left.

Vicente Navarro has his own points of difference with the former finance minister’s depiction of “social democracy”, which he considers is a narrow version of the welfare state exemplified by the German Christian model where “the funding of the welfare state … [was based on] … labour market contributions”.

This narrow conception of the welfare state “was more a characteristic of the conservative road, rather than the social democratic one.”

It is to be distinguished from the more general welfare state model where as a right of citizenship, universal benefits were available to all.

The general model, according the Navarro, was funded “from general state revenues rather than from the labor market”. The point is that both conceptions get bogged down in unnecessary debates about how can the state afford to maintain the system.

This is a neo-liberal construction and neither Navarro or Varoufakis appear to be able to articulate beyond that.

The constraint against on-going welfare state provision will be determined by political will. It is not a ‘financial’ constraint at all and so all these elaborate arguments about funding sources drying up or whatever are irrelevant.

They should not form any part of a progressive policy vision.

Progressives have to address the politics of the matter and not be diverted by these spurious so-called financial/economic arguments about funding.

Navarro mentions political will but again in the context of a government that is financially constrained.

He says:

In the social democratic model, the state’s revenues are related only to the political will of the state on how much to tax capital and how much to tax labor – and this depends primarily on the power relations that exist in each nation-state.

Again – a spurious detour around the main point.

Which is – in his own words “as long as people support the welfare state, it will be funded”.

That is the point. Governments can spend what they like if they think they can get away with it politically.

Changing the political landscape requires an education process so that the citizens can learn what the fiat currency system is and what options it provides to the currency-issuing governments.

Then the politics would change dramatically because governments could no longer refuse to pursue an option that would enhance well-being, or, continue to pursue an option, which undermined well-being, on the basis that there is no money or no alternative.

The citizens would become empowered by that knowledge and reject outright governments that lied about not having enough money.

Conclusion

The struggle to establish a coherent progressive position continues.

The series so far

This is a further part of a series I am writing as background to my next book on globalisation and the capacities of the nation-state. More instalments will come as the research process unfolds.

The series so far:

1. Friday lay day – The Stability Pact didn’t mean much anyway, did it?

2. European Left face a Dystopia of their own making

3. The Eurozone Groupthink and Denial continues …

4. Mitterrand’s turn to austerity was an ideological choice not an inevitability

5. The origins of the ‘leftist’ failure to oppose austerity

6. The European Project is dead

7. The Italian left should hang their heads in shame

8. On the trail of inflation and the fears of the same ….

9. Globalisation and currency arrangements

10. The co-option of government by transnational organisations

11. The Modigliani controversy – the break with Keynesian thinking

12. The capacity of the state and the open economy – Part 1

13. Is exchange rate depreciation inflationary?

14. Balance of payments constraints

15. Ultimately, real resource availability constrains prosperity

16. The impossibility theorem that beguiles the Left.

17. The British Monetarist infestation.

18. The Monetarism Trap snares the second Wilson Labour Government.

19. The Heath government was not Monetarist – that was left to the Labour Party.

20. Britain and the 1970s oil shocks – the failure of Monetarism.

21. The right-wing counter attack – 1971.

22. British trade unions in the early 1970s.

23. Distributional conflict and inflation – Britain in the early 1970s.

24. Rising urban inequality and segregation and the role of the state.

25. The British Labour Party path to Monetarism.

26. Britain approaches the 1976 currency crisis.

27. The 1976 currency crisis.

28. The Left confuses globalisation with neo-liberalism and gets lost.

29. The metamorphosis of the IMF as a neo-liberal attack dog.

30. The Wall Street-US Treasury Complex.

31. The Bacon-Eltis intervention – Britain 1976.

32. British Left reject fiscal strategy – speculation mounts, March 1976.

33. The US government view of the 1976 sterling crisis.

34. Iceland proves the nation state is alive and well.

35. The British Cabinet divides over the IMF negotiations in 1976.

36. The conspiracy to bring British Labour to heel 1976.

37. The 1976 British austerity shift – a triumph of perception over reality.

38. The British Left is usurped and IMF austerity begins 1976.

39. Why capital controls should be part of a progressive policy.

40. Brexit signals that a new policy paradigm is required including re-nationalisation.

41. Towards a progressive concept of efficiency – Part 1.

42. Towards a progressive concept of efficiency – Part 2.

43. The case for re-nationalisation – Part 2.

44. Brainbelts – only a part of a progressive future.

45. Reforming the international institutional framework – Part 1.

46. Reforming the international institutional framework – Part 2.

47. Reducing income inequality.

48. The struggle to establish a coherent progressive position continues

The blogs in these series should be considered working notes rather than self-contained topics. Ultimately, they will be edited into the final manuscript of my next book due later in 2016.

That is enough for today!

(c) Copyright 2016 William Mitchell. All Rights Reserved.