Social Europe Journal debating progressive politics in Europe and beyond Wed, 20 Aug 2014 11:27:28 +0000 hourly 1 "Why We Need A More Substantive European Democracy" by Colin Crouch Wed, 20 Aug 2014 11:27:28 +0000 Colin Crouch
Colin Crouch, European Democracy

Colin Crouch

Are we witnessing a transition toward a post-democratic society? In an interview with EUROPP’s editor Stuart Brown, Colin Crouch discusses democracy within the EU, the use of direct democracy in states like the UK, and the role of non-political actors in strengthening pluralism and civil society through avenues such as social media.

You’ve previously written on the concept of a ‘post-democratic’ society, where a state ‘continues to have and to use all the institutions of democracy, but in which they increasingly become a formal shell’. It could be argued that the European Union epitomises this kind of elite-driven decision-making: is it possible for European integration to take place without compromising democracy?

Yes, I did indeed argue in Post-democracy that the European Parliament was an almost perfect example of the phenomenon, with all the formal institutions but no real life or democratic energy.

But that is not a case for retreating into national shells, as national democracy simply cannot reach the transnational private economic power that currently dominates the world and reduces many democratic institutions to meaningless shams. We have to move onwards to a more substantive European democracy, which means stopping striking postures about a national sovereignty that does not exist.

Direct democracy is often put forward as an antidote to contemporary democratic problems, which we have seen in the UK with the push for an EU referendum. Is this a positive trend or does it imply as many problems as it solves? Recent referendums in Ukraine and Croatia, for instance, have arguably had quite negative consequences.

There is something to be said for the practice we have developed, almost by chance, in the UK of submitting certain major constitutional questions to a referendum. This might be particularly important for this country, as we otherwise give no special status to constitutional law as other European countries or the USA do. More generally referenda might be used for issues at the opposite end of the scale: small, local issues. There was a time, for example, when Welsh towns had referenda to decide whether to allow pubs to operate.

The problem with direct democracy for the vast range of intermediate issues is that they are even more vulnerable than general elections to mass persuasion by whomever can afford the biggest publicity campaigns – which means corporate interests and those of the very wealthy in general. One sees the impact of this factor in a number of recent Swiss referenda, the country which is of course the home of direct democracy.

European Democracy

The European Parliament has to play a bigger role in a more substantive European democracy (CC BY 2.0 Xaf)

One of the features of the debate in Scotland over the upcoming referendum on independence is the role that non-politicians have had, particularly on the internet, in shaping the campaign. Is the idea of a ‘post-democratic’ society limited in the sense that it focuses too closely on electoral politics and not on the role of other organisations across society, such as pressure groups, in bringing about political change?

Pressure groups have been around for a long time now and are hardly a novel feature. What is interesting is the growth, partly aided by social media, of campaigns that do not take the form of demands for government action but target, say, individual firms guilty of various abuses, tax-dodging, etc.

In a way it is a response to post-democracy, the inaccessibility and incapacity of formal politics, but it is also a strengthening of pluralism and civil society. It is not democracy and is not a substitute for it, but it is a healthy and exciting development.

One of the key stories to emerge from the European Parliament elections in May was the rise of broadly Eurosceptic/anti-establishment parties across Europe. This could be viewed either as a symptom of the flaws in European democracy or as proof that we still have valid alternatives offered to the electorate. How do you view this development?

Yes, the Europhobic and racist parties have certainly added a frisson to European politics. So on democratic procedural grounds one acknowledges their contribution. But the history of the 20th century suggests that xenophobic movements are rarely if ever substantive friends of democracy.

This interview was first published by EUROPP@LSE

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]]> 0 colin crouch Colin Crouch European Parliament The European Parliament (CC
"The Middle Classes In The Vertigo Of Change" by Marc Saxer Wed, 20 Aug 2014 10:59:11 +0000 Marc Saxer
Marc Saxer

Marc Saxer

Tahrir, Thaksim, Maidan. Hundreds of thousands are protesting around the world. From Tunesia to Thailand, from Ukraine to Egypt, governments are overthrown. The images resemble each other. What do leaders with such vastly different ideologies such as the Bolivarian socialist Chavez, the neoliberal tycoon Thaksin, the Islamist Erdogan and the friend of oligarchs Yanukovich have in common? And how are the demonstrations in Spain, Greece and Brazil different from the protests in Turkey, Thailand and Taiwan?

Joshua Kurlantzick from the US Council on Foreign Relations thinks he found a common thread connecting the dots: the rage of the middle classes against the corruption and abuse of power of what he dubs „elected autocrats“. Starting from the campaign against the Filipino President Estrada in 2000/01, there have been mass protests in Venezuela (2001-2003), Taiwan (2004 and 2006), Ukraine (2004 and 2013), Kyrgizstan (2005), Thailand (2006, 2008, 2013/14), Bangladesh (2006/07), Kenya (2007/08), Bolivia (2008), Georgia (2003 and 2007), Lebanon (2011), Tunisia (2010/11), Russia (2012), Egypt (2011 and 2012/13), Turkey (2013) and Brazil (2013 and 2014). While the occasions and outcomes of these protests may vary, some (but not all) of these crises seem to follow a remarkably similar script.

With the notable exception of the Arab Spring, all these mass protests were directed against properly elected governments. Despite all shortcomings of their defect democracies, the electorates made active use of their constitutional right to elect the government. Amidst epochal social and economic transformation, clever political entrepreneurs have realized that catering to the hopes and demands of the emerging classes in the provinces is a political game changer. With a policy mix of social welfare, local development and populist handouts, they win election after election. The majority population, until recently excluded from the provision of public goods, shows its gratitude with staunch loyalty at the voting booth. Once in power, popular leaders quickly turn into „elected autocrats“, threatening the opposition, silencing media, and undermining democratic institutions. From the perspective of the established elite and middle class, these “elected autocrats” are a threat.

Traditional elites are eager to defend status and privilege and happily promote the discourse of national crisis and moral decay.

Endemic corruption and nepotism breed resentment against democracy. Establishment parties, having failed to update their platforms to cater to the majority population, are losing one election after the other. The desperate middle class in the capital blames democracy for their situation and calls for an authoritarian strong hand to remove the government. Traditional elites are eager to defend status and privilege and happily promote the discourse of national crisis and moral decay. Often it is the militaries who seize the moment to shore up their political power. However, authoritarian intervention does not necessarily break up the backbone of “elected autocrats”. With the help of their popular base, leaders such as Thaksin and Chavez managed to return to power. In Egypt and Thailand, the alliance of traditional elites, established middle class and the military responded by cracking down even harder.

How these power struggles end is of course largely determined by the local balance of power. These local differences are important but should not obscure the bigger picture such struggles have in common: a decade long transformation conflict over the adaptation of the political and social order to a new societal reality. Socioeconomic development and globalization transform societies at breakneck speed, thereby overstretching traditional political systems and eroding normative foundations. The needed “update of the operating system“, however, is not easy in a context of social conflict. In other words: emerging social classes have terminated the social contract, but the renegotiation of a new social contract faces the resistance of all those who benefit from the status quo.

These are not only the old elites trying to protect status and privilege, but all those who feel rapid transformation turns their world upside down. In less than a generation, fundamental concepts such as time, family, work, or the role of men and women have changed completely. Some people happily embrace the new opportunities, while others feel that the loss of the world they were born into threatens their identities. Fear of social decline gives these social struggles a paranoid, aggressive flavor. It is not a coincidence that in times of rapid change, fascist groups are framing scapegoats for the alleged moral decline, and resort to violent tactics to restore an imagined golden past. As Antonio Gramsci gloomily remarked from his prison cell: “The crisis consists precisely in the fact that the old is dying and the new cannot be born; in this interregnum a great variety of morbid symptoms appear.”

What are the common aspects of global protests? And what does set them apart? (photo: CC

What are the common aspects of global protests? And what sets them apart? The role of the middle class is crucial according to Marc Saxer (photo: CC BY 2.0

In this transformation conflict between the forces of change and forces of restoration, the middle classes indeed play a decisive role. As long as the established middle class sticks with the old elites, the status quo is upheld. If the middle classes make common cause with emerging classes, change will be inevitable. This is why the protests of “young unemployed graduates” (Paul Mason) from Tunis to London, from Wall Street to Madrid are different: here, a precarious middle class protests for better life chances through economic and political change. In Thailand, the established middle class marched to keep their status and privileges. This seems to contradict common knowledge that middle classes are primary drivers of democratization.

Hence, it may be fruitful to further explore the motivations, frustrations and fears of the “raging middle class” in Bangkok. It is not easy to recognize middle class grievances through the noise of nationalist, sexist, violent-prone, and anti-democratic protest rhetoric. The orientation of the Bangkokian citizens has not always been anti-democratic. On the contrary, in the 1990s it was the urban civil society that installed a liberal democracy after decades of military authoritarianism. Today, some of the same protagonists believe that “Western democracy does not fit Thai society”. How can one explain this change of mind?

Bangkok’s middle class was horrified to find itself in a permanent minority in the new electoral democracy. The Democrat Party, for decades the political vehicle of the establishment, lost election after election against the party vehicles of the Shinawatra clan. Telecom tycoon Thaksin Shinawatra had realized that a mixture of Keynesian local developmentalism, social welfare schemes and populist handouts not only triggered an economic boom in the long neglected provinces, but also won him a loyal supporter base in the populous regions of the North and Northeast. By undermining constitutional safeguards, the “iron fist in a glove” style of the Shinawatra governments made the position of the middle class minority even more precarious. The bloody wars against alleged drug dealers in the North and Malay-Muslim separatists in the South cost thousands of innocent lives.

In Bangkok, the high-handed Thaksin harassed the opposition, media and civil society. The Bangkok middle class felt threatened. The mass protests in 2006, 2008 and 2013 were partly triggered by the abuse of power by the government. What really mobilized hundreds of thousands, however, was the impotent anger over corruption. If corruption really spiraled out of control, or only the perception of it, is subject of fierce debates. What matters more is the convergence between electoral democracy and the old patronage system. Behind the institutional facades, the patronage system controls political, economic and social life all over Thailand. In the provinces, the patronage system takes the form of a more violent, mafia-esque form of feudalism. Any successful patron rewards his supporters, protects his clients, favors his kin, distributes the spoils, cuts out non-supporters and crushes his enemies.

The elected representatives bring this logic from the provinces into the capital. The middle class sees these practices simply as the most vulgar form of corruption and nepotism. The problem was quickly identified: the uneducated and uncivilized rural people (derisively called “buffalos”) who sell their votes to the highest bidder. From the perspective of well-to-do Bangkokians, the social welfare and development programs were nothing more than the cynical attempt to buy votes. Soon, a paranoid fear emerged that these “populist programs” would lead to state bankruptcy. Despite the fact that Bangkokians pay below average taxes and benefit above average from public spending, the established middle classes felt cheated. In other words, the Bangkokian middle class fears “to be robbed by corrupt politicians who buy the votes of the greedy poor with populist schemes”.

The short circuit conclusion of conservative protesters: if the uneducated masses keep on electing “bad people” into office, then their right to vote needs to be suspended.

In a Buddhist political cosmos, this is an untenable situation. Instead of moral “good people”, now corrupt “bad people” were at the top of the social hierarchy whose behavior brought more suffering into the world. The short circuit conclusion of conservative protesters: if the uneducated masses keep on electing “bad people” into office, then their right to vote needs to be suspended. This reactionary moralist discourse is furthered by the traditional elites who smell the chance to make some headway in the fight over the political and economic control of the country. Under the pretext to restore order and morality, the military and judiciary repeatedly intervened to destroy the political machine of the Shinawatra network. However, despite the dissolution of political party vehicles, political bans, criminal charges, and behind-the-scene interventions, the Shinawatra network made triumphant comebacks at the elections of 2008 and 2011. After the eighteenth military coup in the history of modern Thailand, the junta tries to achieve with a hard hand what its predecessors failed to do: to root out the power base of the Shinawatra network once and for all. Given how far Thai society has already been pluralized and politicized, this attempt to turn back the wheel of history may prove to be a Pyrrhic victory.

On the other hand, protracted transformation conflicts seem to reaffirm the notion that while the majority population can drive democratization processes, democratic consolidation needs a stable social foundation which includes the middle classes. The rage of Bangkok’s well-off protesters shows that the established middle class is not satisfied with the current „deal“. This is precisely the dilemma of transformation: while a new social contract with equal rights and duties would be in the enlightened interest of all citizens, such a social contract cannot be agreed upon as long as elites and middle classes do not recognize the majority population as equals. The precondition for social solidarity is a collective identity which accepts all subjects as equal members of society. So in order to lay the foundation for a new social contract, the egalitarian and universal normative foundation of this social contract already needs to be widely recognized. That is by no means a theoretical problem. The emerging classes will only be satisfied if they are granted equal opportunities to participate in political, economic, social and cultural life. The provision of full capabilities for all, however, cannot be financed without a significant broadening of tax revenue. In other words: the raging middle classes hold the tax key to the new social contract.

This is why the social conflict can only be solved by a social compromise between all classes. The elites embrace democracy as the only game in town and compete for electoral mandates on a responsive platform. The majority population agrees to limitations of majority rule by the rule of law in return of full capabilities. The middle class benefits from social peace, rule of law, good governance and quality public goods in return for picking up the tax bill.

In order to overcome the transformation with a social contract based on such a social compromise, the political, economic and social order needs to be fundamentally overhauled. Such far-ranging political and social innovations are not easy to implement in a climate of fear and conflict. In the absence of a cultural tradition of social solidarity, it is even harder to build the necessary trust after years of divisive conflict. Maybe the cost of conflict needs to become unbearable before social groups come to realize the benefits of social compromise.

In many societies there is little understanding of the connection between political and economic development and the social ability of innovation. Social innovation is not given, but depends on the ability of society to forge a consensus on the same development path. If social groups feel excluded or threatened in their identities, they will resist change. All around the world, we currently have to witness the pathological excesses of such fear of change. This is why it is indispensable to maintain societal consensus for political and economic development. Such a broad societal consensus can only be built on the basis of a social compromise between all classes.

All those who lay the axe on the social contract to further their narrow interests should take the transformation conflicts around the world as a warning. Social contracts are easier to destroy then to renegotiate. However, as long as economic and social lives are changing, there cannot be an “end of history”. The emerging Third Industrial Revolution has already begun to transform Western economies and societies. First struggles over fairer distribution (“Occupy”), deeper participation (“Stuttgart 21”,), and property rights (“IPRs”) have already sprung up. With progressing economic and social transformation, these struggles over the political and social order will intensify. The transformation conflicts of tomorrow will be fought by us.

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]]> 0 marc saxer Marc Saxer Protest Kiev What are the common aspects of global protests? And what does set them apart? (photo: CC
"The European Social Policy Agenda And Illegal Immigration" by Aaron Farrugia Tue, 19 Aug 2014 10:40:41 +0000 Aaron Farrugia

Aaron Farrugia, chairman of the IDEAT Foundation, a Maltese think tank, talks about the current state of the European Union after the May elections and the social policy challenges for the next five years. The interview also covers the specific problem of illegal immigration of refugees and what the European Union as a whole, rather than just the (small) member states affected, need to do to help refugees.

This interview is part of our Social Europe 2019 project.

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]]> 0 The European Social Policy Agenda And Illegal Immigration Aaron Farrugia talks about the European social policy agenda and the specific issue of illegal immigration. European Social Policy Agenda,European Social Policy Agenda
"Balanced Budget Fundamentalism" by Simon Wren-Lewis Mon, 18 Aug 2014 13:59:19 +0000 Simon Wren-Lewis
Balanced Budget Fundamentalism

Simon Wren-Lewis

Europeans, and particularly the European elite, find popular attitudes to science among many across the Atlantic both amusing and distressing. In Europe we do not have regular attempts to replace evolution with ‘intelligent design’ on school curriculums. Climate change denial is not mainstream politics in Europe as it is in the US (with the possible exception of the UK). Yet Europe, and particularly its governing elite, seems gripped by a belief that is as unscientific and more immediately dangerous. It is a belief that fiscal policy should be tightened in a liquidity trap.

In the UK economic growth is currently strong, but that cannot disguise the fact that this has been the slowest recovery from a recession for centuries. Austerity may not be the main cause of that, but it certainly played its part. Yet the government that undertook this austerity, instead of trying to distract attention from its mistake, is planning to do it all over again. Either this is a serious intention, or a ruse to help win an election, but either way it suggests events have not dulled its faith in this doctrine.

Europe suffered a second recession thanks to a combination of austerity and poor monetary policy. Yet its monetary policymakers, rather than take serious steps to address the fact that Eurozone GDP is stagnant and inflation is barely positive, choose to largely sit on their hands and instead to continue to extol the virtues of austerity. (Dear ECB. You seem very keen on structural reform. Given your performance, maybe you should try some yourself.) In major economies like France and the Netherlands, the absence of growth leads to deficit targets being missed, and the medieval fiscal rules of the Eurozone imply further austerity is required. As Wolfgang Münchau points out (August 15), German newspapers seem more concerned with the French budget deficit than with the prospect of deflation.

There is now almost universal agreement among economists that tightening fiscal policy tends to significantly reduce output and increase unemployment when interest rates are at their lower bound: the debate is by how much. A few argue that monetary policy could still rescue the situation even though interest rates are at their lower bound, but the chance of the ECB following their advice is zero.

Paul De Grauwe puts it eloquently.

European policymakers are doing everything they can to stop recovery taking off, so they should not be surprised if there is in fact no take-off. It is balanced-budget fundamentalism, and it has become religious.

They still teach Keynesian economics in Europe, so it is not as if the science is not taught. Nor do I find much difference between the views of junior and middle-ranking macroeconomists working for the ECB or Commission compared to, for example, those working for the IMF, apart from a natural recognition of political realities. Instead I think the problem is much the same as that encountered in the US, but just different in degree.

The mistake academics can often make is to believe that what they regard as received wisdom among themselves will be reflected in the policy debate, when these issues have a strong ideological element or where significant sectional financial interests are involved. In reality there is a policy advice community that lies between the expert and the politician, and while some in this community are genuinely interested in evidence, others are more attuned to a particular ideology, or the interests of money, or what ‘plays well’ with sections of the public. Some in this community might even be economists, but economists who – if they ever had macroeconomic expertise – seem happy to leave it behind.

So why does ‘balanced-budget fundamentalism’ appear to be more dominant in Europe than the US? I do not think you will find the answer in any difference between the macro taught in the two continents. Some might point to the dominance of ordoliberalism in Germany, but this is not so very different to the dominance of neoliberalism within the policy advice community in the US. Perhaps there is something in the greater ability of academics in the US (and one in particular) to bypass the policy advice community through both conventional and more modern forms of media. However I suspect a big factor is just recent experience.

The US never had a debt funding crisis. The ‘bond vigilantes’ never turned up. In the Eurozone they did, and that had a scarring effect on European policymakers that large sections of the policy advice community can play to, and which leaves those who might oppose austerity powerless. That is not meant to excuse the motives of those that foster a belief in balanced budget fundamentalism, but simply to note that it makes it more difficult for science and evidence to get a look in. The difference between fundamentalism that denies the concept of evolution and fundamentalism that denies the principles of macroeconomics is that the latter is doing people immediate harm.

This blogpost was first published on Mainly Macro

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]]> 2 simon wren-lewis Simon Wren-Lewis
"The Politics Of Radical Hope" by Jon Cruddas Mon, 18 Aug 2014 12:48:19 +0000 Jon Cruddas
Jon Cruddas

Jon Cruddas

I’ll begin with a story. One that dominates the philosopher Jonathan Lear’s brilliant book, ‘Radical Hope: Ethics in the Face of Cultural Devastation’. It is about the Crow Indians. A story about what happens when the economy of a society is destroyed and a people’s way of life comes to an end. It was told by their great chief Plenty Coups, shortly before he died. He said, ‘When the buffalo went away the hearts of my people fell to the ground, and they could not be lifted up again. After this nothing happened’. What did he mean?

That the culture that gave their life meaning and purpose died. The whole fabric of their beliefs and standards was destroyed and this loss was irreparable. What would come next? The Crow people actually survived despite this loss because their leadership re-imagined a future; it created a ‘radical hope’. It was radical because it was a future without guarantees but most important it was without despair. In a period of rapid social and economic change it raises key questions about how we draw on a community’s memory and traditions to define the future.

The book throws up many challenges for all today’s political parties. For example, the Labour Party is the product of industrial society. A party built on mass production over one hundred years ago: a large stable workforce, large productive units, mass consumption, and a class society. Yet we are now in the middle of a de-industrial revolution fragmenting the communities it once sustained. A post-industrial economy is taking shape around our advanced manufacturing and the new information and communications technologies. The shift to a services economy is flattening out old, hierarchical command and control structures. Digital technology is unseating whole industries and workforces, and production is becoming more networked and disorganised. Our class system is being reconstructed.

Technological Change

The disruption of technological change is greater than at any times since the industrial revolution.The institutions and solidarities workers created to defend themselves against the power of capital have disappeared or become outdated and ineffective. As such, social democracy has lost its social anchorage in the coalitions built up around the skilled working class. Once great ruling parties can appear hollowed out; in danger of shrinking into a professionalized political class. Often in government they were not very social, nor very democratic. Top down and state driven. Compensating for the system not reforming it. A politics about structures and not about individuals. This model of social democracy built in the industrial era has come to the end of its useful life.

Social democracy has lost its social anchorage in the coalitions built up around the skilled working class.

These forces also challenge the Tories and their traditional Conservative values. The dominant force over the last 30 years has been the ideology of Neo-Classical economics – Neo-Liberalism. Its market fundamentalism has driven growth and its destructive impact is now increasingly understood: a centralizing and authoritarian state, an economy driven by individual greed, a culture of personal entitlement at the expense of a sense of obligation to others, public goods commodified, communities fragmented and our democracy weakened. We are now living with its consequences. The biggest bank bailout in our history, the slowest recovery, and the link between economic growth and rising living standards broken. Huge wealth for a few, while wages for the majority have been stagnant for years. Homes for ordinary families are not being built, and the skills training which business and young people need to succeed is inadequate. People’s talent is wasted in dead end jobs. There is not enough quality affordable childcare to help women earn. The care system for the elderly is turning into a social catastrophe. In 2015 George Osborne will leave the country with a deficit close to £70 billion and the national debt still rising.

Here is one blindingly obvious paradox. Despite this failure of the old order, we are also living in a time of tremendous opportunity. As the economy recovers, people want the opportunity to use their skills and talents to make a better life for themselves and their children. There is fantastic energy and willingness to create, and to build, and to turn Britain around. So is there not two futures taking shape in our country today?

The first is the future of innovation and wealth creation. We are just at the start of the internet revolution. Radical innovations in the generation, processing and transmission of information, will continue modernising the whole base of our economy. New services, products and markets will mean more knowledge, prosperity and opportunity. The web is breaking down barriers. Digital technology has transformed start up costs and it has never been easier to start and run your own business. For example, new platforms likes Etsy are opening up global markets to small businesses and the self employed. Kickstarter provides crowd sourcing for inventors of every kind, and Unbound brings together potential investors and authors to create subscription financed publications. New creative cultures will generate economic wealth and deepen and enrich our experience of everyday life, expanding the sphere of human freedom and expression.

Cities were at the heart of the first industrial revolution, with Manchester as the first modern city. They will drive the new economic revolution across the world. In Britain our cities will accelerate the forces of economic development. With better infrastructure and digital connectivity, and good skills and employment strategies, they will play to the creative strengths of their people. But without radical reform to our economy this future will only belong to the few.

There is a second future taking shape in the shadow of the first. A country scarred by dispossession. Its great industries gone and with them the skilled jobs and communities of the working class. People driven from secure full-time work into precarious, badly paid jobs. Poverty and inequality increasing – especially amongst the under 30s. Public services standardized, treating their users like supplicants and victims. Social mobility ground to a halt: the younger generation competing for fewer jobs, and shut out of the housing market. One fifth of children leaving primary school without achieving a basic level of numeracy and literacy. 10 million people lacking basic digital skills.

The rapid pace of social and economic change has left millions behind and they feel abandoned. We are living in the best of times, and the worst of times. For sure the future direction we choose for our country will be decided by politics. But our system of government is failing people. Instead of sharing power it hoards it. Those who make decisions on our behalf, whether they be in Westminster, Brussels, in business, the media or working in the public sector, are too often unaccountable. People feel powerless to contribute and make their voices heard. So Government has to change, and yet there will be more public spending cuts to come. So we literally cannot afford the status quo.

Creating Power

I believe that Labour together with the wider social and progressive movements will define the political settlement of the coming decade. We defined the dominant political settlement of the Twentieth Century. We built our welfare state. It was a profound achievement. But too often we settled for that. The ideology and institutions of 70 years ago became the horizon of our ambition. Confronted by Neo-Liberalism in the 1980s we sometimes just defended institutions and ideas that were offering diminishing returns. We became institutional conservatives defending the outdated.

We will not build the new economy with the old politics of command and control. Central government, big bureaucracies and corporations faced with complexity and unpredictability are all losing the power they once had to shape the world. Our welfare state is ill-equipped to deal with modern social evils like loneliness and the loss of community. Our health service is struggling to cope with the rise of chronic illnesses like depression, obesity and diabetes, and we literally lack a proper system of care for our growing elder population.

Our political parties cannot keep up with our complex and fast changing society. In the new economy, politics will be about innovation and participation. About networks, not hierarchies. Parties will not win power in government, they will have to create power by building partnerships and wider public involvement. Instead of imposing change on communities, politicians will need to use their insights and experience of what works and what doesn’t. We will be convenors, bringing people together to help them find solutions to the problems they face. These are insights that you are making here at the RSA in your excellent work on ‘The Power to Create’.

In the new economy, politics will be about innovation and participation. About networks, not hierarchies.

Just as in the age of steam and the age of the railways, our new digital age is radically changing society. But while rail transformed society it also created opportunities for the robber barons to monopolise and control it for their own good. We have to tackle concentrations of power, and make sure people have the skills and the abilities to take advantage of the internet. In the vanguards of the new economy there is a new productive force which is the ‘life of the mind’. There are new kinds of raw materials – the intangible assets of information, sounds, words, images, ideas – and they are produced in creative, emotional and intellectual labour. New models of production are using consumers and their relationships in the co-inventing of new ideas, products and cultural meaning.

People no longer just want to consume the culture and products handed to them. Technology, from computer aided design to the new 3D printing, will provide individuals with the means to actively create culture and to pursue creative forms of labour. Individuals will be able to design and make the things they live with. To develop these opportunities throughout the population we need an education system that cultivates the full range of individual capabilities. Our present model of education rewards conformity in pursuit of a narrow, logical and mathematical form of intelligence. It fails far too many children and it reproduces the power of the already privileged. It is wasteful of our most important economic resource which is human ingenuity.

We need to give craft and vocational work the same value and status as academic work, and prioritise digital inclusion to help adults who lack digital skills make the most of the internet. The future represents a powerful challenge to my party. Historically, our instincts have too often been to centralize, conform and control. To shape the future of our country we in Labour know that we have to do things differently.

The politics of radical hope will transform the relationship between government and citizens, according to Jon Cruddas (CC BY-SA 2.0 open

The politics of radical hope will transform the relationship between government and citizens, according to Jon Cruddas (photo: CC BY-SA 2.0 open

Rethinking Socialism

I’ve always been ready to admit I’m on the romantic and conservative side of socialism: the conservative radicalism of John Ruskin, the romanticism of William Morris, the ILP, George Lansbury, EP Thompson. One that values the local, the parochial and the magical as sources of political agency and power. We build our future on these patterns of the past.

Labour’s traditions lie in the popular movements of collective self-help and improvement; the temperance societies, holiday clubs, cooperatives, and the trade unions. Before we became a party of the state we were a movement developing leadership, organising people and creating power. Why don’t we confront the future through these traditions?

Our values grew out of our religious roots. So let me begin the new with the old. Luke 17, verse 20-21: “The kingdom of God is not coming with signs to be observed; nor will they say, ‘Look, here it is!’ or, ‘There it is!’ For behold, the kingdom of God is within you”. The power to change our lives lies within each one of us.

The political theorist Roberto Unger makes this point. The institutions and structures we build make us who we are. But: ‘They are finite, and we are not. There is always more in us, more capability of insight, of production, of emotion, of association, than there is in them’. We are, says Unger, ‘context-transcending spirits’ – tonights first political sound bite.

The freedom to aspire and to find self-fulfillment is part of our modern consciousness. It is individual, but it is not selfish.

Socialism for me is about this power within. This freedom to aspire and to find self-fulfillment is part of our modern consciousness. It is individual, but it is not selfish. It involves the right of everyone to achieve their own unique way of being human. To dispute this right in others is to fail to live within its own terms. It is a mutual recognition that we are all dependent upon other people throughout our lives. We need one another to succeed individually. In our industrial society solidarity called upon an underlying shared identity and common economic interest. But it is no longer so effective in our diverse society of individuals.

We need to create new models of interdependency. I would suggest reciprocity which establishes a sense of justice in relationships: ‘do not do to others what you would not have them do to you’. And a renewed idea of fraternity which unlike solidarity recognises the diversity between equals. For me these define a politics that is both radical and conservative. A mix of ‘new’ and ‘blue’ Labour if you like. The socialism of the future will be about creating power together for individual freedom.

A Future Worth Making

Labour’s Policy Review has been working on a programme of national renewal in a time when there is no money to spare. Labour has been learning lessons from the past. Government over the last 30 years has often failed to meet the challenges of our time. The old mechanical model of public administration will not work in a future of complex problems. It has no solutions to the pressing problems of our time such as loneliness, family breakdown, and the decline in trust. People are losing confidence in the ability of our public institutions to serve the collective interest.

We will need to redefine the relationship between government and individuals,renewing our institutions step by step, learning as we go about what works, building dialogue and partnerships, promising less and asking more – Tawney once said that Labour always promised too much and asked for too little. The role of government will be to use its authority to create power for change: leveraging capacity, generating momentum and negotiating between different interests to secure the common good of society. Designing policy will involve deliberation and co-creation with those who will be affected. Giving people more control over their lives, rather than pulling levers for them in Whitehall.

How about 3 standards for a prosperous democracy?

The first standard is an inclusive economy. An inclusive economy is pro-worker, pro-business, and pro-aspiration. Labour will reform the institutions of our economy to deal with the causes of our economic problems, and we will devolve power to our cities to unleash their economic potential. We will grow our way out of austerity: boosting science and technology for innovation; boosting small and medium size businesses; boosting our infrastructure to increase trade; reshaping the relationship between finance and the productive economy to deliver more ‘patient capital’.

People want decent jobs that are fairly paid. We will build dialogue between workers and employers to create partnerships for improving both business performance and pay and job quality. We will tackle low pay, and set up employer led skills training, and a national system of vocational education. Sharing power with people to give them more control over their lives, includes over the work they do.

The second standard is an inclusive society. Emotional life is at the heart of the relationships that bind society together and family is its bedrock. Government can help bring security and stability to society by investing in families. Labour will invest to prevent social problems from developing and so save money in the future. We will take a whole family approach to policy that uses the power of relationships to strengthen the capacity of men, women and children for resilience, love and care.

This includes: valuing the role of fathers at home as much as mothers at work; and helping families balance their work and home commitments by extending free childcare. People need more control over their health and care and so bringing health and social care together in a whole person approach is a major priority. Instead of leaving older people helpless and dependent we will help families and communities to work with professionals to support them at home, and to help them manage their long term health problems.

Relationships transform peoples lives and so our policies will be designed to involve people as genuine partners in shaping their services around their individual needs. An inclusive society thrives with self confident citizens. Our education system needs to include character development across the curriculum: helping children to develop the emotional skills, self-esteem and relationships to live flourishing lives. We will benchmark our public policy on whether or not it adds social value, fosters reciprocity for a sense of fairness and justice, and increases individual and community resilience in the face of adversity.

Politics is about empowering individuals and their families, in the work they do and in the places they live. Yet we’ve got a trickle down economy alongside a trickle down government.

The third standard is an inclusive politics. Politics is about empowering individuals and their families, in the work they do and in the places they live. Yet we’ve got a trickle down economy alongside a trickle down government. Labour will share more power and responsibility with people: increasing the power of local places by building collaboration amongst public services and organisations, and pooling funds to stop inefficiency and  avoid duplication; developing the Government Digital Service to drive change across government – standardising data, improving sharing between departments and encouraging innovation. Our traditional tools of policy making – money and top down government regulation - stifle peoples agency and initiative, and are too often ineffective.

Parties will need to build networks to connect with the great array of small scale innovations in society that are pioneering new directions for policy. In the future reform will need to engage more with people’s behavior and cultures and will mean mobilizing people on the ground for change. The internet is changing the nature of the public sphere. It can be used to rebalance power between citizens and the market and between citizens and the state, but we will address the problems of concentrations of power, child safety, privacy and data security.

National Renewal

This morning in Leeds my colleague Andrew Adonis set out Labour’s strategy for national economic renewal if we win in 2015. We will begin with the biggest devolution of power to our cities and county regions in 100 years bringing government closer to the people. It will establish regional banking, local powers over high streets,  people powered public services, and a top class system of vocational education and training tailored for local need. It will bring affordable homes to our sons and daughters so, if they choose, they can live in the places they grew up. Labour councils like Leeds are already drawing together local public, private and third sector data to redesign their cities. And we will foster the creativity that has seen Tech City grow in London and we will repeat it in other English cities.

Twenty years ago this month Tony Blair took hold of my party and made us face the future. He spoke back then of building a new era in an old country. We face the same challenge today – in tougher times. Ed Miliband will deliver on this vision in the new digital age. Our Policy Review is the engine for these ideas – for new thinking and facing the challenges of the future. Labour built its history organizing working people to defend the integrity of their family life, to struggle for fair wages and a decent home, and to create a better future for their children. An aspirational politics about bread and butter issues. That remain the fundamentals for a decent life.

But to this tradition we must make a prophetic story of human possibility for these new times. We do not live in the future. We live now in the only life we will ever know. Our prophetic story is about how together we can create a world in which each of us can live life to the full. To achieve in the time we have, our highest good. We can call it ‘radical hope’.

Thank you.

This is the transcript of a speech held by Jon Cruddas at the RSA

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]]> 1 Jon Cruddas Jon Cruddas government The politics of radical hope will transform the relationship between government and citizens, according to Jon Cruddas (CC BY-SA 2.0 open
"Charting Decline In Europe" by David Lizoain Mon, 18 Aug 2014 07:00:20 +0000 David Lizoain
David Lizoain, Decline In Europe

David Lizoain

Two years have passed since Mario Draghi promised to do “whatever it takes” to save the euro. The bond markets have calmed down but the crisis of the euro zone has not yet abated. Isolated pieces of positive information do not automatically imply a sustained recovery let alone justify triumphalism.

While improving marginally, the rate of unemployment remains exceptionally high in historical terms. And continued growth cannot be taken for granted; even AAA countries like Germany, the Netherlands, and Finland have recently experienced quarters of negative growth. Ominously, various countries with large debt burdens (e.g. Greece, Italy, Spain, Portugal) are either in or on the verge of a deflationary situation.

The chart below shows the evolution of real GDP per capita in Europe since 2007.

Decline In Europe

Source: Eurostat (nama_aux_gph) (Greece goes to 2012).

As can be seen, the vast majority of countries are worse off in real per capita terms since the beginning of the crisis. Germany is the most notable exception in the euro zone.

This exercise can also be repeated for the period since the creation of the euro.

Decline In Europe

Source: Eurostat (nama_aux_gph). (Greece goes to 2012, Malta begins at 2000).

Here a clear divergence can be seen, with the countries to the east of the Iron Curtain displaying a much better performance. But for the euro area since its creation, the experience has now primarily been one of stagnation. If the institutional framework does not change, we should expect more of the same.

Another way to think about this is to look at how far we can go back to find a year when real GDP per capita was higher in a given country than in 2013:

  • 2013: Austria, Bulgaria, Germany, Lithuania, Malta, Poland, Slovakia, Sweden
  • 2008: Romania
  • 2007: Czech Republic, Estonia, European Union, Latvia
  • 2006: Belgium, Euro area (18), Finland, France, Hungary, Netherlands, Slovenia
  • 2005: Croatia, United Kingdom
  • 2004: Denmark, Luxembourg
  • 2003: Ireland, Spain
  • 2001: Greece
  • 2000: Cyprus, Portugal
  • 1997: Italy


For certain cases (most notably Italy) it is not just a question of a lost decade but already a question of lost decades. The danger exists that Perry Anderson’s pessimistic thesis holds: “Italy is not an anomaly within Europe. It is much closer to a concentrate of it.”

A very grim variant of rentier capitalism has been installed, combining a lack of dynamism and accumulation with an ever greater concentration of wealth. It is easy for “r” to be greater than “g” when “g” is 0. Prioritizing debt repayments over a broad-based increase in well-being is, by definition, an anti-growth strategy.

A more unequal distribution of the same amount of wealth implies that the vast majority is worse off. Stagnation and upward redistribution are two sides of the same coin. This suggests that the programme to jump start growth is also a programme of progressive redistribution.

In the meantime, the longer the euro zone is permitted to lurch into deflation, the more urgent a programme of continental debt restructuring becomes. The triumph of the rentier will lead to the euthanasia of the euro zone economy and the continued fall in general living standards that this entails.

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]]> 3 david-lizoain David Lizoain 1. 2007-2013 2. 1999-2013
"Progressive Politics For A New Era" by Jon Cruddas Thu, 14 Aug 2014 09:16:44 +0000 Jon Cruddas

Jon Cruddas, Labour MP for Daggenham in East London and Head of UK Labour’s Policy Review, describes his idea of progressive politics for a new era. Talking at the RSA, he argues that decisive election victories only come when a party has been able to articulate a strong story of the future and of national renewal. He also explores what that future story might be in today’s fast changing, complex and individualistic world.

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]]> 2 (Video) Jon Cruddas: Progressive Politics For A New Era Jon Cruddas looks at the current state of society and discusses what a new progressive politics for a new era should look like. progressive politics,Progressive Politics
"Alex Salmond Pound-Foolish On Scottish Independent Currency" by Marshall Auerback Wed, 13 Aug 2014 11:08:41 +0000 Marshall Auerback
Scottish Independent Currency

Marshall Auerback

Alex Salmond, leader of Scotland’s independence party and the nation’s First Minister, continues to dig his heels over the question of what currency an independent Scotland would use.  Following a debate in Scotland last week in which he was consistently challenged on the point, Salmond continued to insist that there was “no Plan B,” and that nothing could stop a newly independent Scotland from continuing its use of the pound.

It is true that many countries in Latin America, such as Ecuador and Panama unilaterally made decisions to “dollar-ize” their economies without the explicit approval of U.S. authorities. And the dollar has become one of the de facto currencies in Zimbabwe, helping to eliminate that country’s ruinous hyperinflation.

But there are hardly the kinds of models we expect that Salmond had in mind for Scotland when he insisted on a currency union. However comforting it might be to the average Scot, by going for independence without the use of a new currency Salmond is relegating Scotland to worst of both worlds: a user of a currency with no institutional say in how it is managed, thereby placing the future nation state in a quasi-colonial position within the United Kingdom.

By going for independence without the use of a new currency Salmond is relegating Scotland to worst of both worlds.

Fearing the uncertainty that such a separate currency would supposedly generate, especially with regard to the international financial community, Scottish nationalist politicians have always favored the idea of a currency union and the retention of the British pound, despite the numerous problems that have arisen with the operation of the Maastricht Treaty in Europe. It used to be the case that Scottish independence supporters pointed to the European Monetary Union as the model to be adopted in the event of future political independence from the rest of the UK, although one hears less these days about comparisons to Ireland’s “Celtic Tiger.”

Regardless of one’s views on the political virtues of Scottish independence, it can’t work without an independent currency. If it continues to use the pound, ultimately the national fiscal authorities in Edinburgh will all have to abide by the bureaucratic decisions of the Bank of England and Her Majesty’s Treasury with zero political representation. For this reason, the sovereigntist position is somewhat contradictory since, by espousing monetary union, Scotland will ultimately put itself in a worse position.

Scottish Independent Currency

Alex Salmond still has questions to answer about the currency of an independent Scotland (photo: CC BY 2.0 Mark Nesbitt)

All of this will be strikingly familiar to Canadians, who have gone through similar debates when Quebec’s Parti Quebecois espoused something broadly similar to Salmond’s currency union plan. As in Scotland, the general feeling in Canada was that an independent Quebec with its own currency was a step too far and that the concept of secession only would be palatable by promising a continued use of the Canadian dollar.

Of course, Canada’s moment of truth never arose since the anti-independence vote succeeded each referendum. But we do have a real world example today in Europe, which will highlight the dangers for a Scotland that continues to use the pound as an independent nation.

Whereas the U.S., U.K., Canada, and, Australia, all have monetary systems that are in some sense “wedded” to their fiscal systems, there has been a “divorce” of fiscal and monetary institutions under Economic and Monetary Union within the euro zone. As the Levy Institute’s Jan Kregel presciently noted almost two decades ago, “this represents a radical change in the monetary organization of Europe”, whereby fiscal power remains at the national level while monetary authority has been transferred to a single federal European System of Central Banks. As a consequence, the relationship between control over money and the ability to sustain aggregate demand at full employment is severed under the proposed currency union.

In the run-up to the launching of the euro, few economists recognized the significance of this change, much as Salmond stubbornly refuses to recognize the dangers today of embracing his sterling union. They should bear in mind the warnings of former Bank of England Monetary Policy Committee Member Charles Goodhart, who in 1998 questioned the plan to abandon the globally dominant “One Nation, One Money” model in favor of the current “One Market, One Money” model embodied in the Maastricht Treaty. Goodhart maintained that the adoption of the euro without a corresponding supranational fiscal authority would have far-reaching implications for national sovereignty in public policy making. Clearly, the ongoing banking crisis in the euro zone perfectly illustrates the risk Goodhart described.

Governments that willingly choose to break the link between national sovereignty and their currencies invariably find themselves in an impossible position when it comes to sustaining the kind of large scale fiscal interventions required in the event of an external demand shock.

Ask any Italian, Cypriot, or Spaniard today whether they are better off using the euro. All of these countries have experienced catastrophic bank runs, which perversely were augmented by a common currency (which enabled a deposit holder in, say, Barcelona, to rush his money out of a Santander account and move it quickly down the street to a Deutsche Bank account in the event of a redenomination into the old national currency.) And worst of all, the sovereignty of the state has been surrendered to the changing vicissitudes of private financial markets.

Governments that willingly choose to break the link between national sovereignty and their currencies invariably find themselves in an impossible position when it comes to sustaining the kind of large scale fiscal interventions required in the event of an external demand shock (as was the case in 2008). To save the euro zone, ultimately some link needs to be restored between money and the state, whether via national redenomination or through the introduction of a “United States of Europe” supranational fiscal authority. Both options are fraught with risk and either would be a huge leap in the dark.

Scotland has not yet severed that link, but will do so if Alex Salmond refuses to consider the notion of an independent currency for an independent Scotland. As we advance toward the national referendum this autumn, voters in Scotland would do well to consider what might lurk in store for them.

This column was first published on the INET Blog

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]]> 1 marshall auerback Marshall Auerback Alex Salmond Alex Salmond (photo: CC BY 2.0 Mark Nesbitt)
"Social Progress In Europe Depends On Economic Reform" by Kristian Weise Wed, 13 Aug 2014 10:12:07 +0000 Kristian Weise

Kristian Weise, Social ProgressThe social challenges in Europe are clear and will not easily be overcome over the next half decade: 25 million Europeans are unemployed, with unemployment rates at surreal levels in several Mediterranean countries and youth unemployment robbing a generation of their chance to determine their own fate. At the same time several countries see stagnating or falling wages (not least due to so-called internal devaluation), rising inequality, and public services that have been crippled by austerity.

More than ever, the European Union must have an ambitious social agenda with measurable objectives of social progress. The EU cannot solely focus on economic, competition and trade policy – what several heads of state, most notably David Cameron, wants it to be relegated to – but must have a strong social dimension. If not, we will have cooperation in the monetary and fiscal sphere but downward competition when it comes to wages, labour market standards and welfare arrangements.

Social progress and a truly successful social dimension of the EU depends first of all on economic policy-making and reform of economic governance.

However, and though it might appear counterintuitive, social progress and a truly successful social dimension of the EU depends first of all on economic policy-making and reform of economic governance. In the current context of either low growth, stagnation or outright depression, depending on where in Europe you are, isolated social policy initiatives will only be tinkering at the margins. It is indeed still the economy, stupid! If growth, employment and positive wage developments are not re-established at higher levels, there will basically be no scope for social policy and progress.

Social Progress, Benign Investment Policies And Fiscal Coordination

The most central part in need of change is the prevailing philosophy determining fiscal policy and the EU’s framework for economic governance. With the changes to the Stability and Growth Pact as well as in the introduction of the Fiscal Pact, the EU has increased its surveillance of the public finances of its member states. But as has been proven several times over the last couple of years, these vehicles of austerity have prolonged the crisis and subdued growth.

The EU must rethink its economic governance. Rather than obsessing with fiscal consolidation and limiting its member states’ autonomy to pursue different economic policies, it should develop new tools for coordinating fiscal policies and investing together. A European Investment Pact, with a few clear principles, could provide the framework for this and give Europe the policy alternatives needed to break with the crisis, rising unemployment and social collapse.

In the ideal situation, such a pact would replace the present austerity regime. But it could also have an effect as either a protocol to the present agreements or as a new pact that complements the already existing arrangements.

For a European Investment Pact to work it should have a few but clear principles. The following four principles would be the most important ones:

1)  An explicit exception of public investment in infrastructure in the broadest term, including certain technologies and similar growth-enhancing arrangements, as well as one-time investments in research, development and education from the Fiscal Compact’s rules for structural deficits (of 0,5 per cent of GDP) and the strengthening of compliance with the Stability and Growth Pact’s rules for yearly deficits (of 3 per cent of GDP).

2)  A clarification regarding the acceptable level of public deficits, which should only apply during ‘normal circumstances’. There should be various criteria to determine such a situation. These could be related to drops in GDP in the EU as a whole and in a group of member states, stagnating growth and persistent unemployment.

3)  A commitment to coordinate fiscal policy to a larger extent than what has happened so far. Economic downturns should be prevented through stronger expansive fiscal policy from all countries at the same time, just as possible over-heating of the economy should be prevented through adequate consolidation in all countries. This commitment should also mean that all countries do not necessarily move in the same direction at the same time – one group of countries can expand while a another consolidates its public finances.

4)  A commitment to investing together in the objectives of the EU2020 strategy and future strategies. It is estimated that common and coordinated investment by a group of EU-countries enhances the growth effect of such investments by close to a factor of two. Hence, when growth is expected to be low and unemployment high, the EU-countries would counter that situation by investing together.

A European Investment Pact or a similar change in policy would ensure that the economic governance and coordination in Europe moves from simple surveillance of individual countries’ public finances to using common strengths and acting together. This would enable the EU to steer the European economies safely through different economic cycles, not least crises and recessions. In the present context it would offer much needed support to growth and job creation.

If the regime is not changed it will be impossible for many EU-countries to pursue the most appropriate and suitable policies. It will, for example, be impossible for a country to finance investment in research, education and infrastructure through debt for a period of time even though the economic and social gains of such policies would be obvious. Insisting that budgets should always be balanced – except in very severe emergencies – is akin to saying that governments should have no investment function in the economy. Neither to support growth, to achieve social goals nor to develop welfare institutions.

Hence, the EU must institutionalise benign investment policies and fiscal cooperation.

Social Progress

Better coordination of investment-generating activities is key for Europe, according to Kristian Weise (photo credit:

A New Mandate For The ECB

In the same vain, the European Central Bank (ECB) should be given a new and extended mandate. Today, the sole aim of the central bank is to ensure price stability and low inflation. Growth and employment, however, are not to be found in its mission statement. This is in stark contrast to the US, where the Federal Reserve has both an unemployment and an inflation target. The ECB could benefit from including the pursuit of stable growth and full employment in its mandate and its mission. And if it were to be really ambitious on social progress, it could include an objective of real wage growth at an aggregate EU-level.

As an addition to these new mandates, the inflation target of the ECB should be adjusted. The current aim is to maintain “price stability” and thereby keeping inflation within a 0-2 per cent range. However, during periods of low growth, where the risks of deflation are more prominent, it would be appropriate to have an inflation target of exactly 2 per cent a year instead.

Socially Balanced Wage Developments And More Secure Employment

The labour market is the most direct determinant of the social condition of the majority of people. However, fierce wage competition within the EU and subsequent downward pressure on wages has increased inequality in  individual member states and meant that the middle class has been hollowed out in several countries. Indeed, allegedly successful countries like Germany have seen an increase in workers who are unable to make a living on their salaries, also known as the ‘working poor’.

Fierce wage competition within the EU and subsequent downward pressure on wages has increased inequality in individual member states and meant that the middle class has been hollowed out in several countries.

To improve the transfer of social progress through the labour market, EU member states should cooperate on the following issues:

Strengthening minimum wages, either by law or collective bargaining, and making an extra effort to ensure decent wages or what is often called a ‘living wage’. Improving opportunities for concluding collective agreements, not least across boarders and involving workers in more than one member state. And counteracting the development in many countries by which the labour market is made more ‘flexible’ but the result is that new groups of low wage, precarious and casual workers are created.

Europe will not achieve social progress unless the economic objectives of the European union and the underlying philosophy of economic policy-making are changed. What is needed is a fitness-and-diet-type of approach, where social health is achieved through several reconfigurations of core policy priorities rather than a cure-all panacea of one or two social policy initiatives. These changes will be difficult to get. But the citizens of Europe are in dire need of them if they are to see any social progress in the next years.

This column is part of our Social Europe 2019 project.

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]]> 5 Kristian Weise investment Better coordination of investment-generating activities is key for Europe, according to Kristian Weise (photo credit:
"The Rebirth Of Stakeholder Capitalism?" by Robert Reich Tue, 12 Aug 2014 15:52:15 +0000 Robert Reich
Robert Reich, Stakeholder Capitalism

Robert Reich

In recent weeks, the managers, employees, and customers of a New England chain of supermarkets called “Market Basket” have joined together to oppose the board of director’s decision earlier in the year to oust the chain’s popular chief executive, Arthur T. Demoulas. Their demonstrations and boycotts have emptied most of the chain’s seventy stores.

What was so special about Arthur T., as he’s known? Mainly, his business model. He kept prices lower than his competitors, paid his employees more, and gave them and his managers more authority. Late last year he offered customers an additional 4 percent discount, arguing they could use the money more than the shareholders. In other words, Arthur T. viewed the company as a joint enterprise from which everyone should benefit, not just shareholders. Which is why the board fired him.

We may be witnessing the beginning of a return to a form of capitalism that was taken for granted in America sixty years ago.

It’s far from clear who will win this battle. But, interestingly, we’re beginning to see the Arthur T. business model pop up all over the place. Pantagonia, a large apparel manufacturer based in Ventura, California, has organized itself as a “B-corporation.” That’s a for-profit company whose articles of incorporation require it to take into account the interests of workers, the community, and the environment, as well as shareholders. The performance of B-corporations according to this measure is regularly reviewed and certified by a nonprofit entity called B Lab. To date, over 500 companies in sixty industries have been certified as B-corporations, including the household products firm “Seventh Generation.” In addition, 27 states have passed laws allowing companies to incorporate as “benefit corporations.” This gives directors legal protection to consider the interests of all stakeholders rather than just the shareholders who elected them.

We may be witnessing the beginning of a return to a form of capitalism that was taken for granted in America sixty years ago. Then, most CEOs assumed they were responsible for all their stakeholders. “The job of management,” proclaimed Frank Abrams, chairman of Standard Oil of New Jersey, in 1951, “is to maintain an equitable and working balance among the claims of the various directly interested groups … stockholders, employees, customers, and the public at large.” Johnson & Johnson publicly stated that its “first responsibility” was to patients, doctors, and nurses, and not to investors.

Are we witnessing the rebirth of stakeholder capitalism in the US?

Are we witnessing the rebirth of stakeholder capitalism in the US?

What changed? In the 1980s, corporate raiders began mounting unfriendly takeovers of companies that could deliver higher returns to their shareholders – if they abandoned their other stakeholders. The raiders figured profits would be higher if the companies fought unions, cut workers’ pay or fired them, automated as many jobs as possible or moved jobs abroad, shuttered factories, abandoned their communities, and squeezed their customers. Although the law didn’t require companies to maximize shareholder value, shareholders had the legal right to replace directors. The raiders pushed them to vote out directors who wouldn’t make these changes and vote in directors who would (or else sell their shares to the raiders, who’d do the dirty work). Since then, shareholder capitalism has replaced stakeholder capitalism. Corporate raiders have morphed into private equity managers, and unfriendly takeovers are rare. But it’s now assumed corporations exist only to maximize shareholder returns.

It’s now assumed corporations exist only to maximize shareholder returns.

Are we better off? Some argue shareholder capitalism has proven more efficient. It has moved economic resources to where they’re most productive, and thereby enabled the economy to grow faster. By this view, stakeholder capitalism locked up resources in unproductive ways. CEOs were too complacent. Companies were too fat. They employed workers they didn’t need, and paid them too much. They were too tied to their communities. But maybe, in retrospect, shareholder capitalism wasn’t all it was cracked up to be. Look at the flat or declining wages of most Americans, their growing economic insecurity, and the abandoned communities that litter the nation. Then look at the record corporate profits, CEO pay that’s soared into the stratosphere, and Wall Street’s financial casino (along with its near meltdown in 2008 that imposed collateral damage on most Americans). You might conclude we went a bit overboard with shareholder capitalism.

The directors of “Market Basket” are now considering selling the company. Arthur T. has made a bid, but other bidders have offered more. Reportedly, some prospective bidders think they can squeeze more profits out of the company than Arthur T. did. But Arthur T. may have known something about how to run a business that made it successful in a larger sense. Only some of us are corporate shareholders, and shareholders have won big in America over the last three decades. But we’re all stakeholders in the American economy, and many stakeholders have done miserably. Maybe a bit more stakeholder capitalism is in order.

This column was first published on Robert Reich’s Blog

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]]> 2 robert reich Robert Reich stakeholder Are we witnessing the rebirth of stakeholder capitalism in the US?