Tag Archives: budget

A further look at ‘Social Europe’

17 Aug

Much is made about the virtues of ‘Social Europe’. Higher standards of living, broad and deep welfare support, lower working hours, a better work/life balance: these are just some of the advantages of living in Europe cited by commentators. Back in 2004, Jeremy Rifkin published The European Dream: a paean to Europe’s embrace of a more human and environmentally friendly sort of capitalism. In previous posts, we’ve been critical of the notion of ‘Social Europe’. There is a sense in which the rise of ‘Social Europe’ coincides with the rise of a distinctively anti-social society.

There are different aspects to this emergent anti-social Europe. One is the way in which Europe’s growth model rests upon the ability of national governments to contain wages. Wage moderation – and with it declining or stagnant levels of household disposable income – is thus the flipside to the “success stories” of countries like Germany and the Netherlands. A previous post cited the high levels of flexible employment in these bastions of ‘Social Europe’, in contrast to surprisingly lower levels of flexible employment in post-Thatcherite Britain. Here we can look at the figures for household disposable income. Though variations exist, there is a striking difference between the ability of core Eurozone countries to contain wage increases and the wage increases seen in the now crisis-ridden peripheral economies of Greece and Ireland. There is only so much these figures can tell us but they are at least part of the story of contemporary European political economy. The minimal increases in household disposable income in Germany are striking. Household income in the Netherlands fell in 2002 and 2003, falling 2.4% in 2003.

The ability of national governments in Europe to impose cuts on household incomes has become a determining factor in the European growth model. We see this today in the context of the Eurozone crisis where the negotiations between unions, employers and governments are critical to the resolution of the sovereign debt crisis. This is the case in Italy today: the European Central Bank recently wrote to the Italian government, stressing that its buying up of Italian bonds was based on a quid pro quo that would see the government in Rome push through its planned austerity budget. The Financial Times warned yesterday (16/08/11) that the success of these plans depended upon unions and professional associations acting “responsibly”. Susanna Camusso, leader of Italy’s largest union, the CGIL, has said she may recommend a general strike in opposition to the planned cuts. The ECB and the Italian government are pushing for a replacement of fixed national labour contracts with flexible company level contracts. Given the transformation of Italian corporatism into a mechanism for guaranteeing union compliance with government programs, and the history of successfully using Italy’s membership of European Monetary Union as a reason to moderate union demands, there is a good chance the CGIL will back the government’s plan. This might please the markets but it would be another step away from a properly social Europe.

The Debt-deal, or, the Chickens of Third-Way New Democracy Come Home to Roost

2 Aug

Readers know the details: $1 trillion cuts, $1.5 more through a supercommittee with a trigger if they can’t agree, and the further possibility, by the end of 2012, that the Bush tax cuts for the wealthy sunset. Major spending cuts just as GDP growth was revised down for the past three years, and a double dip recession becomes an increasing possibility. In fact, stimulus money is just about dried up and, as we noted in a previous post, was considerably counterbalanced by contraction at the state-level. This plan looks less like a resolution to economic problems and more like a continuation of the trend of redistributing resources upwards: cuts in social spending (yes yes, some are protected, but not all, and it’s always revisable…) and preservation of tax cuts. There is a lot to say here, and we will try to do it succinctly, but to put the conclusion up front: this is not just a problem of a weak, neoliberal President and wacky-tacky right-wing, it’s also the product of decades of Democratic Party tactics and ideology. And more broadly, signals a deep, and not just American, problem facing left-wing thinking – this is an international, not just national story.

Before getting to those points, a few minor observations. First, these cuts are, of course, revisable by future Congresses – a thought occasionally offered to placate critics, but there’s no reason why revisability softens the blow. Under certain political conditions, that could just mean programs like Social Security and Medicaid would get put back on the table. Second, there is a contradiction in the ‘success’ of the austerity project: contraction of federal spending is ‘procyclical’ in that it exacerbates recessionary tendencies. If it accelerates a recession this could hurt many members of the class that stand to benefit the most from the current arrangement – profits decline, bankruptcies loom, higher lending costs. Short-term gains, but long-term pain. Third, one of the promises Obamacrats have held out in support of this deal is that it puts the budget deal to rest and allows them to move to better territory – jobs. That is what Biden told unhappy Democrats. But this is not very credible. How exactly would a jobs program, or other major stimulus, work when transportation is on the chopping block and the administration has just, very aggressively, affirmed the need to control spending? One can’t shake the feeling that Obama is concerned about jobs up to and only insofar as he can use it to get re-elected. He hopes it is the symbolic issue that he can use to abuse Republicans in 2012, even if nothing very significant policy-wise actually comes out of the coming debate.

Here we get to the nub of the issue. An excellent recent piece by Glenn Greenwald reminds us that Obama has always wanted significant cuts in social spending, and more generally been a champion of ‘entitlement reform.’ (Greenwald supplies the bulk of the evidence here). The key point is that Obama was not just pushed by nutty right-wingers, he has been a supporter of significant revisions to social programs for a long while. Of course, the plan may not exactly have been to Obama’s liking. And we can debate just how much Obama conceded versus got what he wanted (the best version of this debate is here), but most of this debate is besides the point. This budgetary compromise did not come to be in a vacuum. It is not just Obama but the entire Democratic Party that has been unable to provide convincing responses, and for good reason.

For the past twenty years, the Democratic Party has been the part of austerity. The Clinton years have been celebrated as years of fiscal responsibility, whose crowning achievement was a balanced budget. The 1996 welfare reform entrenched the view that Democrats, too, thought there was a problem with the ‘culture of entitlement,’ and that individual households need to be more ‘responsible.’ The New Democrats also attacked the ‘old left’, echoes of Obama’s recent attack on the ‘professional left,’ and especially their tax and spend attitudes. Additionally, although it was Clinton who said ‘it’s the economy, stupid,’ it was the New Democrats who argued for a restructured role for the state in the economy. Their post-Cold War savvy told them the government should not try to do too much, correct market failures, alter incentives, but never compete with private industry (think recent health care reform and the rejection of the public option) and certainly forget about something as ambitious as a jobs program. No wonder the Democrats were unable to mount a very convincing case against the Bush era tax cuts, against cutting social spending, and against the stupidity of austerity on the brink of a double-dip recession. The neoliberal chickens of New Democracy have come home to roost.

The political economy of New Democracy was, in fact, oddly contradictory. It was, on the one hand, the dream of a frictionless economy, spurred by the heady, speculative, but deeply inegalitarian dynamics of the ‘New Economy’ (whose myths have been decisively dispelled in After the New Economy). The post-industrial economy could grow on symbols, credit and knowledge alone. On the other hand, it promoted an ethos of limits: don’t expect the government to do what it once did, collective solutions to political problems are possible only on the margins, the individual must manage more with less. The government’s job is to keep things reasonable, like a balanced budget. The New Economy crashed (twice), and the Democratic Party was left holding the sputtering torch of its post-political economic theory. All that remains is its political (and funding) alliance with the new financial class, and decline of its former political basis in organized labor. No wonder, then, the Democrats have found themselves outmaneuvered. They have spent the last twenty years arguing against the ideas they suddenly hoped to trot out now – indeed against the very possibility of dramatic collective solutions to serious economic problems.

Finally, as much as this drama has taken turns unique to the American political system, it is a particular example of a general trend. Last year’s British austerity budget included an average 19% four-year cut in departmental budgets, including cuts in pensions, education and transportation (the UK experiencing the familiar sluggish growth). Spain, Portugal, Italy, Ireland and especially Greece are all facing or passed austerity budgets, regardless of the kind of government in power – though in many cases with considerably more social protest than in the United States, and often with at least a slightly more equitable distribution of pain. Amidst 20% unemployment, Spain’s Socialist Party, for instance, cut spending 8% but included tax raises at the upper end. The general point is that the Tea Party added a touch of crazy, and Obama added a touch of ruling class cool, to a much more general problem for the Left. The mainstream parties of the Left, from New Democrats to Spain’s Socialists to British Labour, have been preaching austerity and a new era of limits for decades. In such an environment, austerity in a time of recession, extended joblessness, and growing inequality seems like the reasonable thing to do.



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