Conversation with Özlem Onaran
From the start, the neoliberal project in Europe was marked by a striking pro-capital redistribution of income, wealth and power. This seemed to be a good solution to overcome the profitability crisis, but it sowed the seeds of another potential source of crisis, the so called ‘realisation crisis’. If you increase the profit share of the total income, this is good for individual firms. But then, where is the demand going to come from? To whom are they going to sell the goods?
Two models emerged to deal with the crisis. The export-led German model aggressively moderated wages with export markets as the growth locomotive. Its mirror image is the debt-led growth model, as German exports cannot exist if there are no countries who will import from them. Countries financed the deficits between imports and their own exports by debt, which was in turn being financed by German banks but also by China and others. The debt-led countries are Britain, Greece, Spain, Portugal and Ireland, as well as the Eastern European countries after they integrated European capitalism. Debt made up for domestic demand and for keeping welfare state spending. States were trying to provide the same level of health and education services by accumulating debt.
Inequality was one of the main sources of both of these very unsustainable models. The divergences between the labour costs in countries in the south of Europe versus Germany were also becoming more significant, not because wages were increasing in the south or in Ireland but because Germany was moderating wages more aggressively, with pressure put on organised labour, changes in labour market regulations and declining union power there.
When the global crisis hit, governments intervened to save capitalism from itself. That meant bank rescue packages and unemployment hikes, paying benefits even in an environment where the system was on the decline. This meant huge deficits even in countries like Spain and Britain, where budget deficits or public debt was not a problem before. Public debt was accumulated after the crisis because of government intervention to prevent the crisis from becoming like the Great Depression of the 1930s.
The ruling elite, forgetting all the reasons and origins of the crisis, argues that this is a public debt crisis. They avoid levying taxes to deal with the problem, even though the taxes would be paid by the wealthy, who have actually caused this crisis. This is a very clear agenda of class warfare: workers will pay for the crisis via welfare state retrenchments and austerity, which just deepens the crisis. We’re now back to a double-dip recession in the Euro zone as a whole. In Britain they’re even talking about a triple-dip recession.
How can we get out of the crisis? By reversing its origins on multiple levels and by making those responsible pay for it. There are four key demands around which a broader labour movement, social movement and left-unity can be built:
1. Simply say no to spending cuts, no to austerity. There is a reasonable broad agreement around that issue.
2. Use tax policy to reverse inequality and make those responsible pay for the crisis. We have to talk about a genuinely progressive taxation policy on income as well as wealth, higher corporation taxes, financial transaction taxes, as well as controlling the movements of capital. It is not just about making the higher income groups paying higher tax rates, but also about asking questions about a minimum income. Inequality was partly about sky-rocketing managerial wages. One way to deal with that would be to say we want a 90% top marginal income tax rate, or a 95% or if you like 100%, above a certain level of income. The new French government is thinking of a similar idea but the threshold they’re talking about is too high. They need to ask what the maximum income inequality is that they will tolerate.
3. Financial regulation and capital control – those are very important. But we not only want to solve the economic crisis and the issue of inequality – we also need major research and development investments in renewable energy to deal with the ecological crisis. For this we need huge development and investment banks to finance large projects and these banks must be under public control. The banks must become accountable public sector entities where decisions are under the control of the people who work there, as well as the regional communities – everyone who is affected by the bank’s credit decisions and operations. So banks must be under public ownership but also under participatory democratic control.
4. Last but not least, it’s true that the crisis led to a public debt problem that was not there before. In Spain very soon we will see private debt turn into a banking problem, and as banks are being bailed out, it will become a public debt issue. In Ireland it has already happened. The British economy is rich enough to pay that debt back, but the question should not be ‘Can we pay it?’, but ‘Should we pay it?’
The ruling elite’s response to the crisis has been austerity and further attacks on wages and the share of labour and national income. Since 2009 we’ve seen a further decline in labour share in income in Europe. Our work for the International Labour Office shows that cutting the wage share by 1% means growth or GDP in Europe would decrease by 0.13%. Over the last decade there has been a loss of labour share of some 12% and with the crisis this is going even further. Europe has to opt for a recovery and increase the wage share as the only way to restore economic demand.
We have to actually look at opting for an egalitarian full employment pack as a question of redistribution. Europe or North America have generated enough wealth to create decent living conditions and employment; it’s a matter of redistributing it. So we have to think of ways of managing with low growth, if not zero growth, taking into consideration the implications of global climate justice and leaving space for growth for the developing worlds of the South.
We have to think of creating more labour-intensive growth, which means creating more jobs with less growth. Another other way is to change the composition of growth and look more closely at renewable energy, public transport infrastructure and energy-efficient housing. We also have to think of shortening working hours, without wage losses, thus generating more jobs with no growth, and redistributing profits towards wages. And of course a European minimum wage, European unemployment benefits system and European investment projects.
All this has to be financed by a real central European bank that adheres to the principle of sustainable development espoused by democratic European institutions of the day.
Greece must default
What are the real options for Greece now? In Greece the issue is very clearly a debt that they cannot pay. Even the IMF agrees. The only option is for Greece to default, but on its own terms rather than according to conditions imposed by the troika and private creditors. A debtor-led default can only come out of a democratic, open, transparent debt audit. And countries in Latin America have had successful experiences of that. For example, Ecuador, where people’s representatives, unions, as well as of course people who are experts in the area, opened the books and look at the sources of the debt, assessing which ones are odious ( we could do that with debt incurred by crony projects like the Olympic games for example).
The only solution for Greece is a debt default, preferably following a debt audit. If this is not done in a democratic way, it will happen anyway. Indeed, private creditors are also now scared of it and they want an orderly debt default. So it’s up to the social movements and the working people to set the terms. A debt default will happen either way.
There is great public discontent with the way ruling governments have reacted to the crisis. Ironically, this has decreased the legitimacy of any policy alternative that includes “collective” mechanisms in governance or nationalization. There is, however, a window of opportunity to argue that capitalism is economically, ecologically, and politically unsustainable. The road to channeling popular discontent toward an alternative democratic, participatory, and planned socialist economic model is rocky, but we now have advantages. It is clear that higher profits do not lead to investments or more jobs; growth does not mean a decrease in inequality; and capitalist market economies are prone to systemic crisis. However, to formulate policy alternatives, it is important to emphasize what has caused the crisis. This is not just a crisis of improperly regulated markets. It is a crisis of unequal distribution, and it should be asked why labor continues to suffer. Business as usual is not an option.
Özlem is senior lecturer in economics and statistics in the School of Business at Middlesex University in the United Kingdom. She has published numerous articles on growth, development, and employment in the global economy.
