Social Europe Journal http://www.social-europe.eu debating progressive politics in Europe and beyond Wed, 26 Nov 2014 07:34:21 +0000 hourly 1 http://wordpress.org/?v=4.0.1 "Creativity, Corporatism, And Crowds" by Robert Shiller http://www.social-europe.eu/2014/11/creativity-corporatism-crowds/ http://www.social-europe.eu/2014/11/creativity-corporatism-crowds/#respond Wed, 26 Nov 2014 07:34:21 +0000 Robert Shiller http://www.social-europe.eu/?p=36216
Robert Shiller

Robert Shiller

Economic growth, as we learned long ago from the works of economists like MIT’s Robert M. Solow, is largely driven by learning and innovation, not just saving and the accumulation of capital. Ultimately, economic progress depends on creativity. That is why fear of “secular stagnation” in today’s advanced economies has many wondering how creativity can be spurred.

One prominent argument lately has been that what is needed most is Keynesian economic stimulus – for example, deficit spending. After all, people are most creative when they are active, not when they are unemployed.

Others see no connection between stimulus and renewed economic dynamism. As German Chancellor Angela Merkel recently put it, Europe needs “political courage and creativity rather than billions of euros.”

In fact, we need both. If we are to encourage dynamism, we need Keynesian stimulus and other policies that encourage creativity – particularly policies that promote solid financial institutions and social innovation.

In his 2013 book Mass FlourishingEdmund Phelps argues that we need to promote “a culture protecting and inspiring individuality, imagination, understanding, and self-expression that drives a nation’s indigenous innovation.” He believes that creativity has been stifled by a public philosophy described as corporatism, and that only through thorough reform of our private institutions, financial and others, can individuality and dynamism be restored.

Phelps stresses that corporatist thinking has had a long and enduring history, going back to Saint Paul, the author of as many as 14 books of the New Testament. Paul used the human body (corpus in Latin) as a metaphor for society, suggesting that in a healthy society, as in a healthy body, every organ must be preserved and none permitted to die. As a public-policy credo, corporatism has come to mean that the government must support all members of society, whether individuals or organizations, giving support to failing businesses and protecting existing jobs alike.

According to Phelps, Pope Leo XIII advocated a corporatist view in his 1891 encyclical Rerum Novarum, and Pope Pius XI amplified these ideas in his 1931 encyclical Quadragesimo Anno. But, in reading these works, I do not find a clear or persuasive statement of any economic doctrine, except for basic notions of fairness and Christian charity.

In fact, an Ngrams search of books shows that the term corporatism began to become popular only after the mid-1930s, and achieved broad currency by the 1970s and 1980s. The term seems to have been used most often by critics, often to denounce the defunct Fascist philosophy, or by those extolling elements of a “new” corporatism.

Surely, elements of corporatist thinking persist today. People who might not stress that the government should protect failing businesses or redundant workers still have sympathies that might often lead to such outcomes.

Historically, an important spur toward corporatist thinking was Gustave Le Bon’s 1895 book The Crowd, which coined the terms “crowd psychology” and “collective mind.” For Le Bon, “An individual in a crowd” – not only angry mobs on the street, but also other psychologically interconnected groups of people – “is a grain of sand amid other grains of sand, which the wind stirs up at will.”

Le Bon believed that crowds need strong leaders, to distance them from their natural madness and transform them into civilizations of splendor, vigor, and brilliance. Mussolini and Hitler both took inspiration from his book, and incorporated his ideas into Fascist and Nazi ideology; and those ideas did not die with those regimes.

Still, the word “crowd” has taken on an entirely different meaning – and political valence – in our century. Crowdsourcing and crowd-funding have created new kinds of crowds, of the sort that Le Bon never could have imagined.

As Le Bon emphasized, people cannot easily do great things as individuals. They need to operate together within organizations that redirect crowd psychology, facilitate creativity, and are led by people of integrity.

Any such organizational technology, however, is subject to error and requires experimentation. When the crowd-sourced Wikipedia was started in 2001, its success was not obvious. Even one of its founders, Jimmy Wales, found it a little hard to believe: “It’s kind of surprising that you could just open up a site and let people work.”

When the United States’ Jumpstart Our Business Startups (JOBS) Act, which facilitated true crowd-funding of enterprises, was signed by President Barack Obama in 2012, it was an experiment, too. Many critics said that it would result in the exploitation of naive investors. We still do not know whether that is true, or how well the experiment will work. But if the JOBS Act does not succeed, we should not abandon the idea, but try to modify it.

Ultimately, we need economic institutions that somehow promote the concerted creative actions of a wide swath of the world’s people. They should not be corporatist institutions, dominated by central leaders, but should derive their power from the fluid actions of modern crowds.

Some of those actions will have to be disruptive, because the momentum of organizations can carry them beyond their usefulness. But there must also be enough continuity that people can trust their careers and futures to such organizations. Acknowledging the need to experiment and design new forms of economic organization must not mean abandoning fairness and compassion.

© Project Syndicate

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"After Rana Plaza: The Consumer View" by SEJ http://www.social-europe.eu/2014/11/rana-plaza-consumer-view/ http://www.social-europe.eu/2014/11/rana-plaza-consumer-view/#respond Mon, 24 Nov 2014 11:59:23 +0000 SEJ http://www.social-europe.eu/?p=36203

Social Europe Journal editor Henning Meyer talks to consumers on London’s street about the Rana Plaza collapse and what can be done to improve the situation of workers in the textile industry supply chain. There was a high degree of awareness amongst the interviewees and they also supported the point, made by activists from Bangladesh, that exerting consumer pressure on brands is a good idea. But how this pressure can actually be exerted in practise remained unclear to many of them. The lesson seems clear: if consumer knew how to build up pressure for better working conditions they would be happy to do so.

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http://www.social-europe.eu/2014/11/rana-plaza-consumer-view/feed/rss2/ 0 - Social Europe Journal Social Europe Journal editor Henning Meyer talks to consumers on London's street about the Rana Plaza collapse and what can be done to improve the situation of workers in the textile industry supply chain. There was a high degree of awareness amongst the interviewees and they also supported the poin Rana Plaza,Rana Plaza
"We’re Far More European In The UK Than We Think" by Timothy Garton-Ash http://www.social-europe.eu/2014/11/far-european-uk-think/ http://www.social-europe.eu/2014/11/far-european-uk-think/#respond Mon, 24 Nov 2014 09:27:08 +0000 Timothy Garton-Ash http://www.social-europe.eu/?p=36193

Garton-AshIs it possible to create a truly European public sphere? In an interview with EUROPP’s editor Stuart Brown, Timothy Garton Ash discusses the failure of efforts to reignite the enthusiasm of citizens for European integration, the importance of European identity, and why the UK is far more European than most people believe.

A common argument is that attempts to foster democratic engagement with the EU suffer from the lack of a European public sphere. Is it realistic to think that a European public sphere could ever be created?

My view is that we should try, but we shouldn’t ever kid ourselves that this is going to be like a national public sphere. Apart from anything else, we speak different languages, which is a huge barrier. The key for me, in continuing to make the argument for Europe, is what national politicians, national intellectuals, journalists, academics and opinion formers say in their national debates in their own national languages. That’s where we currently have a problem.

If we take the Spitzenkandidaten process as an example, the debates between the prospective candidates for the President of the Commission were watched by around 500,000 people across Europe from a population of over 500 million. Of those who did watch one of the debates, even fewer will have based their voting decision on whether they backed Jean-Claude Juncker, Martin Schulz, or another candidate. So I don’t believe that this process will suddenly reignite enthusiasm among those citizens who possess some degree of scepticism toward the European project.

I think it might have a marginal impact, as indeed do any of these small institutional changes. If you could find someone as President of the European Commission, High Representative, or President of the Council who is an inspiring, attractive figure and is capable of telling a European story, that would have an impact. It’s a pity then that we’ve gone for three perfectly respectable, but not fantastically exciting and inspiring figures in the shape of Juncker, Federica Mogherini and Donald Tusk. But that could have just as easily happened using another procedure.

The real key for enthusing people about the EU again is what it does. If it created a few more jobs, for example, stopped a war in Ukraine, did something for the one in three people in Syria who are homeless, tackled the NSA-style surveillance society, or was seen to be genuinely effective on climate change then it might make a difference. There are a large number of issues that people care passionately about and if you could say, well, ‘there Europe really made a difference’, that’s what could get people fired up again.

The UK is much more European than many people think says Timothy Garton-Ash

The UK is much more European than many people think says Timothy Garton-Ash

Some politicians and commentators, particularly in the UK, might argue that rather than attempting to create a European public sphere or fostering a European identity, the EU should simply focus on narrow practical goals – ‘doing less, but doing it better’.

That’s absolutely fine, but a European identity exists. There’s shared history, shared memory and shared values. We have some of it here in the UK, but we don’t perceive it as such. For example, the NHS is sacred in British politics – nobody can question the NHS. But the NHS is a classic post-1945 European social democratic institution. We’re far more European in the UK than we think we are: from drinking lots of coffee in European-style cafes to having the NHS. So a European identity exists, it’s a matter of reconnecting with the values and memories that people already have.

Now I think Britain is exceptional in some respects because there are very few large countries which are clearly in Europe, but nevertheless have such a level of scepticism towards Europe. There are others who have sceptical views, and there are others who are not quite sure whether they fully belong to Europe, but we’re certainly by far the biggest and clearest example of that.

The tragedy is that if the EU is going to survive and prosper for the next 20-30 years, it needs reform, and Britain has in fact come up with a number of good ideas for the reform of Europe. But all of these ideas – from the LSE, to the Centre for European Reform, and countless other think tanks and universities across the country – are now being discredited and devalued by David Cameron’s approach within the EU, which is transparently not actually about reforming the EU to make it a better place, but about appeasing his backbenchers and UKIP. That for me is the British tragedy: that our own undoubtedly good ideas on European reform are being poisoned and discredited for political reasons.

All of these issues would potentially feed into a referendum on the UK’s membership of the EU. Given the situation in the UK you’ve described, how do you think such a referendum would play out?

There are really two possible referendums. One is the referendum which David Cameron has said he’ll have in 2017. This would be done under a Conservative government, where Cameron has achieved whatever deal he can in a renegotiation, and he then tells the British people to vote ‘yes’ to staying in. You might quote this against me in three years, but I find it very hard to imagine Cameron as Prime Minister going out to campaign for us to leave the EU.

The other possible referendum would be one forced on a weak Labour government, where the Tories keep their own party together by saying they want to stay in a reformed EU, but the deal Labour has negotiated is so inadequate that the electorate should vote against it. That for me is the most dangerous scenario and then I think all bets would be off.

But if Cameron holds the referendum he’s intending to hold it would be a different scenario altogether. Already in the debate we’ve seen people waking up to the reality that it isn’t so great to be Norway or Switzerland: if you want to stay part of the single market you have to obey all of the rules without having any part in writing them. I think that case would only become stronger and if we have that referendum with Cameron campaigning to stay in then I find it difficult to believe voters would opt to leave.

This interview was first published by EUROPP@LSE. A video of Timothy Garton Ash’s recent talk at LSE is available here. The event was held to mark the launch of the new pan-European online magazine Eutopia.

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"Why We Need Our Fiscal Policy Instrument Back" by Simon Wren-Lewis http://www.social-europe.eu/2014/11/fiscal-policy/ http://www.social-europe.eu/2014/11/fiscal-policy/#respond Mon, 24 Nov 2014 08:51:11 +0000 Simon Wren-Lewis http://www.social-europe.eu/?p=36188
Simon Wren-Lewis, Fiscal Policy

Simon Wren-Lewis

The latest Bank of England forecast has inflation returning to the 2% target by the end of 2017, which is in three years time. That is an unusually long time to be away from target. So what is the MPC proposing to do about this long lapse from target? Absolutely nothing. Tony Yates goes through all the detail, but remains mildly shocked. Much the same thing is happening in the US. In both countries the main discussion point is not what to do about this prolonged target undershoot, but instead when interest rates will rise. Two members of the MPC are voting to raise rates now! [1]

Cue endless discussion about whether the Bank or Fed think Quantitative Easing does not work anymore, or has become too dangerous to use, or whether the target is really asymmetric – 1% is not as bad as 3%. [2] All this is watched by a huge elephant in the room. We have a tried and tested alternative means of getting output and inflation up besides monetary policy, and that is called fiscal policy. We teach students of economics all about it – at length. But in public it has become like the family’s guilty secret that no one wants to talk about.

Once upon a time (in the 1950s, 60s and 70s) governments in the US, UK and elsewhere routinely used both monetary and fiscal policy to manage the economy. Governments did not stop using fiscal policy for this end because it did not work. Instead they found, and economists generally agreed, that when exchange rates were not fixed monetary policy was a rather more practical (and probably more efficient) instrument to use. They certainly did not stop using it because it caused the rise in inflation in the 1970s. That rise in inflation was the result of oil price shocks, combined with in many countries real wage resistance by powerful trade unions, and policy misjudgements involving both monetary and fiscal policy.

The worry among the ultra-monetarists who helped design the Eurozone architecture was that some rogue union members would force fiscal dominance on the union as a whole, so they put together fiscal rules that limited the size of budget deficits. This was both unnecessary, and a mistake.

When, in the previous paragraph, I wrote ‘economists generally agreed’, I am talking about what could be described as the academic mainstream. However there were also two important minority groups. One, and the less influential, argued that the mainstream was wrong, and fiscal policy was better than monetary policy at stabilising demand. The other, often among those labelled monetarist, not only took the opposite view, but had a deep dislike of using fiscal policy. For example, many believed its use would be abused by politicians to increase the size of the state (and almost all in this group wanted a smaller state). For some there was the ultimate fear that politicians would run amok with their spending, which would force central banks to print money, leading to hyperinflation – we can call this fear of fiscal dominance. However, as I noted above, the rise in global inflation in the 1970s was not an example of fiscal dominance. I shall use the label ultra-monetarist for this second group: ultra, because it is not clear Friedman himself would be among this group.

These minorities aside, the mainstream consensus was that monetary policy was the instrument of choice for managing demand and inflation, but that fiscal policy was always there as a backstop. So, when Japan suffered a major financial crisis and entered a liquidity trap (interest rates fell to their Zero Lower Bound (ZLB)), the government used expansionary fiscal policy as a means of moderating the recession’s impact. At the time the results seemed disappointing, but following the experience of the Great Recession Japan’s performance in the 1990s does not look so bad.

The key event that would eventually change things was the creation of the Euro. For countries within the Eurozone, monetary policy was set at the union level, so to control demand within each country fiscal policy was the only instrument left. Unfortunately the influence of ultra-monetarists within Germany had always been very strong, and for various reasons the architecture of the Eurozone was heavily influenced by Germany. This architecture essentially ignored the potential use of the fiscal instrument. Instead the influence of monetarism led to what can best be described as deficit fetishism – an insistence that budget deficits should be constrained whatever the circumstances.

Within the Eurozone individual governments no longer had their own central banks who could in extremis print money. The worry among the ultra-monetarists who helped design the Eurozone architecture was that some rogue union members would force fiscal dominance on the union as a whole, so they put together fiscal rules that limited the size of budget deficits. This was both unnecessary, and a mistake. It was unnecessary because the Eurozone set up a completely independent central bank, and made fiscal dominance of that Bank illegal. It was a mistake because it completely ignored the issue of demand stabilisation for countries within the Eurozone – in practice it either took away the fiscal instrument (in a recession) or discouraged its use (in a boom [3]).

While the design of the Eurozone reflected the obsessions of ultra-monetarists within Germany, in the rest of the world the academic mainstream prevailed. So when the financial crisis hit, and interest rates fell to the ZLB across the globe, governments in the UK and US again used fiscal stimulus as a backup instrument to moderate the recession. The IMF, normally advocates of fiscal rectitude, concurred. The policy worked. But two groups were not happy. The ultra-monetarists of course, but also many politicians on the right, whose main aim was to see a smaller state, and who saw deficit reduction as a means to achieve that goal. Both groups began to warn of the dangers of rising government debt, which was rising mainly because of the recession, but also because of fiscal stimulus where that had been enacted.

What happened next was that the Eurozone struck back, although not in a calculated way. It turned out that it did contain just the kind of rogue state the architects had worried about: Greece. The fiscal rules failed to prevent excessive Greek government borrowing. Did this lead to fiscal dominance and hyperinflation in the Eurozone? – of course not, for reasons I have already given. But it did lead governments in the Eurozone to make a fatal mistake. What should have happened, and always does happen to governments that borrow too much in a currency they cannot print, is that Greece should have immediately defaulted on its debt. But instead Greece was initially encouraged to borrow from other Eurozone governments, perhaps because some countries worried that default might lead to contagion (the market would turn on other countries), but perhaps also because default would have hit commercial banks in the larger Eurozone countries who owned this Greek debt.

The European economy is suffering from self-inflicted wounds: wrong-headed fiscal policy.

The European economy is suffering from self-inflicted wounds: wrong-headed fiscal policy.

Eventually contagion happened anyway, and Greece was forced into partial default, although not until it had taken the poison of loans from other Eurozone countries which were conditional on crippling austerity. Equally important was the impact that Greece had on the use of fiscal policy in the rest of the world. Those ultra-monetarists and right wing politicians that had been warning of a government debt crisis used the example of the Eurozone to say that this proved them right. Many (but not all) economists in the mainstream began to believe it was time to reverse the fiscal stimulus, as did the IMF.

From that point on, the idea that you could – and when monetary policy became ineffective should – use fiscal policy to stimulate the economy became lost. Even in 2009 it had been a difficult policy to sell publicly: why should government be increasing debt at a time that consumers and firms had to reduce their own debt? For those who had not done an undergraduate economics course (which included most political journalists), politicians of the right who said that governments should act like prudent housewives appeared to be talking sense. Greece and the subsequent Eurozone crisis just seemed to confirm this view. Deficit fetishism became pervasive.

Of course this about turn was just what both ultra-monetarists and politicians on the right wanted. The focus on government debt had an additional advantage in certain influential quarters. What had started out as a crisis caused by inadequate regulation of the financial sector began to appear as a crisis of the government’s making, which if you worked in the financial sector which had just benefited from a massive public subsidy was a bit of a relief. You could be really cynical, and say that austerity made room for another big financial bailout when the next financial crisis hit.

But those with a more objective perspective watched the years after 2010 unfold with growing concern. There were no government debt crises in the major economies outside the Eurozone – instead interest rates on government debt fell to record lows. The market appeared desperate to lend governments money. The debt crisis was confined to the Eurozone. However austerity within the Eurozone, undertaken across the board and not just in the crisis economies, did nothing to end the crisis. The crisis only ended when the ECB offered to back the debt of the crisis countries. The offer alone was enough to halt the crisis, and interest rates on periphery country debt started to fall substantially. But austerity’s damage had been done, creating a second Eurozone recession. The fiscal policy instrument works, even when you use it in the wrong direction! Austerity delayed the UK’s recovery, and while growth was solid in the US, austerity there too meant that the ground lost as a result of the recession was not regained.

So those with a more objective perspective, including many in the IMF, began to realise the fiscal policy reversal in 2010 had been a big mistake. The world had been unduly influenced by the rather special circumstances of the Eurozone. Furthermore within the Eurozone the crisis that austerity had meant to solve had actually been solved by the actions of the ECB. It began to look as if austerity – in perhaps a milder form – had only been required in a few periphery Eurozone countries.

All this should have meant another policy switch, at least to end fiscal austerity and perhaps to return to fiscal stimulus. But deficit fetishism had taken hold. This was partly because it suited powerful political interests, but it was also because it had become the pervasive view within the media, a media that liked a simple story that ‘made sense’ to ordinary people. Politicians who appeared to deviate from the new ‘mediamacro consensus’ of deficit fetishism suffered as a consequence.

So as 2014 ends, we have at best an incomplete recovery and inflation below targets, yet central banks are either not doing enough, or have given up doing anything at all. A huge amount of ink is spilt about this. But if central banks really do believe there is nothing much they can do, with a very few exceptions they fail to say the obvious, which is that it is time to use that other instrument, or at least to stop using it in the wrong direction. Perhaps they think to say this would be ‘too political’. The media in the UK and US continue to obsess about government deficits, even though it is now clear to almost everyone with any expertise that there is no chance of a government funding crisis, so the obsession is completely misplaced. Within the Eurozone deficit fetishism has achieved the status of law!

The media in the UK and US continue to obsess about government deficits, even though it is now clear to almost everyone with any expertise that there is no chance of a government funding crisis, so the obsession is completely misplaced. Within the Eurozone deficit fetishism has achieved the status of law!

There are some who say we cannot use the fiscal instrument to help the recovery, and get inflation on target, because debt will become a problem in 30 years time. It is as if a runner, who normally gets their fuel from eating carbohydrates but has run out of energy in mid-race, is denied a food with sugar (HT Peter Dorman) because a high sugar diet is bad for you in the long term. Others in the Eurozone say we must stick to the rules, because rules must be kept. But rules that create recessions with no compensating benefits are bad rules, and should be changed. Rule makers can make mistakes, and should learn from these mistakes. [4] It is perfectly possible to design rules that both ensure long term fiscal discipline, but which do not throw away the fiscal instrument when it is needed.

So every time someone writes something about what monetary policy could or should do to get inflation back to target, they should say at the outset that this goal could be achieved – in a more assured way – by a more expansionary fiscal policy. Political journalists who presume that more borrowing must be bad should get a severe telling off from their economist colleagues. For one thing that should now be clear is that rising debt since the recession has done no harm, but austerity policies that tried to tackle rising debt have done considerable damage. The 2010 Eurozone crisis was a false alarm. Macroeconomics needs to get its fiscal instrument back, and deficit fetishism has to end, but this is being prevented by an alliance between the political right, the ultra-monetarists, and I’m afraid the media itself.

[1] In the UK there is a certain irony here. When inflation was above target in 2010-13, most of the MPC was brave enough to avoid raising rates. Although they forecast that inflation would come back to 2% within two years, this forecast was met with considerable skepticism. Three members of the MPC in 2011 voted to follow their ECB colleagues and raise rates. Perhaps as a result, the Treasury wrote a paper in 2013 which said that on occasions like that (when inflation was above target in a recession) the MPC could be a little more relaxed about the speed at which inflation returned to target. The irony is that this latitude is being used (abused?) now, when inflation is below target and we are still recovering from a recession.

[2] Maybe in the US the target is asymmetrical – but shouldn’t be – but in the UK it is symmetric by law.

[3] In a boom, when fiscal policy should have been contractionary, budget deficits were low as a result of the boom, so the rules suggested no action was required.

[4] Equally those that lent money when they should not have lent money have to accept that they made a mistake.

This column was first published on MainlyMacro

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"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/#comments 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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http://www.social-europe.eu/2014/11/exhaustion-of-democracy/feed/rss2/ 1 Ingolfur Blühdorn Ingolfur Blühdorn democracy Democracy
"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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