Monday, 22 June 2015

Yet Again, It's Crunch Time

A pivotal moment. It's  almost crunch time. The endgame approaches. The longer these negotiations go on, the more casually recycled this apocalyptic language feels. Nevertheless times are serious in Greece.

The people of Greece, living under this constant cloud of uncertainty, must surely be going mad. Many want an end to the stalemate, no matter the cost. Who can blame them? Anything would be better than this.

Channel 4's Paul Mason has been writing consistently insightful journalism on the Greek crisis for years now. His most recent post makes two things clear: the latent appeal of default for sections of Greek society (including the radical left, parts of the right, and some 41% of the population) and the embeddedness of Syriza politicians in their party membership. Thus, Syriza is wedded to the euro far more strongly than might have been necessary had it, in the past, taken an opposite internal path and made opposite moves in its engagement with the Greek public. But that avenue - perhaps available during their meteoric rise after 2011 - is surely now closed. Syriza - including, at times, the party's Left Platform - set continued euro membership as a priority a long time ago.

Here's that link:

My hunch is that Syriza will cave more or less fully to the austerity demanded by the troika, probably at some time in the next week. The leadership will do so partly because of the exhaustion of the Greek people, their threadbare faith in the government, and the near collapse of the country's banks. But more importantly the collapse of the government's bargaining position was secured for the troika by the Syriza leadership itself well before the election. By insisting that the EC, IMF and ECB would compromise, they assured everyone that they could remain within the euro and end austerity at the same time. No such thing was ever possible without the threat, at least, of default and, by extension, coordinated exit.

It is harder to say what will happen next. What will the depth of an already extensive demoralisation be when Syriza surrenders to the maximum budget surpluses demanded by the troika? How deep into the soul of the nation will the sense of defeat sink? And then what, if any, kind of emotional and intellectual recovery can take place? The relief of six-months' funding will be brief, the social effects of renewed austerity catastrophic.

It is clear that the modest Keynesian reflation promised in Syriza's Thessaloniki programme has been routed by the imposed legality of the treaties, the precedents set by the memoranda, and the financial and fiscal limits of the Greek state. A different path might once have been possible. A new path will require the mobilisation of the Greek people on a scale not seen since 2011-12. Only the Greek people could in theory drive Syriza - the political force which has come to represent Greek society more than any other since the onset of the crisis - towards new and more creative forms of opposition and rebellion in the years of austerity ahead. The situation remains open, but there is little cause for optimism. The future will be testing to the extreme.

The Greek people have been heroic enough to defy austerity, even in the pit of exhaustion. We owe  them a cool, critical assessment of the government. And our support if they find some hidden resources to continue.

Friday, 19 June 2015

Britain Has a Debt Problem - All the More Reason to Fight Austerity

The British state has a debt problem and this makes rejecting austerity all the more important. The conjunction between the two statements here is by no means contradictory. It is customary on the left to deny the fiscal crisis of the state, but there are real limitations to its capacity to sustain social expenditure given the pronounced power of capital. The march against austerity in London today might be the first step to concretising the belief that much more needs to be done than establishing popular support for the state in its current form.

Across the advanced economies of the capitalist world deep public indebtedness has become the norm (rising sovereign debt characterises the thirteen advanced economies in this IMF paper). What is the result of rising public indebtedness? Almost always the response of the capitalist state to fiscal strain is contraction. The result, in turn, of that contraction, is further unbinding of the already frayed tethers of social solidarity between groups in capitalist society.

What does it really mean to talk about a fiscal crisis of the capitalist state? In the abstract it means very little. We need to be more specific: which capitalist state, at which level of indebtedness, and in which period of historical development? We can loosely measure these changes by looking at the institutions of both the state and what is commonly called "civil society." Since the 1970s the political economies and societies of the advanced capitalist west - although especially the USA and Europe - have undergone astonishing changes. At every level the embededness of capitalism in domestic economies has been eroded, as capitalist firms have become increasingly willing to internationalise their activities. At the same time the various mediating institutions between capital and labour have seen their influence either shrink to a core (as in Germany) or become downgraded altogether (as in the Anglo-Saxon economies of the USA and the UK). This has necessitated a change in priorities for trade unions and works councils, from a macro, sectoral focus to a micro, firm-level focus of collective bargaining and worker protection. Precariousness and peripheralisation have become the norm outside of key sectors. Additionally, and crucially, the states of these countries have struggled to keep their social commitments, coming under increasing pressure to lower taxes, whilst at the same time having to shield populations from the ravages of growing unemployment and redundancy. Inevitably, given the balance of social and political representation in the state, it is social commitments that are downgraded. These long-term, secular developments are co-determining. As the influential sociologist Wolfgang Streeck argues1, there is no single class or sectoral driver to these changes. These processes are driven, of course, by the social actors of capitalism, but they are mutually reinforcing and equally unbalancing.

It follows from Streeck's argument that rising public indebtedness is a symptom of the steady decline of government tax intake and the growing instability of employment in contemporary advanced economies. Moreover, as the economist James Galbraith argues2, there may be no return to high growth, which would increase employment despite the fiscal binds on the state, because of resource cost volatility, financialisation and the exhaustion of the technological and productivity-increasing means of job creation. We may now be living in a low-growth world, where what little growth there is does not fuel job creation on anywhere near the necessary scale.

This paints a very bleak picture for the Keynesian prescriptions that are the common alternative to fiscal contraction - in other words, austerity - and labour market liberalisation. Keynes's argument was one based on psychological assumptions very different to those of classical and neoclassical economists. He described how the proportion of income not given over to consumption would become savings and was in aggregate identical to investment. This was the key to continuing growth in employment, the conclusion being that a shortfall in demand - in the form of goods for consumption and new investment - could prevent growth in employment. Economies could stagnate - and unemployment remain above its potentially lowest point - because of an absence of demand.3 By stimulating demand - primarily in the form of deficit spending, but also tax cuts and lowering interest rates - the government could create new employment, growing income/output, and therefore economic growth. In theory it remains possible for the state to do this (after all, there are no absolute limits to capitalism only relative ones). The argument against a purely Keynesian policy program is the institutional, social and political context. Even if the institutional capacity for a Keynesian revival led by the state exists (as perhaps it may in the United States), the kind of technological take-up characteristic of the ensuing boom would not necessarily drive job creation. Service economies, no matter how high-tech, do not produce the same kind of mass employment as heavy industrial economies. Moreover, with ongoing financialisation of capital and the internationalisation of regulatory structures (including the US state and its many free trade agreements, the EU and its many treaties, the IMF and so on), it is not at all clear that the reduced power of national governments could sustain a reverse course for very long. This argument applies especially to the UK with its heavy reliance on financial services, its low productivity growth, its high degree of de-industrialisation, and the pronounced weaknesses of the tax system.

None of this proves the fiscal moralising of the deficit hawks right, however. The theory of contractionary expansion has long been proved a delusion, if it really ever held intellectual water. Keynesian stimulus can be part of a broader alternative to austerity - but it cannot be the only pillar, since it relies somewhat narrowly on the short-term psychological expectations of investors and the underlying belief that any animated "animal spirits" can generate the right kind of growth. The Keynesian policy toolkit is just that - a set of instruments which needs to be put to the right political uses.

What, if not growth alone, would amount to an adequate challenge to austerity? Only a concerted effort of the social will can begin - slowly - to reverse the decades-long evolution of advanced capitalism. Because these secular tendencies are multi-layered, only a multi-faceted effort - working at every institutional level of the state and civil society - can begin this work. Society does not have infinite resources for this task, and defeat is a possibility if not quite a likelihood. However, it is vital that we use our efforts to build concrete institutional powers. Protest is a high-visibility response, but it can sometimes leave no lasting trace. Our presence needs to be felt in institutions - primarily the staid "core" union structure, as well as in the new "peripheral" unions that seek to protect the more precarious sectors of the economy. Struggles need to be built around housing and immigration; urban destruction and resource exploitation; feminism and minority rights. It is a tall order, but happily this multi-faceted opposition - stretching well beyond the state - reflects already the political logic of austerity capital, which outsources "creative destruction" onto the different levels of the social fabric.

We cannot win by opposition to cuts alone - since that leads to a tunnel-vision focus on state power and the Keynesian alternative to austerity. Instead, opposition to austerity capitalism and what Streeck calls the "consolidation state" must stretch across society, identifying its own causes - anti-racism, feminism, social solidarity - with the continued existence of the very fabric of society. At present capitalism and the capitalist state are wrecking society. The opposition must, in the end, seek to hegemonise society and direct it against the power of capital.

1See: Streeck, Re-Forming Capitalism: Institutional Change in the German Political Economy (2010). In the German case he says: "The liberalisation of the postwar German political economy was not an act of strategic institution-building governed by business in alliance with a competition-conscious nation-state. Rather it took place in a steady process of disorganisation... in the form of a gradual decomposition... from below." (p.255)
2See: Galbraith, James K., The End of Normal (2015) He says: "There will be no full recovery of demand. And even if there were, price volatility in the resource markets and the development of yet more labor- and capital-saving technology would soon choke it off." ( p.241)
3See: Keynes, The General Theory of Employment, Interest and Money (1936) where he argues: "The mere existence of an insufficiency of effective demand may, and often will, bring the increase of employment to a standstill before a level of full employment has been reached." (Kindle Loc: 396-98)

Wednesday, 10 June 2015

Is Osborne Preparing for a Low Growth Capitalism by Legislating against Public Debt?

George Osborne is probably right about UK public spending - albeit for all the wrong reasons. He wants to lock the UK into more or less permanent budget surpluses, with deficits allowed in only extreme circumstances. It is a policy that amounts to enshrining the theory of austerity in law. It is also, from the perspective of the wealthiest and also of the UK state, the only pro-capitalist response available to long-run evolutionary changes between the capitalist state and the market it helps constitute. It may also have one eye on the consistently low rates of growth of the world economy since the 1970s, especially in the western world. It is only possible to run rising public deficits, after all, in a world of reliably high investment and rapid growth.

Despite the moralising, penny-pinching philosophy that has brought the Conservative Party to the conclusion that growth of public debt must be permanently constrained, they have very much "tuned in", not to social needs but to the long-term evolutionary path of capitalist society. The two, of course, are not identical, though the government's power rests partly on its ability to identify them with each other.

Before I am accused of "doing a Hitchens" and going all weak at the knees over capitalism  ("oh, that dynamic force!"), allow me to explain. The standard liberal and left-of-centre critique of austerity is Keynesian. It states that when fiscal contraction reduces demand, it causes a general deepening of recession unless "supported by external demand, devaluations, and cooperative labour organisations." (Blyth, Austerity: History of a Dangerous Idea). Paul Krugman dismissed the neoclassical theory that rational expectations of investors would fill the space of the retreating state and make use of declining wage costs as faith in a "confidence fairy." Austerity was, they argued, just bad economics fuelled by political myopia or worse vicious ideology.

Austerity is a faith - but insofar as it meets a profound need of the political elites of cash-strapped western states, it is an efficacious one. We misunderstand belief if we think for a moment it must accord with the facts to do its job.

Detailed micro-level analysis of the historical evolution of capitalist social institutions, undertaken by Wolfgang Streeck in his book Re-Forming German Capitalism, tells a story that, while very different to Osborne's neoclassical and neoliberal fiscal moralism, nevertheless contradicts the Keynesian belief that state fiscal constraints can be simply shrugged off under capitalist market conditions. 

In Streeck's analysis, the cost of the postwar social state became increasingly burdensome for a previously domesticated capitalism, as unemployment grew and the German federal state, along with workers' organisations turned to early retirement to shield the workforce from the effects of unemployment. "Internal accumulation of tensions and dysfunctions... coincide with external political and technological developments [resulting in] a wave of liberalisation... In the form of further advancement of economic internationalization in new directions and in new forms." (P.202) 

Meanwhile, both capital and the German national state turned to internationalisation of capital and goods markets, as well as deepening the role of transnational institutions (like those of the EU), to relieve these social costs and the fiscal burden on the state. Streeck has since introduced two key concepts into the language of this kind of analysis: first, the "debt" state which results from the rising burdens of the old soci settlement; then, its evolutionary successor, the "consolidation" state, which seeks to re-form the old social contract, significantly curtailing those burdensome social costs.

Streeck significantly makes time a factor of his analysis, and he does so at two levels: on the one hand, chronological time allows the different institutional paths to be registered at different moments  of development. On the other, historical time allows him to conceptualise periods of temporary and provisional equilibrium, which always precede breakdown and transformation. Streeck argues for a tipping point, wherein one period of historical-institutional development is tangibly succeeded by another, even though the rate of institutional change is constant and gradual. Developments in German large and small firms, in organised labour and capital institutions, industrial sectors and the federal state, and so on all fed this change. The key difference between Streeck and the neoclassicals is that he does not view change as "efficiency-enhancing" or tending towards "equilibrium." As he says: "The liberalisation of the postwar German political economy was not an act of strategic institution-building governed by business in alliance with a competition-conscious nation-state. Rather it took place in a steady process of disorganisation... in the form of a gradual decomposition... from below." (p255)

Though the institutions of British capital were never "organised" in the same way as the German, their contemporary "disorganisation" is no less complete. Paradoxically, as the LSE economist Anke Hassel has observed, more coordinated capitalism is better at liberalisation than other, less coordinated kinds. "Liberalisation was accepted as a precondition for sustained coordination." The German market was liberalised to sustain jobs at lower wage growth, not to destroy them.

All of this creeping gradualism suggests that Keynesian-style, counter-cyclical measures cannot be revived because the institutional capacities of the postwar era no longer exist. It would take much more than political voluntarism to put something like that unique coagulation together again. 

Though far from a flawless account of capitalist dynamics (attributing change to a Schumpeterian "restlessness " of the generic entrepreneurial type, rather than it stemming from dependence of social actors on the coercive power of the market), Streeck's analysis  is highly beneficial for understanding the historical interactions of capitalist institutions. As he points out, these processes of liberalisation are universal, present in different forms and in different combinations and stages of development in all capitalist political economies today.

Streeck makes it clear that the postwar settlement was a historical stage of capitalist development, which has now been visibly overcome by a distinctive new period. After the war embedded capitalism and the social state were the means by which elites ensured domestic social peace. Today they use liberalisation to insure themselves against the breakdown of that social peace, in the wake of capital's increased unwillingness to pay for it (either directly through taxes or indirectly through the losses sustained on long-term lending to "inflation-biased", low-interest paying governments).

From a very different perspective, the American economist James Galbraith finds that, since the 2000s, "public provision of credit has been stymied, while the private provision of demand via new credit has not occurred." Against both Keynesians and neoclassicals he argues: "There will be no full recovery of demand. And even if there were, price volatility in the resource markets and the development of yet more labor- and capital-saving technology would soon choke it off." (Galbraith, 'The End of Normal', p.241) Like Streeck Galbraith introduces periodisation, though he dates it and determines it differently. Liberalisation retains its key role, however - especially in terms of internationalisation of financial markets. But where Streeck prefers a "thick" institutional description of overlapping, internal changes from one type of system to another, Galbraith does not shy away from naming the directions of causality. To be specific, these are growing resource cost volatility and the exhaustion of the job creating potential of waves of capitalist technological innovation. It is easy how the exhaustion of the key pillars of postwar embedded capitalism - the domestication of financial markets, the era of high employment and cheap oil - would likewise lead to the bankruptcy of the postwar social state. 

If the capitalist state is to survive it must continue on a path of "consolidation", in which it curtails its indebtedness and significantly shrinks its activities. This will not come without significant threats to its legitimacy and indeed its unity. The Conservative government is increasingly confronted with a breakdown of the social and political postwar "regime" of the British state. The party and electoral systems are fast eroding, while nationalist forces increasingly reject the centre. For George Osbourne, then, the era of low growth and fiscal consolidation will be less a Conservative honeymoon than a race against time.

Thursday, 4 June 2015

Everybody has an opinion about Europe

Anti-Troika protesters in Greece, 2011

Just a few years ago liberal and left-of-centre opinion was unanimous in its adoration for the 'European project'. The titles of trash political literature from that time are testament to a near cosmic hubris, with such adoring tracts as 'Why Europe Will Run the Twentieth Century' springing up left, right and centre. Following 1992's Maastricht Treaty, an age of post-heroic certainties dawned.

Friedrich Nietzsche - a self-styled "good European" of less tedious stock - once damned precisely this kind of triumphalism: "'We have discovered happiness,' say the Last Men, and they blink." Since the sovereign debt crisis (how prosaically was the forward march derailed!) a turn to excoriation in those self same circles cannot conceal the stream of melancholy that underlies it. The insistence is still, however, that a deeper commitment to the old model of unification along either neo-functionalist or intergovernmental lines will save us all. The creepily sterile lust for deeper "consolidation" (implying there are any real gains to consolidate) hinges on the idea that eurozone policy has been too "ad-hoc" and has lacked vision. What should a substantial vision propose, according to post-enlightenment European gladiators like Jurgen Habermas? Integration, of course, to combat finance! "The justification for taking a major step forward on European integration does not derive solely from the current eurozone crisis, but also from the need to curb the evil practices of the shadowy parallel universe that the investment banks and hedge funds have built up alongside the real economy of goods and services," he and his co-writers suggest. Thus, there is the good old productive economy and the separate - in fact, "evil" - realm of finance.

This Europe of liberal, post-political fantasy never really existed - and the sooner we dispense with that fantasy, the easier for an internationalism of substance to replace it.

The modern European Union - and the eurozone which is its offspring - owe their institutional form in more ways than one to the USA. Of course, there was the Marshall Plan. But there was also the financial and monetary shape of the global economy. When repeated bouts of financial instability and inflation prompted investors to flee the dollar, it was to Germany they flocked. Eichengreen again: "Whenever doubts about the dollar and funds flowed out of the United States, they ... flowed mainly into Germany."1 Germany's periodic bouts of currency strengthening against the French franc - which, it must be said, the Bundesbank's Ordoliberals did little to challenge too deeply - made the security blanket of a shared currency more appealing. The euro evolved out of financial and monetary instability following the end of Bretton Woods. The commitment of the European Central Bank to combating inflation (and nothing else) of course reflects a Greman Ordoliberal prejudice, but also the economic reality of Europe's sole heavyweight economy. Though the euro, when launched in 1999, was an incipient challenger to the dollar, it was in other ways a prisoner of the world system founded on dollar power. The rigidities of the eurozone institutions were as much a result of Europe's contradictory developed-subordinate status in the postwar economy as they were the German ideology.

Underlying the fixation on inflation combat were other policies: essentially the dominant European classes were committed totally to a form of fiscal and monetary restraint in order to maintain export competitiveness. Many have claimed Germany takes this position because of the hyper-competitive Chinese productive economy. I suspect it has more to do with the shaky US source of demand for German goods. The eurozone was, in the end, a monetary and fiscal straitjacket for peripheral European economies (the United States is Germany's second biggest export destination after France). The euro allowed Germany to benefit from declining transaction costs while trade union deals allowed the Germans to control wage growth and undercut ECB inflation targets. For export-oriented economies like Germany, wage restraint meant gaining competitive advantages over those who allowed wages to rise. By tackling inflation, the euro was kept strong and this meant exports could be sustained despite growth. However, major differences opened up between export and import dominated countries inside the eurozone. Add to this the growth of credit - with flush German and French banks loaning to the European periphery, especially Greece - and you have a deeply precarious and lopsided "unification."

Following the 2007-8 financial crisis (itself the progeny of the US real estate sector), Europe's rule-based rigidity really came into its own. Peripheral economies, which had allowed wage increases and the credit expansion to fuel consumption, could not benefit from depreciation. German and French banks, heavily exposed to the US subprime crisis, stopped lending. Governments bailed out the banks. The liquidity freeze led to growing unemployment and steep increases in sovereign debt. Bond yields in the periphery rose, with the result that peripheral economies - like Greece - were locked out of bond markets. The rest is the widely catalogued history of harsh European austerity and deflationary measures inflicted on the unwitting southern Europeans. As Mark Blyth puts it in his book Austerity: The History of a Dangerous Idea: "If states cannot inflate their way out of trouble (no printing press) or devalue to do the same (no sovereign currency), they can only default (which will blow up the banking system, so it's not an option), which leaves only internal deflation through prices and wages - austerity. This is the real reason we all have to be austere. Once again, it's all about saving the banks."2

The natural argument of many on the left and on the liberal wing of the mainstream has been reform of the eurozone from within. Yet the institutional and legal framework of the eurozone has cemented a very stable power bloc in Europe. German big and medium capital benefits from the lowering of transaction costs across the economy while banks profit from the deflationary consequences of the euro on borrowers. It may be a harsh form of neo-mercantilism, but it does the job of feeding global consumption on the back of German exports. There will need, then, to be a significant deterioration of the domestic German position along with the continued success of peripheral, left-wing politics if the grip of deflationary Europe is to be undone. What Costas Lapavitsas and the German Keynesian economist Heiner Flassbeck call "confrontational exit"3 from the eurozone by Greece may possibly precipitate just such a crisis.

1Eichengreen, Exorbitant Privilege:, 70
2Blyth, Austerity: The History of a Dangerous Idea, 87
3Lapavitsas & Flassbeck, Against the Troika, Kindle loc 1466: "A Left government should be prepared for confrontational exit... The first step of this process would probably be a declaration of default on the debt... cessation of payments of interest and capital and a unilateral call for negotiations on what will be paid and how... [requiring] popular mobilisation, a Debt Audit and strong legal support."