Capitalism under Hollande

In recent days, French president François Hollande has begun what is perhaps the most important aspect of this presidency, a reform of the French labour market and of capital-labour relations more generally. Typically, very general ideas about these changes were discussed during the presidential campaign but no firm commitments one way or the other were made by Hollande as candidate, not least for fear of angering the unions. Now that he commands a majority in the national parliament and is in a position to push through changes, we can see more clearly the social content of the Hollande presidency. Under conditions of crisis, and in the name of boosting French competitiveness, it is likely Hollande will do something similar to what Gerhard Schroder did in Germany, namely a flexibilisation of labour laws and a shift in the burden of funding social insurance from capital to labour. How hard Hollande will push is unclear but it does seem that history is repeating itself in France: as with Mitterrand, reforms hostile to labour are being undertaken by the left, not by the right.

His method and style are consensual and collaborative. In place of the immediacy and decrees typical of his predecessor, Hollande has organized a conference bringing together all the different representatives of business and labour in France. No firm commitments are to be made immediately. Rather, on key issues commissions have been set up that will discuss proposals and over the course of a year or so will come up concrete reforms. This contrasts also with Lionel Jospin, former socialist prime minister, who had angered business leaders back in 1997 by declaring at the end of a day of discussions the introduction of the controversial 35 hours week. Hollande’s approach is to keep everyone on board and introduce reforms only gradually.

Hollande may have attracted attention from outside of France as a socialist elected after a campaign where he declared “the world of finance” to be his enemy and where he proposed – remarkably off the cuff for such an important policy – to tax at 75% France’s highest earning individuals. But the reality of political change in France is elsewhere. Traditional leftwing parties, like the Front de Gauche, did far less well than many had expected, suggesting that the opportunity for reform à la Schroder has come in France. The form of his consultations is classically corporatist, with labour and business leaders fully represented in ongoing discussions with the state. As in Germany, the critical issue will be whether or not Hollande is able to secure the support of the unions to push through his proposed changes. The German government’s close relationship with the unions was what enabled the country to undertake its internal devaluation in the early 2000s, the source of its present day competitiveness. Keeping the unions on board, as well as the business groups, is essential for Hollande.

The actual substance of the changes is not yet certain but the ideas being floated make clear that the shift in the balance of forces within society is going against organized labour. One key possibility is that the cost of paying for social insurance, which in France lies heavily on business and is a clear legacy of postwar social democracy, may be increasingly levied on workers. This changes the balance between private wealth and public claims on that wealth. At present, there seems little by way of social mobilisation in France – or in the positions taken by unions – to suggest that such a shift will be resisted. The previous Sarkozy government had planned a similar shift but through an increase in VAT, the so-called social VAT, which unions had opposed unanimously. Hollande’s government is thinking instead in terms of raising what is called the CSG (contribution sociale generalise – a tax paid by all, used to finance health insurance, pensions, welfare payments to family etc.), a proposal that currently divides unions, some are in favour and some not. The CSG was already introduced back in 1990 as a way of generalizing the cost of social insurance which up until then had been levied uniquely on salaries and its extension today is in line with these earlier changes. The position of business is clear: unless such a move is made, competitiveness will continue to decline and jobs will be lost. With thousands of jobs in line to disappear as companies – from automobiles to big pharma – shed labour, the pressure on the government to lessen these costs on businesses is very high.

The situation in France is thus a confusing one. A superficial attack on business through capping of salaries in public sectors enterprises and levying a high tax rate for high-earning footballers and other stars, exists alongside a much more substantial reduction in claims the state makes on privately generated wealth. Social insurance, in France, is being transformed. From being something that belongs to society as a whole, and is based on a coercive transfer of wealth from the private to the public purse, it is now a good enjoyed by individuals and one that they need to pay for themselves. What is being given up here is the idea that markets generate systematic inequalities that should be righted through public intervention. From social insurance as a critique of capitalism to social insurance as a private good purchased by individuals through their own contributions. We aren’t there just yet but this is the direction in which France is heading.

Economists, stop talking like that for God’s sake!

Today, we publish a guest post by Ivan Manokha. Lecturer of international political economy at Sciences Po, Paris, and Vice Dean of the graduate school at Sciences Po, Manokha’s post unpicks the rarefied language with which economists speak of daily life and takes issue with the presumption of choice that is made in mainstream economic theory to explain people’s behaviour.

By Ivan Manokha

How is it that the unemployed are still able to consume? The answer is found on page 45 of Olivier Blanchard’s famous textbook on Macroeconomics. Their ‘consumption cycle’, argues Blanchard, carries on simply because in order to subsist they opt to ‘dissave’, i.e. spend the money that they have on their savings account. Saving in the good times thus nicely offsets dissaving in the bad times.

This kind of statement is symptomatic of a number of problems that characterize the science of Economics and which, I would argue, account in part for its failure to understand the current crisis and to come up with solutions to deal with it.

First, the statement of Blanchard is symptomatic of a total disconnect between the assumptions and models of economists and social reality. Indeed, in their world, rational individuals, even when they fall into the category of ‘liquidity constrained households’ (read:  the poor) always enjoy the liberty of arbitrating between employment and leisure. Unemployment is voluntary and those who do not have a job find themselves unemployed because they have arbitrated in favour of leisure (because, the argument of the Real Business Cycle theory goes, wages are currently not high enough and these rational individuals wait for the job market to become ‘tighter’ when they will accept to work). Well, I suggest they go and speak to all the existing jobless, whose number has increased dramatically since 2008, in order to find out why is it that they still choose leisure over employment.

Second, and even more importantly, there are no social antagonisms or conflicts in the dream world of Economics. Indeed, all Economics textbooks will tell you that there are people who have capital, there are those who have land, and there are those who do not have either of the two, but, don’t worry, they have … ‘human capital’. The inequality of possessions is thus rationalized away by the very categories used to describe social reality and is never itself explained. To be fair, the classical economists who came up with these assumptions felt that this state of affairs could not be left unexplained and tried to offer some justification. Adam Smith, for instance, stated that “more industrious and prudent persons, rather than spending the full produce of their labour, ‘saved’ part of it and gradually accumulated capital.” Out of these individual choices the social fabric of inequality was made. This was more fiction than fact but at least Smith was compelled to say something, an urge that is completely foreign to modern day Economics. Now, all these proprietors of different ‘factors of production’ – capital, land and ‘human capital’ – meet in the place of ‘freedom and opportunity’ and enter into an exchange relation from which they all benefit (they all ‘maximize their utility’). In other words, for lucky owners of ‘human capital’ there is no compulsion to look for employment in order to survive. They do so willingly because they will obtain a net gain from it.

There is one major obstacle to the functioning of the ‘invisible hand’ – the State. This structure does not act as economists might predict. Instead of simply providing for the security of private possessions of capital and land and concentrating on national defense,  it intervenes in the economy in order to ‘de-commodify’ certain things (e.g. health and education) and to establish certain rules for labour markets (minimum wage, conditions for making people redundant, etc.). There are also these damn unions because of which wages exceed ‘the market clearing wage’… As a result, we are told there is inefficiency and waste; state spending, given the fact that there is a limited amount of money in the economy, necessarily ‘crowds out’ private investment. We can guess that it is because of such ‘crowding out’ that big corporations like Apple are sitting on so much cash and are not investing it back into the economy… Fortunately for us, there is the current crisis which has exposed the fact that certain accounting identities are not in fact accounting identities at all. State spending in Greece went down 20% but did private investment go up by 20%?

It is time for Economists to realize that the absolute majority of the world’s population does not have a choice between leisure and work but is compelled to look for a job; that not all of those who do not find a job will be able to ‘dissave’; that when those lucky ones who are employed are told that they have to accept cuts in wages and benefits and that their contracts have to be changed to make their firing easier (that the labour market has to be made more ‘flexible’) there is a chance that they will go to the streets and rebel. The real world is not characterized by a harmony of interests but it is a world of inequality of possessions, of inequality of opportunity, of inequality of power. So long as our thinking continues to be dominated by the fiction of Economics, we will not be able to deal with the crisis.

What Are They Occupied With?

Many now ask what are the ‘Occupiers’ occupied with? Though heartened by their growth, we are concerned both with the form and the content of their demands. Today, we will discuss only the content of these demands, and hope to follow up with a discussion of form.

Since it began, Occupy Wall Street has spread to a number of other cities, and has shed light on the activities of other, similar groups, already in existence. We had the opportunity to visit Occupy Wall Street last Friday, participating in the march from Zucotti Park to Police Plaza, and we have followed closely the debates over what the new ‘Occupy’ movement means. Some of the contours of the debate are familiar. Critics ridicule their street theater and ignorance. Sympathizers worry about the lack of clear demands. Supporters argue that the process-orientation is the demand, it even ‘prefigures’ the new utopian society within the constraints of the old; or more moderately, they argue it is a necessary tactic to attract a broad base of support. (For the most recent demands at OWS, see this General Assembly declaration). We are somewhere between sympathizers and supporters, but have the following concerns about the ‘movement’ as it currently exists.

Content problems

The lion’s share of the debate has revolved around the lack of demands and the absence of clear organization. The claim to represent 99% yet unwillingness to erect any formal structure of representation has been a visible worry. Yet our concerns begin with the content of the claim to represent 99%. In a recent post, Doug Henwood quite reasonably pointed to the charm of the claim to 99% – it is universal. For the Left, this is indeed an advance over the highly fragmented, minority-based politics of the last decades. (Though we note the ‘class, race, gender, etc…’ language seeping back into the general demands.) The attempt to articulate the shared interests of a (vast) majority is a more promising direction to go than the more fragile alliance of numerous minorities. Back in the 1990s, the political philosopher Iris Marion Young pointed out that if you add up all the ‘minorities’ victim to some kind of oppression you end up with a vast majority, so why call them minorities? And as we ourselves have argued, roughly 80% have a shared interest in changing the structure of investment in the US economy. (Henwood also believes that 80% is a better marker of class politics.)

So what is the problem? Well, 99% is most decidedly not 80%. In fact, the critique of the 99%, especially when the 1% is exclusively held to be rich bankers and their lackeys at the Fed, has much more in common with American populism than it does with progressive class struggle. The critique of sinister, East Coast interests, the demand for fairer monetary policy, the assault on the ‘big corporations’ in defense of the little guy is just as much, if not more, petty bourgeois as it is working class. The demand for a ‘People’s Monetary System’; the desire to break up big corporations; the defense of local banks against the massive Eastern money interests are all the bread and butter of classic, nineteenth century American populism. The latter, as we know, was just as effective at absorbing and redirecting America’s agricultural and industrial workers as it was at channeling their needs and efforts.

While some populism at the moment is certainly better than nothing, it is too crude a way of addressing the underlying inequalities of economic power and the sources of economic stagnation. For one, it implicitly hives off the financial class from the rest of the economy, rather than connects the growth of finance to problems with advanced industrial economies since the 1970s. As we have attempted to argue, ‘financialization’ is about more than the emergence of the super-rich and the rise of hedge-funds. Moreover, there are more sources of economic unfreedom than simply indebtedness and a massive banking industry – the strikes of the 1970s were directed against employers, after all, and the recent strikes by Verizon workers remind us of that. Finally, a critique focused on the top 1% of the wealthy, and on the overweening power of corporations, at best leaves ambiguous what kinds of social power would be acceptable in a reformed economy. Here, some of the petty bourgeois anxiety of the protests is especially problematic. A modern economy, even run ‘socialistically,’ would of necessity be composed of extremely large agglomerations of machinery and labor, even if these did not take the form of ‘capital’ and ‘corporation.’ It would also include immense global trade networks, which cannot be modeled on anything like a spontaneous barter system.

All of this might seem exceedingly harsh or over-interpreted. Where, one might ask, can one actually find these ideas at the OWS or any of the other movements itself? No single set of ideas can be pinned on them, and that is there virtue. Be that as it may, it is more of a non-response. There is no consensus, but there are clear tendencies, some stronger than others. The 99% claim has emerged as the most powerful tendency, and as far as we can tell, it has the basic content described above. Our arguments are not offered as a reason to reject the movement but in the spirit of reflection and internal criticism. We do not think the current efforts are useless, ridiculous, or pointless. But we do think that, as they develop, some serious disagreements and points of direction will have to be settled. On that front, we hope 99% become 80.

The Economy and Its Limits

John Stuart Mill once argued that “the laws and conditions of the Production of wealth partake of the character of physical truths,” while on the other hand “the distribution of wealth…depends on the laws and customs of society.” To which Karl Marx indirectly replied “distribution, however, is a feature of the mode of production.” One of Marx’s points was to argue against the tendency to accept certain limits as natural when they were, in fact, the product of decisions about how to organize productive life. If we too quickly accept these limits, then even struggles over the distribution of wealth will be tilted and constrained. Now it might seem odd, after a crisis brought on by a lot of excess borrowing, and unfunded consumption, to argue against limits. Nevertheless, our current debt-discussions could do with some attention to Marx’s insight.

After all, in the post-Budgetary Control Act of 2011 debate there is a continued argument over the limits that contemporary economies face, and to which they are forced to respond. Consider, for instance, this op-ed by the Alan Simpson and Erskine Bowles, deficit hawk ‘expert’ leaders of the detestable (and somewhat irrelevant) 2010 Fiscal Commission, which was supposed to draw up plans to solve our budgetary woes. Their astonishing response is to see the debt-ceiling bill as a “first step toward fiscal sanity” but, more importantly, “it’s just a step forward; it isn’t a solution.” If you think they are just talking about the new commission, think again. Even if the commission finds another $1.2 trillion in savings, Simpson and Bowles think we still “must address the unsustainable growth of our entitlement programs and reform the tax code to make it more competitive and more efficient.” The drumbeats of austerity continue to beat, and not just from the looney bin. For the White House this was “a win for the economy and for budget discipline,” as if the latter were an end in itself. Meanwhile, Obama has so boxed himself in that he has next to nothing to offer regarding a real stimulus or job creation.

One response to the whole debt deal has been to say that there’s more than one way to skin a cat. We could withdraw from Afghanistan and Iraq, let the Bush tax cuts expire, maybe even add a financial transactions tax, and we would find huge savings – nearly all of what the BCA is looking for, in fact. This would be a much more equitable way to balance the budget than cutting services on such “notorious high livers as the poor, the chronically ill, and graduate students.”  Consider this from a very good article by Dan Froomkin: “‘The rich have drawn a political box around what can be done here,’ said Damon Silvers, policy director for the big umbrella union AFL-CIO. ‘They are gutting the modern state in order to avoid a real conversation about taxes.’” In other words, the debate over the budget is a debate over distribution. Who should feel the pain of a necessary belt tightening? (On this blog, we ourselves have supported arguments for jobs programs for, among other things, their distributional effects.)

But to argue just over distribution is to accept an unnatural limit to ‘production.’ It assumes, first, that there is a fiscal emergency when there isn’t. As Doug Henwood expertly showed a few months ago, the spike in the deficit is a product of the recession, not the recession a product of the deficit. Second, much of the current debate assumes we can’t produce our way out of debt. As Froomkin points out, “There is, of course, another way to reduce the deficit: Stimulate economic growth and grow out of it.” The ‘of course’ there is the nub. Few think that such a solution is so obvious. Or, put another way, the ethos of limits has become so hegemonic that few can imagine the possibility of growth without significant cuts to social services (‘entitlement reform’), or without a debt crisis.

One of the central problems, then, is the acceptance of limits as to what is economically possible. We touched on this on Tuesday, but it’s worth emphasizing. The main lesson that seems to have been taken from the recent crisis is that everyone was living beyond their means. Households borrowed too much, banks loaned too much, financiers speculated too much, and governments spent too much. This ‘lesson’ is the one to be resisted.  It’s true that there were systemic risks, that regulation was poor, and that real wages were so low that the only way for most to maintain living standards was to borrow. But the lesson is not therefore, or not straightforwardly, retrenchement and ‘fiscal sanity’ as Bowles and Simpson innapropriately put it (austerity on the brink of a double-dip? now that is insane.) Rather, a different lesson might be that the economic model of the last thirty forty years is not worth supporting. Not only did it provide little in the way of decent jobs for most people, it produced rather anemic growth, with the last decade producing the lowest GDP per capita since the 1940s (from LBO 130, Nov 24, 2010). Nearly all of that growth went to the top 20% as it was. And as we noted before, the distributional consequences of this economic system were closely related to its finance-centered organization. Distribution and production were intertwined. For such a lop-sided, and ultimately anemic, economic system, it is dispiriting that it still receives so much support, and that the majority are instructed to find new limits within it.

Of course, overcoming this ethos of limits is not easy – though a serious defense of a jobs program, not just in the name of greater equity, but also on the grounds that it is a better stimulus proposal, would be a good start (and only a start it would be). But even that seems dead in the water – those who still believe in the ability to collectively intervene in and improve our economic condition rarely getting a hearing. For the time being, it is worth arguing with all possible force that we should be rejecting the ethos of limits – which is really an ethos of limits for the majority, while certain private individuals are increasingly unlimited. The fiscally sane position is not demand less, but produce more.

A social investment pact for an anti-social Europe

Recent news about the Eurozone has been dominated by pictures of protesters in the streets of Athens. Europe has become synonymous with austerity and cuts. The message from Brussels, Berlin and Paris is that fiscal rectitude is the only way out of the crisis.

Some within the tradition of European social democracy are arguing against this current. They claim that more competitiveness needs to be complemented by what they call ‘social investment’. The call for a social investment pact has been made by a number of prominent figures within European politics and within the academy. A recent article by Frank Vandenbroucke, Anton Hemerijck and Bruno Palier was entitled ‘It’s a social investment pact that Europe needs!’ Vandenbroucke is a member of the Belgian senate, former social affairs minister and a prominent figure within the Belgian socialist party. Hemerijck is dean of the social sciences faculty at the Free University of Amsterdam and Palier is a researcher at SciencesPo, Paris.

The term social investment itself dates from the end of the 1990s and refers to attempts at mitigating the social costs of labour market reform. It is the missing ‘social’ component to what many on the left consider heartless supply-side policies. Vandenbroucke and his colleagues claim that before the current crisis, European governments were reasonably successful at raising labour market participation rates through welfare reform whilst also protecting social provision. This is what they call “flexi-security”. The idea of social investment is included in the European Union’s long-term economic plan, Europe 2020, a set of employment, growth and social policy objectives that follow on from earlier plans, such as the Lisbon Strategy of 2000.

The impact of social investment on inequality across Europe is difficult to determine. Central is the idea of an equitable reform of public services but whether this has been achieved anywhere in Europe is much contested. It is certainly true that over the last decade welfare state reform has not followed a rigidly neoliberal line, ruthlessly forcing people off welfare and into precarious and poorly-paid work. The term social investment captures a distinctive feature of contemporary welfare state reform in Europe that points to something ideologically more complex than what the term ‘neoliberal’ would allow.

But there are reasons to be wary of a call for a social pact for Europe. For a start, there is a major gap between those calling for this social pact and those for whom it is intended. As argued elsewhere on this blog, the specific content of reforms, whether it be financial or social, will reflect those involved in conceiving and implementing them. There is something paternalistic about a set of ideas and policies that rest on such a gap between proponents and recipients. It is also odd to push the idea of social investment at a time when mainstream politics seems so anti-labour. In a recent wave of public sector strikes in the UK, British Labour Party leader Ed Milliband declared the strikes “wrong” because they were an inconvenience for working parents. Milliband, no doubt, is a firm supporter of the idea of social investment.

It is also unclear whether the social investment idea is anything more than an attempt to soften the bumpy journey towards a more unequal society. The focus is on helping individuals “adapt”, re-skill and manage their transition towards a more flexible labour market. That leaves the biggest question relevant for social equality – wages and the distribution of the social product across society as a whole – untouched. With a Eurozone growth model based on wage restraint and recycled export revenues, what contribution can social investment make? The idea of a social investment pact appears more as a complement to an anti-social Europe than a real challenge to it.

Finance and Recovery

Tuesday I mentioned the difficulties of re-regulation given the strength of the financial class. In fact, the problem is considerably wider than just a matter of being able to get the right regulations in place. It is also a matter of what we think a recovery is, who benefits from the recovery, and who does not. The mainstream conception of what counts as recovery is determined by financial markets – rising stocks supposedly float all boats. Resistance to this way of thinking is beginning to seep into mainstream discussions, with liberals like Krugman noting that the recovery is largely for the people at the top. A recent graph, found at naked capitalism, points out that, at the bottom, things are slow to improve.

The jobless recovery, of course, has been part of the news, but few have bothered to connect this joblessness to the financial character of the bubble, not to mention the ‘recovery’ itself. Doug Henwood is one of the few to point out the connection between the two as general feature of financial bubbles.

The implication of Henwood’s analysis, and the steady stream of facts supporting it, is not just that somehow financial interests have managed to seize control of the state and economy and use it to their benefit – though they have managed to do a good deal of that. It is that the general model of growth and job creation, starting in the 1970s, is defunct. Cheap credit, debt-financed consumption, readily available mortgages, rising debt-income levels, alongside stagnant wages, rising inequality, and asset bubbles were at least some of the key features of this model. It was, significantly, not just a model of growth and job creation in the narrow economic sense, but a kind of tacit social compact. Post-war living standards would be maintained, not through high wages, public provision, and regulation of the economy, but through the instruments of the market – which effectively meant credit. This was sometimes called a ‘neoliberal’ model, though notably the concept neoliberalism rarely includes mention of the financialization of the economy. Whatever the name, it is that model of capitalism in general that would have to be replaced before any real recovery takes place – at least a recovery in which everyone recovers.