Social Europe Journal http://www.social-europe.eu debating progressive politics in Europe and beyond Fri, 21 Nov 2014 14:31:44 +0000 hourly 1 http://wordpress.org/?v=4.0.1 "Italy Calls For A Bretton Woods For The Eurozone" by Paolo Pini http://www.social-europe.eu/2014/11/italy-calls-bretton-woods-eurozone/ http://www.social-europe.eu/2014/11/italy-calls-bretton-woods-eurozone/#respond Thu, 20 Nov 2014 14:46:10 +0000 Paolo Pini http://www.social-europe.eu/?p=36169
Paolo Pini

Paolo Pini

French President Francois Hollande has announced that he will ignore the European budget constraints; his intention is to defer the return of the deficit/GDP ratio to below 3% for two years. This could signal the end of Fiscal Compact austerity.

The French decision only highlights the critical state of the overall system (and the widespread violation of the rules) that has existed for some time. There are many countries in the EU whose deficit/GDP ratio is greater than 3% (in addition to France, also Spain, Portugal, Greece, Croatia, Slovenia and even virtuous Poland), while Germany has been persistently violating the upper limit to the trade surplus.

Some of these countries, although subject to rigorous intervention (or rather precisely because of it), now have public finances that are spinning dangerously out of control, with a strongly increasing debt/GDP ratio. This is the case of Greece, Spain and Portugal, but also Italy. The blame for this falls not only on the enforcing of national and European austerity rules, but also on the failure of the ECB (in spite of its merits in the rescue of the euro during the storm of speculation) to avoid disinflation and ensure an inflation rate of around 2%. Quite simply, EU policy measures during the post-global financial crisis have failed, and this has resulted in a decline in aggregate demand (consumption and investment), the end of growth, deflation, the deepening of imbalances between North and South and, paradoxically, a worsening of the public debt situation, the very thing which was the principal objective of the ECB and the very reason for the severity of fiscal policies.

The problem with this decline is that while the macroeconomic situation has changed dramatically, the EU continues to be in the hands of diligent officials applying obsolete rules. The point is, then, not to ensure compliance with these rules. New rules are needed and these cannot be formulated by those whose job it is to monitor compliance.

We expect, then, the Italian Government to understand the crucial importance of this moment and not to be satisfied with negotiating possible exemptions to the present rules. We expect the Italian Government to firmly face up to the truth by demanding the launch of a Conference for a new “civil macroeconomics” in the European Union.

The main issues to be discussed in the formulation of a new agreement should be the following:

  1. A far more active role on the part of the ECB, enabling it to buy public and private bonds, as has been the case with the US and UK central banks.
  2. The worthlessness of a monetary union if the potential force of its central bank, which is far greater than that of national central banks, is not fully exploited. From this point of view a number of questions deserve a central role in the ongoing debate. One is the plan proposed by Wyplosz named PADRE (politically acceptable debt restructuring in the Eurozone), which envisages a feasible way of restructuring the public debt of the member states. According to this plan, the ECB could buy public debt that exceeds 60% of GDP. This debt would then be converted into a zero-interest perpetuity to be repaid over the years by the share of seigniorage revenue each member state has the right to claim. In this way, a large proportion of the resources used at the moment to repay interest on outstanding public debt would be freed and thus result in a strong stimulus to domestic demand in all member states. This would be a win-win strategy for all, even for Germany, whose exports to the rest of the Eurozone would also increase. A gradual implementation of such a plan is highly desirable, although an experimental application at a smaller scale (involving a portion of public debt) to monitor the real effects of such a policy could be implemented immediately.
  3. These macroeconomic advantages would enable member countries to implement structural reforms with regard to the main drivers of economic modernization (digital infrastructure, industrial policy, technological and organizational innovation, efficiency and effectiveness of public administration and of the justice system, social welfare for the jobless, measures to combat unacceptable economic and social inequalities which compromise economic growth). The implementation of these structural reforms is essential to increase the benefits of i) and ii) and must be carried out both as part of an overall European policy and through a process of democratic choice within each member country.
  4. The construction of mechanisms able to counteract asymmetries in the euro area. This will involve, first, a penalty mechanism not only for countries in deficit, but also for surplus countries, with an obligation to implement policies to raise domestic demand to offset asymmetries, and, second, a European subsidy for the unemployed as an automatic stabilizer providing benefits or re-training in exchange for social work, a subsidy to be suspended if a job offer is refused.
  5. A concrete expansionary EU fiscal policy to implement public investments at a European level and thus develop physical and digital infrastructures in member countries, the aim being an EU budget with its own resources going well beyond the current 1% and reaching between 3 % and 5%.
  6. A strong commitment to tax harmonization and the reduction of excessive heterogeneity in the national taxation of companies. The latter has led to tax avoidance and profit-shifting and to unreliable statistics on growth. Tax havens within the union must no longer be tolerated, and aggressive fiscal behaviour should be considered as state aid (as would seem to be the current orientation of the Union regarding the recent cases).
  7. A strong commitment to political unification and towards promoting the active participation of European citizens in the democratic nomination of their representatives to European institutions.   These nominations should no longer be exclusively on a national basis, so that the welfare of all Europeans citizens will be the focus of European decision-making.

A book of dreams? On the contrary, we believe this to be a realistic alternative that would benefit all, would restore growth and sustainability, and avoid the deterioration of the current imbalances and traumatic end of the euro. It would be much better for the European leaders to face the truth and inaugurate a constituent phase leading to the creation of a new system based on these seven points. A lack of an agreement will lead almost inevitably to the end of the euro and return to national currencies.

You can support this initiative here:

https://www.change.org/p/to-the-president-of-the-european-semester-italy-calls-for-a-bretton-woods-for-the-eurozone-newbretton

 International Guarantee Committee

Joerg Bibow, Ronald Dore, Giovanni Dosi, Jean-Paul Fitoussi, Victor Ginsburgh, Ronald Janssen, Branko Milanovic, Pascal Petit, Romano Prodi, Sergio Rossi, Jeffrey Sachs, Francesco Saraceno, Robert Skidelsky, Jordi Surinach, Andrea Terzi, Achim Truger, Charles Wyplosz, Andrew Watt

 

Promoters’ Committee

Leonardo Becchetti (Università di Roma Tor Vergata), Roberto Cellini (Università di Catania), Paolo Pini (Università di Ferrara), Alberto Zazzaro (Università Politecnica delle Marche)

 

First Italian supporters

Acocella Nicola (Università Roma La Sapienza)

Alessandrini Piero (Università Politecnica delle Marche)

Ardeni Pier Giorgio (Università di Bologna)

Baccini Alberto (Università di Siena)

Bagella Michele (Università Roma Tor Vergata)

Baglioni Angelo Stefano (Università Cattolica del Sacro Cuore)

Baranes Andrea (Banca Etica)

Baravelli Maurizio (Università Roma La Sapienza)

Belussi Fiorenza (Università di Padova)

Boitani Andrea (Università Cattolica del Sacro Cuore)

Bollino Carlo Andrea (Università di Perugia)

Brondoni Silvio (Università Milano Bicocca)

Camagni Roberto (Politecnico di Milano)

Capasso Salvatore (Università Napoli Parthenope)

Capello Roberta (Politecnico di Milano)

Cappellin Riccardo (Università Roma Tor Vergata)

Carillo Maria Rosaria (Università Napoli Parthenope)

Ciciotti Enrico (Università Cattolica del Sacro Cuore, Piacenza)

Corniani Margherita (Università Milano Bicocca)

Corsi Marcella (Università Roma La Sapienza)

Costabile Lilia (Università di Napoli Federico II)

Cozzi Terenzio (Università di Torino)

D’Adda Carlo (Università di Bologna)

Danielis Romeo (Università di Trieste)

De Arcangelis Giuseppe (Università Roma La Sapienza)

Del Monte Alfredo (Università di Napoli Federico II)

Destefanis Sergio (Università di Salerno)

Dosi Giovanni (Scuola Superiore S. Anna Pisa)

Ferri Giovanni (Università Roma LUMSA)

Fratianni Michele (Università Politecnica delle Marche)

Frey Marco (Scuola Superiore S. Anna Pisa)

Gallegati Mauro (Università Politecnica delle Marche)

Giannola Adriano (Università di Napoli Federico II)

Giunta Anna (Università Roma Tre)

Gnesutta Claudio (Università Roma La Sapienza)

Granaglia Elena (Università Roma Tre)

Gui Benedetto (Istituto Universitario Sophia, Firenze e Università di Padova)

Leon Paolo (Università di Roma Tre e CLES, Roma)

Lucarelli Stefano (Università di Bergamo)

Marelli Enrico (Università di Brescia)

Mutinelli Marco (Università di Brescia)

Paci Raffaele (Università di Cagliari)

Papi Luca (Università Politecnica delle Marche)

Pareglio Stefano (Università Cattolica Sacro Cuore)

Perrotta Cosimo (Università del Salento, Lecce)

Piga Gustavo (Università Roma Tor Vergata)

Polo Michele (Università Bocconi, Milano)

Porta Pierluigi (Università Milano Bicocca)

Rizzi Paolo (Università Cattolica del Sacro Cuore)

Romano Roberto (CGIL Regionale Lombardia e Università di Pavia)

Roncaglia Alessandro (Università Roma La Sapienza)

Rullani Enzo (Venice International University)

Saltari Enrico (Università Roma La Sapienza)

Salvadori Neri (Università di Pisa)

Salvati Michele (Università Statale di Milano)

Santarelli Enrico (Università di Bologna)

Saraceno Chiara (Università di Torino)

Saraceno Francesco (OFCE, Observatoire français des conjonctures économiques – Sciences Po, Parigi)

Scalera Domenico (Università Sannio Benevento)

Simonazzi Annamaria (Università Roma La Sapienza)

Stirati Antonella (Università Roma Tre)

Tamborini Roberto (Università di Trento)

Terzi Andrea (Franklin University, Switzerland e Università Cattolica del Sacro Cuore)

Travaglini Giuseppe (Università di Urbino)

Valente Marco (Università dell’Aquila)

Valletti Tommaso (Università Roma Tor Vergata)

Vitale Marco (Fondo Italiano d’Investimento e Università Cattaneo LIUC)

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"Tragedies Like Rana Plaza Highlight Need For Economic Change" by Joseph Allchin http://www.social-europe.eu/2014/11/tragedies-like-rana-plaza-highlight-need-economic-change/ http://www.social-europe.eu/2014/11/tragedies-like-rana-plaza-highlight-need-economic-change/#respond Thu, 20 Nov 2014 14:12:13 +0000 Joseph Allchin http://www.social-europe.eu/?p=36165
Joseph Allchin

Joseph Allchin

Unpredictable events often induce the most radical change. For Bangladesh and its garments industry it could well be that the improvements in standards, as a result of the Rana Plaza tragedy, end up being just the stimulus to help the country’s manufacturing sector evolve; from the huge and perhaps burdensome focus solely on low end garments.

Garments are of course Bangladesh’s largest export industry accounting for around 80% of exports. The sector’s exports are growing robustly too. In 2013, a year plagued by instability, exports grew in value by some 11.7%, according to HSBC Bank. Needless to say growth of the country’s GDP was less than half that. Whilst in the first five months of 2014, the value of the country’s garment exports grew by 13%.

This is a continuing trend; the garments sector outperforming the rest of the economy. While garments exports grew robustly, private investment was down in 2013. In other words, more was made (and sold) with less going into making those garments whilst wages and inflation continue to rise. As garments flew out and imports slowed at the same time, this meant that the Taka gained value, relative to the dollar. This is sometimes called the ‘Dutch disease’ – whereby the export of a particular commodity raises the value of the currency and thereby makes other exports less competitive.

This only leads to one thing; the cost of a Bangladeshi sock being more expensive, despite being made in in the same conditions, and by a worker who will be paid virtually the same amount (inflation will soon catch up with the minimum wage rise). The answer to this is to attempt to move up the production ‘food chain.’ The Accord gives Bangladesh the perfect opportunity to push upwards and work with better standards – making them the norm.

The garments sector has to date arguably been cosseted. Bangladeshi government policy has helped the trade by providing generous tax incentives while the country has one of the lowest tax to GDP ratios on the planet at around 10%. This has obvious ramifications, from aid dependence to run basic social services, such as health care, to a woeful lack of infrastructure. The lack of taxation also means that imports are heavily taxed. A mobile phone in Bangladesh for instance has more import duty on it than anywhere else on the planet.

To maintain price competitiveness, imports for export only garments are not taxed; you can import your cotton for a shirt that is destined for export, tax free, provided 100% of the products (the shirts) are exported. The government has and is creating special economic zones, with lax laws and extra gas and electricity connections (another ramification of a small tax intake is a severe shortage of combustible energy supplies).

The nature of power in Bangladesh is such that the sector, as one of the most profitable ventures going has come to be dominated by patronage politics, that has been successful in capturing much favour from policy makers – perhaps in an unaccountable fashion. This has meant that, as Rana Plaza exposed, inspections and standards were not being met.

In other words, industry has arguably become lax – or perhaps functional within systems which, writes the London based development economist, Dr Mushtaq Khan

favour the construction of pyramidal patron-client factions that compete for the capture of public resources in ways that are relatively unconstrained by economic viability considerations.

This is not new, controversial or unpredictable. The rational impetus for business is most often short-term profit. Short-term profits are usually not gained by making investments in safety or standards when few competitors are doing likewise. This is particularly so when borrowing is so expensive in Bangladesh; borrowing from a bank can cost as much as 18% in interest. However, this will naturally lead to greater consolidation, and less capital intense manufacturing. This would also suggest that workers will gradually become better trained and more formalised. Essential ingredients for a more productive capable setup.

Thus, the external pressure creating an imperative of better standards could be just what the Bangladesh manufacturing sector needs. With the luxury of a demographic dividend and the prospect of China shedding possibly up too 85 million manufacturing jobs Bangladesh needs better standards to take advantage of those prospects. Meanwhile the stick of international brands finally demanding better standards, may be the spark that pushes Bangladesh towards higher and more lucrative manufacturing operations.

This column is part of the “After Rana Plaza” project jointly run with the  Friedrich-Ebert-Stiftung Dhaka Office.

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"A Sovereign Wealth Fund For The Eurozone?" by Henning Meyer http://www.social-europe.eu/2014/11/sovereign-wealth-fund-eurozone/ http://www.social-europe.eu/2014/11/sovereign-wealth-fund-eurozone/#respond Wed, 19 Nov 2014 12:50:32 +0000 Henning Meyer http://www.social-europe.eu/?p=36156
Henning Meyer, Sovereign Wealth Fund For The Eurozone

Henning Meyer

Social Europe Journal has just published its latest Research Essay “Public Capital in the 21st Century” by Giacomo Corneo. The main argument of the paper is that the state should become a kind of investment state in order to make sure that high returns on capital do not further increase inequality but benefit the wider public. To achieve this, Corneo argues that governments should set up sovereign wealth funds to manage their investments and take advantage of low interest rates on sovereign bonds as investments should be debt-financed.

Having read the paper I was wondering whether this would also be an option to create the much-touted fiscal capacity for the Eurozone. Such a mechanism wouldn’t need Eurozone taxes or tax harmonisation (although both would be desirable) and does not require an open-ended commitment to joint debt. Here is how it could work: Let’s assume a Eurozone debt instrument backed by all governments can borrow for 1.5% in financial markets. For the sake of it let’s assume an annual return of 6% on a globally diversified portfolio, which is a realistic scenario. 25% of the return would be required to service the debt and Corneo argues that the rest should be used to pay back the principal so the debt incurred will be repaid in 15 years or so. I would argue that the remaining 75% of the return should be split between repaying the principal and increasing the size of the fund. So an alternative split of the return could look like this: 50% repayment of debt, 25% debt service, 25% increasing the size of the fund.

The key points are that the initial debt will be fully repaid after a defined period of time (so there is no open-ended commitment to joint debt) and that such a sovereign wealth fund could create a significant amount of revenue that could be the income source for a Eurozone budget. The budget would be administered by a Eurozone group in the European Parliament and could be used to help stabilise the currency area. Apart from the need to complement this pro-cyclical instrument with counter-cyclical measures (issuing debt for current spending rather than investment that would also be repaid with priority?) that should kick in if there is a general crisis, I cannot see a reason for why this wouldn’t work, especially given that a budget of about 2% of GDP is regarded as big enough to effectively counterbalance asymmetric shocks.

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"Why The ECB Needs To Finance The European Investment Plan" by Ronald Janssen http://www.social-europe.eu/2014/11/ecb-needs-finance-european-investment-plan/ http://www.social-europe.eu/2014/11/ecb-needs-finance-european-investment-plan/#comments Wed, 19 Nov 2014 11:51:31 +0000 Ronald Janssen http://www.social-europe.eu/?p=36151
Ronald Janssen,  European Investment Plan

Ronald Janssen

The incoming Commission, as reported here, seems to be critical of the idea of funding its 300 billion European Investment plan by an additional capital increase of the European Investment Bank (EIB).

It is right to be sceptical. Indeed, the experience with the Growth Compact of June 2012 is a bit sobering. Whereas the 10 billion of new capital that member states provided to the EIB by the end of 2012 was supposed to lead to an additional lending volume of 60 billion, the outstanding amount of loans disbursed by the EIB has thus far increased only by 15 billion only (see EIB 2013 financial report). In other words, the big accelerator effect on investment that the EIB was supposed to deliver under the 2012 Growth Compact has not materialised.   

The Problem with the EIB: Depending too much on the markets

To explain why the EIB is currently finding it difficult to function as an investment accelerator, let’s first recall how the 2012 Growth Compact was supposed to work. Member states were asked to put up initial capital of 10 billion. The EIB would then use this capital to borrow an additional 50 billion in the market. The 60 billion thus obtained by the ECB would then be topped up with a corresponding amount of co-finance by the EIB’s (public and private) investment partners. In this way, a grand investment total worth 120 billion or close to 1% of European GDP was envisaged.

This, at least, was the theory. In reality, however, things did not turn out that way. The problem already started with the 10 billion member states had to make available. Member states needed to borrow that money from financial markets. Having the euro crisis on their mind, governments were however reluctant to do so as this implied further increasing their exposure to fickle financial markets.

The same problem of depending on the judgment of markets returned at the level of the European Investment Bank. The EIB is owned and financially backed up by the member states themselves. With markets questioning the sustainability of the sovereign debt of several member states, doubts have also been raised about the creditworthiness of the European Investment Bank itself. Concerned about its triple-A rating, the European Investment Bank is therefore tempted to use the new funding so as to strengthen its own capital base rather than borrowing a multiple of this new capital.

Problematic market finance reappears again when co-finance is concerned. To reach a grand total of 120 billion investment, member states needed to borrow an additional 60 billion from the markets (and this on top of the extra 10 billion capital for the EIB). This may be possible for the financially stronger member states but it is extremely difficult for the rest of them. The irony here is of course that the latter need this extra investment push the most.

It thus appears that the implementation of each stage of the 2012 Growth Compact is very much dependent on the judgment of financial markets. And given the current complex relationship between member states, the EIB and markets, it does not come as a surprise that the 120 billion of new investment never really took off.

Putting more capital into the EIB has not done the trick to revive growth, according to Ronald janssen (photo: CC BY 2.0 Ingenhoven Architects)

Putting more capital into the EIB has not done the trick to revive growth, according to Ronald Janssen (photo: CC BY 2.0 Ingenhoven Architects)

Will a Collaterized Debt Obligation do the trick?

While the Commission seems to be admitting that a new capital increase for the EIB will not do the job, it is also doubtful whether its alternative proposal of launching a 300 billion Collaterized Debt Obligation (CDO), including a buffer of 30 billion from the European budget to cover possible losses, will really solve much.

Indeed, the CDO proposal suffers from the same problem of relying too much on the markets. When launching its European CDO, the Commission, just like the EIB, will not be immune from market pressure. The Commission will also be keen to obtain a high credit rating since the latter is key to low interest rates as well as to ensure the liquidity of the CDO.

The consequence may very well be that the Commission will go down a similar path as the EIB. To prop up the credibility of its CDO in the markets, the Commission may be forced to reduce the total amount of its investment plan as well as to shift the focus away from member states that are in the greatest difficulties towards those member states not considered to be a risk by the markets.

From ‘Credit Easing’ to ‘Investment Easing’

In the end, things boil down to the question whether we allow markets the power to define and shape the European Investment plan. If yes, the EIB experience will be repeated over and over again and any investment plans that are launched will be scaled down so as to meet the concerns of the markets.

If the answer is no, then the only actor that has the ability to manage market sentiment and steer markets into the right direction needs to step in. To end the monopoly of financial markets in deciding which Euro Area member states deserve access to finance and which do not, the ECB needs to back, with its full weight, the European Investment Plan. It can do so by systematically buying sufficiently large quantities of this CDO (or any other form of European Growth Bond), in that way keeping interest rates low as well as ensuring an adequate volume of finance.

This perfectly matches with the deadlock now existing in the Euro Area’s monetary policy. On the one hand, the ECB is confronted with a Euro Area economy that is suffering from depressed growth and is on the brink of deflation. On the other hand, the policies the ECB has been trying for the past years are not really working: policy interest rates have been lowered but have now reached the zero lower bound and can’t be cut any further. Also, the ECB has massively used its printing press, handing over a trillion Euro of almost free money to the banking sector in the vain hope that the banks would extend more credit to the real economy. However, this ‘credit easing’ has failed to revive aggregate demand, as is clear from the dismal growth performance of our economies over the past years.

This implies that it is time to go for alternative, non-conventional, ways of quantitative easing. Instead of putting even more cheap money into the banks (‘credit easing’), the ECB should go for ‘investment easing’ and directly provide the finance that a European Investment plan, an initiative that is urgently needed to get our economies out of the slump.

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"Erosion Or Exhaustion Of Democracy? The Challenge For Social Europe" by Ingolfur Blühdorn http://www.social-europe.eu/2014/11/exhaustion-of-democracy/ http://www.social-europe.eu/2014/11/exhaustion-of-democracy/#comments Tue, 18 Nov 2014 13:30:33 +0000 Ingolfur Blühdorn http://www.social-europe.eu/?p=36128
Ingolfur Blühdorn, Exhaustion Of Democracy

Ingolfur Blühdorn

Social Europe is caught between a rock and a hard place. It is supposed to restore confidence in democracy – which since the bailout of the failing banks and the ensuing politics of austerity can hardly be regarded as a plausible promise anymore and which, anyway, at EU-level is known primarily for its absence. But we know that democracy is really the worst form of government except for all the others that have been tried over the time (Churchill).

Ever since Plato’s allegory of the ship and Rousseau’s inability to supplement his demand for popular sovereignty with a plausible explanation of the general will we have been aware of the profound weaknesses of democracy. And ever since Lenin we’ve known that democracy, rather than securing social justice and self-determination, is but the best political shell for capitalism. So restoring confidence in democracy, especially in the face of austerity, is not only a very demanding task, but a rather questionable one, too.

Set against the background of fascism, violence, war and utter poverty, democracy once appeared as the Promised Land. Throughout decades of rapid economic growth it provided freedom, peace, wealth and wellbeing to larger sections of Western societies than ever before. In the 1970s, when the economic downturn, the re-emergence of mass unemployment and the spiralling costs of the redistributive welfare state first signalled that, in the long run, democracy might become unable to deliver on its promise of material security and equality, a shift of emphasis towards post-materialist concerns of identity diverted attention and further strengthened confidence in democracy. The new social movements insisted that genuine democracy was yet to be achieved and that their new politics would deliver not only on matters of social emancipation but at the same time also secure freedom and integrity for society’s natural environment.

The so-called trickle-down effect has dried up and been replaced by a suck-out effect, whereby the ever stronger squeeze of the swelling numbers of the precariat and have-nots secures at least some degree of further growth for the haves, thus sustaining the democratic promise at least for them.

The challenge for Social Europe, in today’s post-growth economies – whose distinctive feature is not, of course, that the dogma of economic growth has been abandoned, but the factual absence and apparent unachievability of any significant growth – these democratic dreams have been shattered. The so-called trickle-down effect has dried up and been replaced by a suck-out effect, whereby the ever stronger squeeze of the swelling numbers of the precariat and have-nots secures at least some degree of further growth for the haves, thus sustaining the democratic promise at least for them. Austerity – quite evidently not just a temporary measure – is but the latest manifestation of this logic, which spells disaster not only in social but also in ecological terms, and has given rise to a legitimation crisis of democracy more serious than ever before.

Legitimation Crisis

In the 1970s, intellectuals like Jürgen Habermas and Claus Offe still conceptualised the then perceived crisis of democracy as a legitimation crisis of capitalism. They assumed that capitalism, being unable to reconcile its logic of profit maximisation with the democratic pressure for social justice, participation and inclusion, would – by draining the redistributive welfare state of resources – incrementally destroy its own basis of social legitimation and eventually collapse. Proclaiming that the finiteness of natural resources sets non-negotiable limits to growth and thus to the sustainability of capitalism, environmental movements added a second dimension to this argument. Just like Habermas and Offe, their reasoning was based on the assumption that the logic of capitalism would, eventually, be reined in by a more powerful logic – that of social emancipation, of ecological limits, or a combination of both. The thinking of the new left as well as ecologists was based on the dualistic distinction between the capitalist system and the norm of the autonomous subject, or between the capitalist system and the carrying capacity of the environment, or indeed a mixture of the two. Both were convinced that either the state or civil society would eventually – have to – enforce the supremacy of the logic of social efficiency and ecological sustainability over that of capitalist profitability and discounting, to institutionalise the primacy of politics over economics, and to set hard non-negotiable rules for economic conduct. Yet their dualistic model of thinking has been proved wrong.

Whilst a legitimation crisis has now indeed occurred, it materialises not so much as a legitimation crisis of capitalism but one of democracy. Whilst disembedded capitalism (Polanyi) seems to have emancipated itself from the need for political legitimation, democracy – be it in its social or its ecological variety – is seen to have comprehensively failed to tame and domesticate capitalism, to tie it to any social or ecological objectives. Even worse, capitalism has co-opted and fully incorporated democracy (Wolin). It has embraced the language of participation, inclusion, justice and sustainability so tightly that it has become virtually impossible to articulate – even to think – social and ecological concerns in terms other than those set by neo-liberal policies of widening the range of consumer choices, increasing labour market inclusion, trading emission certificates and realising potentials for green growth. Rather than democracy setting hard social and ecological benchmarks for legitimate economic conduct, hegemonic neo-liberalism rigorously imposes the ways in which legitimate social and ecological concerns have to be framed. Bursting with self-confidence it urges citizens to participate – Let’s Talk! – and sets the terms of engagement so as to maximise its gains for market research and customer satisfaction of those still included. Just like the Nazis once noted gleefully that democracy of all systems had provided the legitimation for their seizure of power, today’s neoliberals may ridicule democracy for legitimating their agenda of insatiable greed and social cum ecological destruction. That, too, will always remain one of the best jokes of democracy (Goebbels).

Democracy

We are witnessing a legitimation crisis of democracy according to Ingolfur Blühdorn.

Simulative Democracy

So democracy has become structurally unable to deliver on the social and ecological promises it had once been invested with and is now little more than a façade for the reproduction of capitalism. Social Democrats, painfully aware that the Third Way has sold them out to the market-liberal agenda, respond to democracy’s legitimation crisis by trying to devise new visions for the Good Society (Meyer) and a Social Europe. Green Parties, whose techno-managerial agenda of Green Industrial Politics and the Green New Deal has plunged them into an equally serious identity-crisis are struggling to engineer The Green Democratic Reboot (Green European Journal). Neo-authoritarians believe the evident inability of democracy to tackle the evolving social and ecological emergency calls for the suspension of democratic rights and necessitates courageous action by the doctors of the intensive care unit. The populist right promises to re-empower the people by curtailing immigration, tightening border-controls and repatriating decision-making powers from Brussels to national parliaments. The intellectual left devises neo-radical models of deliberative (Habermas) or agonistic (Mouffe) democracy and hold on to narratives of a massive escalation of truly disruptive action (Crouch) that, empowered by the new social media, will soon change everything (Klein). And the most disenfranchised, unless they withdraw from politics altogether, turn to new radicalised movements which, in contrast to the ideological fundamentalists of earlier decades, now tend to be religious-fundamentalist.

Yet, the truth is, neither socially nor ecologically democracy retains any capacity to challenge, limit or domesticate capitalism. Neither social nor ecological democracy has managed to specify any norm that can restore the primacy of politics over the logic of capitalism.

What these different responses to the profound legitimation crisis of democracy, except the last one, have in common is that they all talk of democratic deficits and the erosion of democracy but adamantly refuse to acknowledge its exhaustion. In one way or another they all subscribe to the diagnosis of post-democracy (Crouch) which fully acknowledges that democracy has degenerated into a mere ritual that no longer offers any perspective of social emancipation and equality, but they all assume – as does Crouch – that democracy can still be resuscitated. They all hold on to some, or even all, of the categories which are constitutive to the idea of democracy: the people, the nation state, civil society, sovereignty, the general will and so forth. But none of them dares to even consider that democracy may have run its course. Yet, the truth is, neither socially nor ecologically democracy retains any capacity to challenge, limit or domesticate capitalism. Neither social nor ecological democracy has managed to specify any norm that can restore the primacy of politics over the logic of capitalism.

And the reason for this is not simply that neo-liberal elites have taken over our language, our ideals, thereby destroying our capacity to say what we want, to know what we want, even to dream something else (Dean). But beyond this, the ongoing process of modernisation – which has always also been a process of ongoing emancipation – has incrementally melted away those categories mentioned above and thus the very foundations on which the ideal of democracy indispensably relied. Most importantly, perhaps, it has increased the empty space (Lefort) at the very centre of democratic thought, which already Rousseau had closed rather unconvincingly with his notions of the people and its general will, to the size of an abyss. Under conditions of globalisation and liquid modernity (Bauman) there is no realistic prospect that this abyss may somehow be filled. Hence, the prevailing responses to the legitimation crisis of democracy are merely what elsewhere I have conceptualised as exercises of simulation. They pursue the discursive regeneration of categories which for contemporary citizens and their lifestyles have become far too narrow and restrictive but which remain, nevertheless, constitutive of their self-perception, of Western society’s self-descriptions, and indispensable for the maintenance of social peace.

Construction Site

Yet, simulative democracy is just an interim phenomenon. For the time being, it seems able to keep a lid on social conflict, but its days are numbered. As social tensions and ecological disaster continue to unfold, we will eventually be forced to recognise that democracy is not just eroded but exhausted, unsustainable, indeed destructive. For when democracy appears as both the condition of politics and the solution to the political condition, then neoliberalism can’t appear as the violence it is (Dean). Acknowledging this is a first and very important step. On its own, it does not get us beyond the Churchill hypothesis, yet it pushes us from trying to reform, resuscitate and re-appropriate democracy towards challenging it. Indeed, the left’s failure to challenge democracy, its unwillingness to reinvent its modes of dreaming (Dean) is the very crux.

But the Weimar experience and today’s relapses into religious fundamentalism remind us that challenging democracy is extremely dangerous. And since its neo-liberal incorporation it is also extremely difficult, for we live in an era where we can discuss everything; with one exception: Democracy (Saramago). Any challenge to democracy, is immediately portrayed and attacked as authoritarian – the reverse implication of neo-liberal authoritarianism having claimed the emancipatory language of freedom, equality and inclusion for itself. Such ostracization is justified where the challenge to existing institutions – as in the case of the populist right and neoliberalism itself – is based on constructions of the people, sovereignty and the general will which are chauvinist, exclusive, anti-egalitarian and inciting conflict. But the mainstream responses to the populist right demonstrate just how adamantly any repoliticisation of the hegemonic order is being resisted and how powerfully it is discursively policed. Still, a democratic order that is inherently unable to challenge, and instead only serves to sustain, the prevailing politics of social injustice and ecological destruction is exhausted, has become reactionary, and must be replaced.

In our efforts to construct a viable successor we must recognise, firstly, that democracy cannot be recouped from its embrace by the elites and will never deliver on its social and ecological promise. Secondly, we must take account of the fact that the problem is not just the neo-liberal right, but that the process of modernisation has irreversibly moved us beyond not only the nation state and national sovereignty but also beyond traditional notions of the critical citizen (Norris) and engaged citizenship (Dalton), which are being superseded by digital, i.e. spatially and temporally disembedded, consumer citizens with liquid identities (Bauman). Thirdly, we need to acknowledge the realities of the post-growth economy and the sustainability crisis, i.e. we need to move beyond political constructions which inherently depend – as democracy does – on continued growth, for example, to reconcile conflicting constitutive principles such as individual freedom and social equality. Such a new political order might appear utopian, and what exactly it might look like remains uncertain. But that does not render the prevailing order of hegemonic authoritarian neo-liberalism any more tolerable or, indeed, sustainable.

If only to create more time and maintain a discursive space for negotiating an alternative, it may make sense to try and restore some confidence in democracy. Perhaps this can be an interim strategy. This would imply fighting the further spread of neo-liberal market-authoritarianism on the one hand and neo-populist national-authoritarianism on the other. It would mean pushing the EU towards institutional reforms which address its democratic deficit and campaigning for a shift in EU policy from the current emphasis on neo-liberal objectives towards a social and ecological agenda. Under the conditions of liquid modernity the prospects such endeavours being successful and of democratic movements being able to set social and ecological limits to economic conduct are less hopeful than ever before. But while we are thinking, there is no viable alternative to re-arranging the proverbial deck-chairs. This, I’m afraid, is what Social Europe is all about. Social Europe is stuck between a rock and a hard place.

This column is part of our Social Europe 2019 project.

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"Cosmopolitanism And Migration" by Carlo Bordoni http://www.social-europe.eu/2014/11/cosmopolitanism-migration/ http://www.social-europe.eu/2014/11/cosmopolitanism-migration/#respond Tue, 18 Nov 2014 11:47:23 +0000 Carlo Bordoni http://www.social-europe.eu/?p=36086

Carlo BordoniCosmopolitanism is a requisite to become citizens of the world, albeit a globalised world, with no borders or, at least, with permeable borders. Crossing over borders to look for a job or a better life, forces you to exit from a limited perspective, one defined by a community and a culture, and deal with new points of view from which to observe reality.

Migrating, in the broadest sense of this verb, means to travel from one place to another, not just occasionally, and stop only for a limited period and then go on the move once more. It is a new philosophy of life that is far from the permanence necessary to the industrial and agricultural economy, when settling down in a given place was the necessary and sufficient condition to thrive, cultivate the land and raise children, or work as a labourer in the nearby workshop or factory. For a long time this close link with the territory was an indication of the evolved condition of a primitive society of nomads, because it allowed them to both forge a strong bond with nature and to maintain close relations with the inhabitants of the same place, whose union served to safeguard the common values of their culture and tradition.

The migration process involves the transfer of cultures, of the relative support (language, religion, but also the instruments of work) that every migrant carries with him to the place where he decides to settle. Unlike the sedentary groups, who tend to jealously preserve their culture and to close circle in defence of the privileges they have acquired (property, interests, rights of land use, access control, social relations based on blood ties), migrants have to deal with the culture with which they come into contact: they are necessarily open to this, with the result that they learn how to assimilate the new, but also to modify the existing culture within the host country.

Tomorrow’s society will be a society of migrant men and women who still choose to move autonomously along the roads of the world, not out of obligation, nor because of political or economic obligation, but to seek out new opportunities for personal development.

In modern cosmopolitanism, as explained by Ulrich Beck, it is this relationship, possibly even a confrontational one, which is created between the different cultures that come into contact as a result of migration processes, that will not necessarily become burned out in the integration process, i.e., in the definitive homogenisation and in the obliteration of differences within the same country.

Cosmopolitanism presupposes a creative and continuing contrast with different cultures, together with the creation of a new formula of “collective vision” of the other, which inevitably arises at a supranational level. Multilocalism, on the other hand, is something else: it is the ability to live in more different and distant places as if they were one’s own; to influence them and be influenced by both. They both are independent of the territorial aspect, of the indissoluble bond with the land and seem to be representative of the tendency of the present society to live the experience of globalisation as an opportunity and not as a defeat.

Tomorrow’s society will be a society of migrant men and women who still choose to move autonomously along the roads of the world, not out of obligation, nor because of political or economic obligation, but to seek out new opportunities for personal development, growth and general improvement in their conditions of life. In short, cosmopolitanism is the good face of globalisation; the affirmation of a fundamental principle that goes beyond the narrow limits of sedentary society and opens up the prospect of a new way of living, forging ties that are weak and not permanent, and constantly calling into question one’s own attitudes and assumptions. It is seen in the constructive perspective offered by liquid society, i.e., assuming uncertainty as a positive value that allows you to grow and face the challenges of the future.

Unlike cosmopolitanism (a voluntary choice), cosmopolitanisation, i.e. the transfer of the effects of globalisation on society and culture, is instead determined by a programmatic, top-down imposition, passively endured by the population under global change of an economic and social nature, whose consequences may prove disastrous. Cosmopolitanisation involves everyone, eliminates boundaries, breaks down barriers, brings faraway people and cultures together, allows them to share the same fate; it is the simultaneous inclusion/exclusion of the other (distant) and thus marks the end of the other global that lies between us. But it does not eliminate the differences.

On the contrary, it increases them. It makes us more than ever dependent on each other, radicalising the social differences within the same place; distances lose their importance, the hic et nunc is dilated in an eternal present that extends worldwide, in the proclaimed insistence of favouring the so-called “integration”, which postulates the cancellation of diversity and integration with the resident people. Such a process is less and less sought after and disrespectful of different cultures: however, respect for differences should not be an excuse to justify inequality, which is what happens in the case of “multiculturalism”, i.e., in the mere acknowledgment of the coexistence of different cultures in the same place. Zygmunt Bauman has serious misgivings towards multiculturalism, which he calls “indifference to difference”: he denounces it as an act of social hypocrisy that, while asserting the respect and dignity of cultural diversity on the one hand, on the other hand, the conditions of immigrants are left unchanged, denying them a share in the resources and reinforcing the de facto inequality.

The fact that there is no need for a process of integration, does not rule out the risk of exclusion, present in different forms, which not less injurious to human dignity.

The progressive and massive rapprochement between different cultures and peoples, however, is also, unfortunately, the cause of manifestations of racism, rejection and violence. The fact that there is no need for a process of integration, does not rule out the risk of exclusion, present in different forms, which not less injurious to human dignity. Its most critical issues are apparent in social inequality, in the huge and growing differences that make the rich richer and the poor poorer, more vulnerable and fragile.

The cultural differences thwart any relationship between the rich and the poor; individuals end up not by interacting, living according to their own ways. People may live near each other, but they often ignore and fail to communicate with each other. They become more and more “distant”, despite living next to each other in the same city, or a few metres away from one other. This too is a form of exclusion that takes place within the same country and that makes the difference.

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"Banks, Bonuses And BankSlaughter: How To Make European Banks Less Dangerous" by Paul Collier http://www.social-europe.eu/2014/11/banks-bonuses-bankslaughter-make-european-banks-less-dangerous/ http://www.social-europe.eu/2014/11/banks-bonuses-bankslaughter-make-european-banks-less-dangerous/#comments Thu, 13 Nov 2014 11:06:28 +0000 Paul Collier http://www.social-europe.eu/?p=36079
Paul Collier, banks

Paul Collier

In trying to make the banking system less dangerous, European and global regulators are trying three approaches. First, they have just undertaken stress tests. Second, they have specified new requirements for the banks to hold more capital and fewer risky assets. Third, they have tried to weaken the incentives for frontline dealmakers to expose their firms to risk, whether by capping the ratio of bonus pay to fixed salary, or by linking bonuses to the longer term fortunes of the bank. None of these approaches is likely to work beyond the short term. Meanwhile, the British Parliament has passed legislation which gets to the heart of the problem. The rest of Europe should adopt it.

The stress tests will work in the short term to increase confidence in the banking system, (which was probably the intention). However, if system stability is the objective, the key time for stress tests is when banks are overflowing with confidence, rather than when they are hyper-cautious after having already burnt themselves, as now. What would be more reassuring is to know whether, had these tests been conducted in 2005, they would have revealed the extent of the danger? If they would not have done so then they are useless as a mechanism for long term stability. But if they would have done so, this raises an equally troubling issue: why were they not undertaken? The most credible answer is quasi-political: in times of over-confidence a combination of complacency and fear of revealing weaknesses keeps troublesome messengers at bay. Is next time really likely to be different?

The requirements for higher capital relative to risky assets, if effective, may further deflate Europe’s submerging economies as banks reduce lending.

The requirements for higher capital relative to risky assets, if effective, may further deflate Europe’s submerging economies as banks reduce lending. By reducing GDP, this would shift the risk from the banks to government indebtedness. The ECB is trying to offset this by itself becoming a quasi-commercial bank. Whether this package works in the short term, it risks being undermined in the long term. Banks may invent ingenious ways of getting the risks off their books. After all, their lawyers are paid at least ten times what the regulators earn, and this is what happened last time. With risks in the shadows, they would be increased, not reduced.

The assault on bonuses is understandable from the perspective of inequality, but is based on a naive view of incentives. If the ratio of bonuses to salary is capped, managers will find it a little more difficult to motivate staff to work hard. However, they would still have salary increases and promotions as incentives, and if these are insufficient and work effort declines, they will simply need to hire more, but cheaper, bankers to get the same deals done.

The UK Parliament has recently introduced legislation

The UK Parliament has recently introduced legislation to change the culture of banks that should be emulated across Europe according to Paul Collier.

If bonuses are deferred and linked to the future performance of the bank, will this discourage individual bankers from doing risky deals? Not one whit. To imagine that it would is to confuse individual with collective incentives. Collectively, bankers would indeed have an interest in the longer term success of their bank, but individually they would still have no control over this outcome. By doing a risky deal which was profitable in the short term an individual banker would get an entitlement to a bonus, as now, though whether it is paid out would depend upon the deals which the bank’s entire workforce struck. Since the individual banker has no control of this collective outcome, individual incentives would not be altered.

Five years ago, in an article for The Guardian, I proposed that the only way in which the risks of bank failure could be effectively addressed was to change the criminal law. It is an astounding fact that no senior banker anywhere has been successfully prosecuted for the behaviour that produced the financial crisis. The reason for this failure is straightforward: it is virtually impossible to prove that senior bankers intended to bankrupt the organizations for which they were responsible. I argued that what was needed in banking was the equivalent to a legal distinction we already make in prosecuting the responsibility for a death: that between murder and manslaughter.

Conviction for murder requires proof of intent; conviction for manslaughter only requires proof of recklessness. Self-evidently, some senior bankers were reckless: we need the offence of bankslaughter.

Conviction for murder requires proof of intent; conviction for manslaughter only requires proof of recklessness. Self-evidently, some senior bankers were reckless: we need the offence of bankslaughter. Only if they can be dragged from their retirement on the golf course and jailed will the present generation of senior bankers do ‘whatever it takes’ to keep their banks sound. Fussy regulation shifts responsibility from managers to regulators: managers merely have to tick the boxes. Once managers face the risk of jail, they will figure out how to redesign reward systems so as to discourage staff from doing dangerous deals.

Remarkably, this is the legislation that the British Parliament has just passed. Its efficacy has been demonstrated immediately. Two main board directors of banks have resigned rather than face the responsibility of running their banks prudently. Such changes in people and cultures are precisely what are needed to prevent a repeat of history.

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"Labour Mobility Within The EU: The Real Picture" by John Hurley http://www.social-europe.eu/2014/11/labour-mobility-within-eu-real-picture/ http://www.social-europe.eu/2014/11/labour-mobility-within-eu-real-picture/#respond Wed, 12 Nov 2014 10:42:20 +0000 John Hurley http://www.social-europe.eu/?p=36057
John Hurley

John Hurley

General and labour mobility across borders within the EU decreased sharply during the immediate crisis period in 2008–2010. There is consistent evidence of a rebound in mobility since 2011, but mobility rates remain lower than before the crisis. In spite of EU policies facilitating free movement, European and national data suggest that the level of mobility remains low, especially if compared to that of the US. Language and cultural barriers are the main impediment to cross-border mobility in Europe. A new report from Eurofound, the Dublin-based EU social research agency, provides an overview of migration patterns and trends in the EU (both between and within countries) during the economic downturn.

When asked what the European Union means to them personally, more European citizens mention the freedom to travel, work and study in other member states than mention the common currency (European Commission, 2013). A quarter of a million students avail of Erasmus grants to study in another member state every year.  Close to one in five Europeans envisage working abroad in the future, according to the European Commission. Despite this, less than one in thirty native EU workers is working in another member state. Levels of geographical mobility within the EU – including within-country, regional mobility – are especially low by comparison with the USA.

Why is this the case? How have recent developments since the global financial crisis in 2007-9 affected this assessment? These are some of the question addressed in a new Eurofound report Labour migration in the EU: Recent trends and policies (Eurofound 2014).

One stylised fact regarding labour migration in Europe is that the share of non-EU workers significantly outnumbers that of intra-EU migrant workers. This is on the face of it surprising. Non-EU citizens have in most cases to overcome significant obstacles in order to work in Europe, while EU citizens have an enshrined right in EU law to move to take up work opportunities throughout the Union. This right is more or less unrestricted now that transitional restrictions have been largely lifted.

In 2008 there were 8.9 million non EU citizens working in Europe and 5.8 million intra EU migrants. As the report highlights, this is one area where things clearly are changing. Recent labour migration within the EU is accounted for increasingly by internal EU mobility.

There are decreasing numbers of working non-EU nationals (down by nearly 300,000) in the EU and increasing numbers of EU migrant workers. Between 2008-12, the EU migrant worker population increased by over 800,000 even as aggregate EU employment contracted by over 5 million. Furthermore, the newer generation of EU mobile workers are much more likely to be well-educated. According to recent Commission analysis, the share with tertiary education rose from 27% to 41% (European Commission 2014).

The Erasmus student exchange programme is very popular but overall labour mobility remains fairly low in international comparison.

The Erasmus student exchange programme is very popular but overall labour mobility remains fairly low in international comparison.

Survey data offers us some guidance on why people don’t move within the EU. Barriers of language and culture remain the main impediment to cross-border mobility within Europe (European Commission 2010). There are many factors why people do move to work in another member state but probably the principal motivation can be inferred from recent country-to-country flows.

It is significant for example that east-west cross border flows continue to be much greater than south-north flows. One might have expected that the huge post-crisis divergences in labour market performance across the EU would have generated flows from high-unemployment countries like Spain and Greece to low-unemployment countries such as Austria and Germany. To a certain extent, this has happened. Outflows from Greece and Spain for example more than doubled in the period 2007-11 but these south-north flows were still relatively minor compared to flows from the eastern European member states westwards. The two biggest origin countries in the EU for immigration into OECD countries are Poland and Romania (OECD 2013), mainly due to free movement.

So theoretically, labour mobility could have been expected to be a means of automatic labour market adjustment within the Eurozone post-crisis. In reality, this effect has been relatively muted. The key determinants of increased internal EU mobility appear to be an expanded free movement area, in particular following the 2004-7 wave of EU accessions, coupled with the large wage differentials between the older and newer member states. Average gross hourly salaries in euros are around eight times higher in the two main destination countries for recent intra-EU migration, Germany and the UK, compared to those in Bulgaria and Romania.

Even adjusting for purchasing power parity, those in the highest earning member state earn five times as much as those in the lowest (Eurostat 2014). There are clearly very substantial incentives to move for work within the EU from east to west. And wage differentials tend to close only gradually so these incentives are likely to persist for decades.

The Commissioner for employment, social affairs, skills and labour mobility, Maria Thyssen, underlined the importance of the principle of freedom of movement in her hearing before the European Parliament on 1/10/14 as a ‘key pillar of the single market’. The principle of freedom of movement will however continue to be debated and, in some instances, contested by EU member states. Some important factual observations should help frame that debate:

  • the migrant working population in Europe is becoming more European and better educated but still represents only 3% of the total EU workforce
  • free movement has played  a modest role in matching supply and demand for labour across borders, even in a time of historically high differentials in labour market performance
  • huge differences in wage levels in a free movement zone are and will continue to be an important stimulus to intra-EU mobility.

 

Labour migration in the EU: Recent trends and policies can help inform the debate, as it documents the current picture of labour mobility within the EU, and puts forward policy pointers for facilitating the flow of workers while minimising abuses of the migrant worker system and making for smoother transitions for migrant workers.

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"Industrialisation And Female Empowerment: Evidence From The Bangladeshi Garments Sector" by Filippo Sebastio http://www.social-europe.eu/2014/11/industrialisation-female-empowerment-evidence-bangladeshi-garments-sector/ http://www.social-europe.eu/2014/11/industrialisation-female-empowerment-evidence-bangladeshi-garments-sector/#comments Tue, 11 Nov 2014 13:41:45 +0000 Filippo Sebastio http://www.social-europe.eu/?p=36037
Filippo Sebastio

Filippo Sebastio

Gender empowerment and Equality in the Ready Made Garment (RMG) sector

A slew of industrial accidents such as the Tazreen factory fire and the recent collapse of Rana Plaza have cast the Bangladeshi garment industry in a negative light, with international media reporting extensively on the hazardous working conditions.

A fair amount of media attention has focused on the shattered lives of women employees as a result of these fatal accidents, as these women represent the backbone of the textile industry’s workforce. It remains therefore a priority that ongoing improvements of the working conditions, especially in factories used for subcontracting such as Rana Plaza, and efforts to demand fair compensation for the 2500 injured workers and the families of the more than 1100 deceased workers, occupational health and safety conditions are further strengthened.

However, the impact of industrialization on the lives of many women is often not clearly understood by international opinion. Hence, it is important to conduct a comprehensive analysis and consider what policies can actually improve the lives of the large female workforce beyond the necessary improvements with regard to occupational health and safety (OHS) such as international and national building inspections along with OHS trainings for workers and the management.

Gender Empowerment and the Garment Industry

Since the 1980s, RMG was the first industry to provide large-scale employment opportunities to women in Bangladesh, in a country where women traditionally did not work outside their home. Recent research by Professor Rachel Heath (University of Washington) and Professor Mushfiq Mobarak (The International Growth Centre and Yale University) draws attention to the significant benefits of having access to factory jobs on gender empowerment, even beyond the income opportunity, from data spanning thirty years in Bangladesh.

Comparing girls living in areas within commuting distance to a factory to both their brothers and to other girls from villages not within commuting distance, Mobarak and Heath found a systematic effect of proximity to garment factories on the postponement of marriage and childbirth age. These effects were even more striking for girls aged between 12 and 18, where early marriage is more likely to have detrimental effects on a girl’s level of educational achievement and resulting job opportunities.

Analysing retrospective data, Mobarak and Heath find that roughly 14.8 percentage points of the national gain in girls’ enrolment rates over that period, can be attributed to the growth in the garment export industry. The study also highlighted how the proximity to garment factories is associated with a reduced gender-education gap.

Such evidence sheds some light on how the RMG sector has contributed to female empowerment across and within Bangladeshi households. As factories open up and economic opportunities reach villages, households decide to invest in the education of daughters, due to the perceived increase in returns from schooling in the labour market.

Furthermore, as girls find jobs in the garment sector, they tend to postpone marriage and childbirth. Strikingly, the effect of taking up a job in the garment sector on the postponement of marriage and childbirth tends to be larger in the households where women had no previous experience of work outside of home.

Female garment workers still don't enjoy the same job opportunities as men. (photo: © ILO)

Female garment workers still don’t enjoy the same job opportunities as men. (photo: © ILO)

Gender Equality in the Factories

Whereas a job in the RMG sector has therefore contributed to the empowerment of women who had previously been bound to work in their household, empowerment often stops when it comes to the equality of opportunities within RMG factories in Bangladesh. From data collected within factories, 4 out of every 5 production line workers are female, whilst just over 1 in 20 supervisors is a woman. If indeed workers were promoted on the basis of merit, this would mean that currently 95 percent of the managerial talent in factories emerges from 20 percent of the workforce. This begs the question as to whether it is efficient for factory owners not to invest in women, whilst the industry suffers from a scarcity of skilled workers.

Recent research has also brought to light how gender discrimination affects the lives of the female operators and the potential repercussions on the efficiency in the sector. Professors Christopher Woodruff and Rocco Macchiavello (The International Growth Centre and the University of Warwick) have evaluated a training program that trains female sewing machine operators to become line supervisors. The study investigates the impact of skill investment on female workers versus male participants and the effectiveness of female trainees who are subsequently promoted to supervisory roles. According to the study, vocational training has positive effects on gender equality as more than half of the female trainees were promoted after receiving the training.

Different experiment setups that Woodruff and Macchiavello explored suggested that after being trained, female trainees are as much or even more effective than male supervisors and that there are no differences between male and female trainees with regards to line-level efficiency, absenteeism or quality.

However, their research also draws attention to the predominant bias against women taking on the role of supervisors. Promotion rates for the female trainees in their experiment proved to be significantly lower than for male trainees and hints of resistance to the promotion of female operators were detected amongst male colleagues. Hence there is significant evidence that traditional gender roles perpetuate employment structures within factories and limits the career prospects of women entering the sector as line operators.

Three quarters of the workforce will remain unskilled without adequate training, further perpetuating a vicious cycle within factories. Due to the gender bias within factories, women do not invest in the skills required to become supervisors, as they do not expect to have opportunities for career progress. Male employees on the other hand, enter factories with a significantly higher expectation of becoming supervisors. It is not surprising then that women initially require more training en-route to becoming supervisors. With weaker career prospects, women are also likely to leave when offered better opportunities elsewhere. Consequently, garment factories face high turnover rates, leading to large costs in terms of resource and efficiency losses. A story emerges then of an industry that has fuelled economic growth in Bangladesh, yet that has been unable to exploit its full potential because gender inequality still persists.

The way forward

Mushfiq and Heath claim that the expansion of the garment industry had a far bigger role to play in increasing female educational attainment and decreasing early marriages and fertility rates during the 20-year period than most other educational policies. Mubarak and Heath’s research also shows how international boycotts on trade in garments with Bangladesh, as a response to poor and unsafe working conditions, have the potential to do more harm than good to women in Bangladesh. Since the expansion of the industry has largely contributed to the emancipation of adolescent girls, a sudden halt would put these gains at risk. This reinforces the importance of garment associations, trade unions and factory management establishing health and safety measures to ensure a safe and sustainable RMG industry.

Also, whilst it is the responsibility of government, factory owners and international brands to do everything in their power to guarantee decent and safe working conditions within the factories, more actions can be taken. In fact, international brands that outsource production to Bangladesh could also benefit from encouraging garment business associations to invest in their female operators. Bangladesh has long suffered from a negative reputation due to the working conditions in factories. By investing in social programs such as female training, international brands could together restore the deteriorated image of “Made in Bangladesh” garments and increase their appeal amongst concerned consumers.

Also, while the industry has rewarded girls that have had access to more job opportunities, factory management has failed to provide equal opportunities and the resulting career development to female workers, as compared to men. These measures would not be sustainable if garment associations and the government of Bangladesh do not work closely to change the cultural norms inside factories. Social awareness programs on traditional and social media aid in breaking down the barriers to gender equality within factories. Within garment workers’ unions, perceptions towards female workers also need to progress. Male workers need to view their female counterparts as less of a threat and more of a resource that should be highly regarded, in order to improve efficiency within this key industry in Bangladesh.

This column is part of the “After Rana Plaza” project jointly run with the  Friedrich-Ebert-Stiftung Dhaka Office.

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http://www.social-europe.eu/2014/11/industrialisation-female-empowerment-evidence-bangladeshi-garments-sector/feed/rss2/ 1 Filippo-Sebastio Filippo Sebastio female workers Female garment workers still don't enjoy the same job opportunities as men. (photo:
"Getting The Germany Argument Right" by Simon Wren-Lewis http://www.social-europe.eu/2014/11/getting-germany-argument-right/ http://www.social-europe.eu/2014/11/getting-germany-argument-right/#comments Tue, 11 Nov 2014 11:27:11 +0000 Simon Wren-Lewis http://www.social-europe.eu/?p=36031
Simon Wren-Lewis

Simon Wren-Lewis

As the Eurozone experiences a prolonged demand-deficient recession, and given Germany’s pivotal role in making that happen, it is important to get the argument against current German policy right. It seems to me there are two wrong directions to take here. The first is to argue that Germany needs to undertake fiscal expansion because it has more ‘fiscal space’, to use a phrase the IMF use a lot which I dislike. The second is to argue that Germany needs to expand to help its Eurozone neighbours.

The problem with the first argument is that it legitimises the fiscal rules which are ultimately the source of the Eurozone’s current difficulties. If we look at the Eurozone as a whole, its fiscal policy is tighter than in the UK and US. As Fraser Nelson notes, the UK has a larger structural deficit than any other EU country. With interest rates at their zero lower bound, this shows that UK policy – while far from appropriate – is not quite as inappropriate as in the rest of the EU. The right policy when you are in a liquidity trap is to have a fiscal stimulus large enough to get you out of that trap. Within the Eurozone, the only countries that might be exempted from this fiscal expansion are those on the periphery. Otherwise we need a fiscal expansion in France, Italy, Spain, the Netherlands etc, as well as Germany.

The problem with the second argument is twofold. First, it tunes in with the popular sentiment in Germany that the country is yet again being asked to ‘bail out’ its Eurozone neighbours. Second, it implicitly suggests that the current German macroeconomic position is appropriate, but that Germany must move away from this position for the sake of the Eurozone as a whole. The obvious German response is to list all the reasons why their economy is currently on track (see, for example, Otmar Issing in the FT recently), and suggest therefore that other countries should look at their own policies for salvation. This is how we end up needlessly discussing structural reforms in France, Italy and so on.

The ultimate problem is that what Germany sees as virtue is pre-Keynesian macroeconomic nonsense, nonsense that is doing other countries a great deal of harm.

The uncomfortable truth for Germany, which both the previous arguments can miss, is that the appropriate macroeconomic position for Germany at the moment is a boom, with inflation running well above 2%. The current competitiveness misalignment is a result of low nominal wage growth in Germany over the 2000 to 2007 period, which was in effect (and perhaps unintentionally) a beggar my neighbour policy with respect to the rest of the Eurozone. Germany’s current position is unsustainable, as its huge current account surplus and relative cyclical position shows. It will be corrected by undoing what happened from 2000 to 2007. Over the next five or ten years, German inflation will exceed the Eurozone average until its long term relative competitive position is restored.[1]

The policies of the German government are stifling economic recovery in the Eurozone, according to Simon Wren-Lewis.

The policies of the German government are stifling economic recovery in the Eurozone, according to Simon Wren-Lewis.

The only choice is how this happens. From the perspective of the Eurozone as a whole, the efficient solution would be above 2% inflation in Germany, and below 2% inflation elsewhere. That is what would happen if the ECB was able to do its job, and Germany would get no choice in the matter. Normally above 2% inflation in Germany would require a boom (a positive output gap), but if it can be achieved without that fine, although I would note that current German inflation is only 0.8%. Arguments that point to currently low unemployment and a zero output gap in Germany are therefore irrelevant while German inflation is so low. The inefficient alternative solution is for 2% or less inflation in Germany, and actual or near deflation outside. Why is this solution inefficient? Because to get inflation that low outside Germany requires the Eurozone recession we are now experiencing.

This is where structural reforms enter. Many German commentators say ‘why cannot other countries do what we did from 2000 to 2007’? But low nominal wage growth in Germany from 2000 to 2007 was accompanied by a recession in Germany! Furthermore, that recession was not so bad as the current Eurozone position, because the ECB was able to do its job and cut interest rates, so inflation outside Germany was above 2%. So from 2000 to 2007 many countries had to experience above target inflation because of low nominal wage growth in Germany, [2] yet many in Germany want to avoid above target inflation while imbalances are corrected.

If your starting point is what happened in Germany from 2000 to 2007, then current German arguments can look incredibly self-centred. They seem to say: we suffered a recession from 2000 to 2007 which led to a beggar my neighbour outcome, now you have to suffer a worse recession to put right the problem we created. But as I have argued before, and which comments on my recent posts and readings confirm, I think the German position is more about ignorance than greed. I also suspect there is a great deal of macroeconomic ignorance outside Germany as well, which is why Germany has been able to impose a recession on the rest of the Eurozone. Take for example this paper by Michael Miebach, who speaks from the left of centre in Germany.

Miebach presents a wide range of macroeconomic fallacies or irrelevant arguments. Germany’s fiscal position is not good (irrelevant in a liquidity trap), its macroeconomic position is not too bad (when it should have above 2% inflation, which probably requires a boom), fiscal expansion in Germany would have only a small impact on the periphery (but what we should be talking about is fiscal expansion in all the main Eurozone economies, which this paper confirms would help the periphery as well as France, Italy etc, and expansion in Germany would benefit countries like the Netherlands), and the old canard about how focusing on demand distracts attention from dealing with structural weaknesses in the Eurozone. But most revealingly we have this:

Also, how can Germany demand fiscal discipline from other countries if it strips away its own principles at the first opportunity?

You can only write this if you just do not get the idea of a liquidity trap, when demanding fiscal discipline from other countries is the source of the problem! What makes Germany’s current position unforgivable is not that it is refusing to undertake a significant fiscal stimulus of its own. It is that it is doing what it can to make other countries persist with austerity, and at the same time making it difficult for the ECB to do what it can to offset this. The ultimate problem is that what Germany sees as virtue is pre-Keynesian macroeconomic nonsense, nonsense that is doing other countries a great deal of harm. The best one can say in mitigation is that, in a sort of collective stockholm syndrome, too many in these other countries also mistake nonsense for virtue.

[1] Economists would naturally talk about real exchange rates here, rather than use the term competitiveness, because the latter invites a confusion between firms and nations. The first point to note is that if Germany had its own exchange rate, the impact of low nominal wage growth on competitiveness would be undone through a nominal appreciation. (There are no benefits of a nominal appreciation if everything real is unchanged.) The second point is that a competitive market is beneficial when it encourages improvements in productivity. For a single nation to gain a competitive advantage in a currency union by cutting nominal wages just causes problems.

[2] Looking at consumer prices tends to mask national differences, because of imported goods. Over the 2000-2007 period average Euro consumer price inflation was 2.2%, and in Germany it was 1.7%. However if we look at output prices (the GDP deflator) we get a clearer picture: average Eurozone inflation was just above 2%, but inflation in Germany was 0.8%.

This blogpost was first published on Mainly Macro

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http://www.social-europe.eu/2014/11/getting-germany-argument-right/feed/rss2/ 6 simon wren-lewis Simon Wren-Lewis Angela-Merkel The policies of the German government are stifling economic recovery in the Eurozone, according to Simon Wren-Lewis.