Tag Archives: Inequality

France’s Golden Rule

13 Aug

At the end of last week, France’s Constitutional Council announced that the recent European treaty on economic governance was in conformity with France’s Constitution. This avoided a complicated constitutional amendment procedure by which the European treaty would have been made compatible with French constitutional law. France’s president, François Hollande, is now freer to introduce the terms of the treaty by way of a simpler parliamentary procedure.

The reaction to the decision has been varied across the political spectrum. The far left has expressed its dismay at the imminent entry into law of a treaty they see as being far too focused on budget cuts and austerity, with little attention paid to growth. Having campaigned so firmly on the slogan of growth rather than austerity, the left of the Socialist Party feels the President has broken his promises. The right argues instead that the Constitutional Council’s decision means that the bite has been taken out of the treaty: rather than inscribing its terms into the constitution, the government is obliged merely by an ordinary law which it could in principle revoke. The famous “Golden Rule” by which governments would be obliged to aim for balanced budgets has been watered down. It is time for excessive spending Southern Mediterranean-style, claims the right.

The Constitutional Council’s decision is interesting for a number of reasons. Firstly, the attention and importance attached to this decision reflects the central role played by this institution in French politics. This has not always been the case but in recent decades, there has been a firm juridification of French political life, evident in the way political questions have been recast as legal matters (for a history of the Council, read Alec Stone Sweet). Secondly, in terms of the decision itself, the Council rightly argues that there is nothing in the treaty that violates in any absolute sense national sovereignty. This points to a broad trend in European integration today: new initiatives are predominantly undertaken in the form of agreements between national executives, with little by way of transfers of power to supranational bodies. The present treaty is no exception to this general rule and there is little in it which identifies how exactly the treaty rules will be policed. Thirdly, the Council also rightly argues that the adoption of constraining rules with regards to government spending – and macro-economic policymaking more generally – is in fact nothing new. It is a continuation of a trend already well-established in the 1990s with the introduction of the Maastricht criteria. And the French Constitution already contains within it an explicit orientation towards balanced budgets. Those opposing the treaty on the grounds that it violates national sovereignty are well over a decade behind.

This leaves us with is a key paradox. European treaties are the work of national executives and they do not empower supranational agents. But in substance they limit further the discretion that these national executives have to make policy. At the heart of Europe today we find national politicians who exercise their authority by binding themselves at the European level. The broader problem here is that rules – whether constitutionally enshrined or not – have replaced discretion as the basis for political decision-making. The political point at stake here is whether or not tigher controls on government spending will help or hinder a return to growth in Europe. And it is the difficulty national governments have in commanding the consent of their populations to the cuts they are envisaging which explains their preference for a collective, rule-based set of policies.

Capitalism under Hollande

11 Jul

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.

The Political Economy of Mass Incarceration

29 May

In a recent post, Daron Acemoglu and James Robinson offered a familiar argument about the origins of mass incarceration in the United States:

“Could this be the basis of the new Jim Crow? Could the incarceration of so many black men be a continuation under a different guise of the penal system that developed in the South after Reconstruction? Could this be, paraphrasing Robert Michels and our own use of his Iron Law of Oligarchy, “the Iron Law of Discrimination”?”

To support their ‘New Jim Crow’ interpretation, Acemoglu and Robinson draw on the work of David Oshinsky, whose book Worse Than Slavery examines the development of convict labor as the lynchpin of Jim Crow era black labor control.

There are two aspects of the ‘New Jim Crow’ interpretation that make it superficially convincing. First, incarceration is a system of social control. Second, black men are incarcerated at disproportionately high rates. Here, for instance, is Acemoglu and Robinson’s chart for White, Hispanic, and Black male incarceration:

So it appears that there is a racialized system of social control, the present one analogous to the past one – a new Jim Crow.

However, there are some very important differences between the political economy of the mainly agrarian, Jim Crow penal system and the current, urban system of mass incarceration. If the penal system functioned as a system of social control in both eras, the aim of that social control was very different. In the Jim Crow era, the central issue was how to get formerly slaves to work for their former masters on the plantations now that blacks enjoyed a nominal freedom. As Eric Foner showed in his classic Nothing But Freedom, turning former slaves into an agricultural proletariat is the central political question of all post-emancipation societies. The shift from coerced slave labor to forced wage-labor is not a natural one, and emancipated slaves often have a different idea about the freedom they ought to enjoy than former masters. As Foner showed, in the Reconstruction South, blacks preferred just about anything to selling their labor to former masters. They engaged in subsistence farming, moved to cities, and in some cases – such as in Edisto Island – they occupied former plantations and ran the farms themselves, until the end of Reconstruction brought an end to their political and social power and land was returned to former slave masters.

Even under those conditions, former slaves were recalcitrant wage-laborers – the dull compulsion of economic need was insufficient to meet the labor needs of Southern employers. Foner details the way Jim Crow era criminal law was used not just to produce convict labor, but to eliminate all other employment options for blacks (self-employment, use of public lands, lynching of those who tried to leave, criminalization of vagrancy and debt). With no other economic options, ‘free’ wage-laborers were forced to sell their labor to former employers. As the Committee of the Freedmen of Edisto Island said, in their reply to the Freedmen’s Bureau, which had asked the former slaves to return land on which they were homesteading to its former owners:

“General we want Homestead’s; we were promised Homestead’s by the government…[but] the government Haveing concluded to befriend Its late enemies and to neglect to observe the principles of common faith between Its self and us Its allies In the war you said was over, now takes away from them all right to the soil they stand upon save such as they can get by again working for your late and thier all time ememies.”

This criminalization of a use of land (homesteading) that had been promised to slaves was, as theEdisto freedmen saw, a way of removing all options save ‘freely’ “working for…their all time enemies.”

So the main purpose of the penal system under Jim Crow was not to produce the directly coerced and cheap convict labor itself, though that was certainly a part of the regime of exploitation, but to produce a forced labor regime with nominally free labor. (Lest we think this was merely a Southern project, as Richard Bensel showed in Yankee Leviathan, the North was content with this new regime of controlled labor. Financiers were happy since it brought cotton back online – and thus foreign exchange to pay back debts and stabilize the dollar – and industrialists were now more concerned with the emerging problem of labor control, and increasingly troubled by the precedent set for the North by redistributing land and property to Southern freedmen.)

Robinson and Acemoglu thus mischaracterize the specific problem of social control in this period when they characterize the “practical problem” of Jim Crow in the following way:

“now that blacks were no longer slaves and could not be directly disciplined and punished by their masters, how should they be kept under control? Locking them up — when mob violence and lynchings didn’t do the job — seemed like a natural idea, but this would cost the state a lot of money, especially at a time when resources were scarce and the prison system was both underdeveloped and severely gutted by the Civil War.”

The problem was not a ‘general’ one of how to control free blacks, but a specific modality of social control: how to produce a docile agricultural proletariat. Though Acemoglu and Robinson are sensitive to the thought idea that underlying Jim Crow was a particular “extractive regime,” they miss the way in which Jim Crow was a kind of exercise in primitive accumulation. One of the key features of primitive accumulation is the use of direct coercion until the wage-labor/capital relationship is naturalized – at which point Marx’s famous ‘dull compulsion of the economic’ takes over. The political struggle, at least for a brief time, during Reconstruction was whether emancipation would mean real liberation – Jim Crow settled the question securely in favor of former plantation owners, and the criminal law was the central instrument through which wage-labor was instituted.

The social control problem of the 1970s was decidedly different. It was as much if not more Northern and Southern, it was as much if not more urban than agrarian – indeed the urban race riots of the late 1960s and early 70s were a key precipitating event, alongside racial mutinies on the front lines of Vietnam, the rise of the Black Panthers, and the civil rights struggle. But in the background, the key political-economic shift was not from slave to proletariat, but from proletariat to lumpenproletariat. The flight of middle class blacks from desegregating inner cities, deindustrialization, the loss of jobs in the North, and increasingly concentrated urban unemployment among black males produced a surplus labor population. The role of the criminal justice system in this context was to police an underclass, not make workers out of slaves. And it became increasingly so as other, more benign, modes of social control – like welfare, public housing – sputtered. This new carceral regime invovled the state taking on direct responsibility for control of a population now that it lacked a strong tie to economic life. And it did so by criminalizing one of its few economic activities: drugs. The war on drugs was the pivotal instrument for introducing this new form of social control. It not only massively increased the prison population, but subjected them, and urban black communities more widely, to the continual supervision of public coercive authority. The statistics are familiar, but here is a chart from the Bureau of Justice (h/t Kareem Reda for forwarding the image from the Sentencing Project)

Note that just as the use of convict labor dwindles the prison population explodes. Where during Jim Crow convict labor and the criminal law was an appendage of the wider, Southern agricultural political economy, in the new era of mass incarceration it is imprisonment that is the point. Being jailed or being threatened with imprisonment is the instrument for containing the problems left by the failure of society to deal with mass unemployment not mass unwillingness to sell labor. Put another way, under Jim Crow the point of criminalization was to create wage-laborers, under the drug war the point is to create criminals.

In both cases, there are/were better alternatives. The freedmen could have been given forty acres and a mule. Urban blacks could be given jobs (not to mention legalize drugs) rather than rap sheets. But in both cases, blacks needed the political support of non-blacks – always a real though fragile possibility. And in both cases, the penal system served not just to control black populations, but also to divide them from their potential allies.

What Middle Class?

11 May

Is the middle class doing worse or better since the 1970s? Depends, but if so, just barely. Is this the right question to ask? No. Let us explain.

Recently, a number of commentators have begun pushing back against the claim that the past thirty years have seen stagnating fortunes for the middle class. The claim comes from a variety of sources, perhaps most prominently from Piketty and Saez’s work on inequality. They have argued that median incomes have stagnated and that, from 1979-2007, the median income is up just 3% in real terms. But other mainstream economists think the data answers a poorly framed question. Meyer and Sullivan, two mainstream economsits, argue that “material well-being” for poor and middle income households has increased. Burkhauser et al. claim that if we look at post-tax and transfer household income, rather than pre-tax and transfer individual tax unit income, then the median household had seen a gain of 36.7% in their overall income.

Can everyone be right? Oddly, yes. The reason is that the difference here is not about the data – which we for the moment assume is more or less accurate – but the interpretation of the data. It is true that, as P-S say, the median, pre-tax and transfer individual median income is up just 3%. It is also true that, as Burkhauser et al. say, the median household post-tax and transfer income is up 37%, and that it is also true, as Meyer and Sullivan argue, that the material well-being of the poor is better than it was thirty years ago. That everyone can be right is only the beginning of the story.

Let’s take Meyer and Sullivan first. Note that material well-being or ‘standard of living’ can improve even as the poor take home a decreasing share of the overall social product. It is perfectly reasonable for Meyer and Sullivan to point out that economic growth over the past thirty years has made more high quality goods and certain amenities (like air conditioning) cheaper, and thus available to those who couldn’t afford them. It would be hard to imagine capitalism surviving if it did not improve material conditions. But this improvement in the standard of living is perfectly compatible with increasing exploitation of workers. At least since Marx we have known that immiseration is not an absolute but relative process. We can have increasing living standards for many, while those same many control less of their time than before. If $100 used to buy a black and white TV and now it buys an HDTV, then that qualitative improvement in material human well-being is perfectly consistent with stagnating compensation, declining bargaining power and more injustice. It might take only three hours for society to produce all the things I can buy with $100 rather than the four hours it used to. And so, if all I have is $100, my overall claims on society have been reduced, even if the quality of my goods have improved. Put another way, if originally I had $100 and GDP was $10000, and now I have $100 but GDP is $20000, then just because I have higher quality goods doesn’t mean that my fortunes are increasing.

It would of course be wonderful if we organized production for the sake of human needs, not profits. But it is pretty clear that is not Meyer and Sullivan’s interest in offering material human well-being rather than income and wealth as the measure of growth. Terry Eagleton once said that ideology works by being true in what it affirms but false in what it denies. It is true that standards of living have improved since 1970s, but it is false to think that refutes the concerns people have regarding inequality and growth.

Burkhauser et al. are taking a different tack. They argue that, if we want to know how the poor and middle class (whatever exactly the ‘middle class’ is) are doing, then we need to look at “real compensation.” We have to factor in not just pre-tax and transfer ‘market income’ but all the sources of compensation. After all, why should we care about what people take home before they pay taxes and claim benefits? Surely we care what households take home all things considered. And the real compensation by household has grown over the past 30 years, by about 37%. In fact, even in the worse period, from 2000-2007, while individual market income (pre-tax and transfer) declined by 5.5%, real compensation still grew by 4.8% because of elements of the tax code and public benefits, like welfare, earned income tax credit, unemployment benefits, and so on. Burkhauser supplies the following graph to illustrate his point:

Again, his own terms, Burkhauser is right. Real compensation has grown. Though note, two things. First, real compensation has grown very slowly: 1% per year, and has slowed to a near stop in the past decade. Further, “real compensation” has grown mainly because redistributive state measures have been large enough to cancel out declining individual wages and stagnating household wages. In other words, the market has been unable to produce jobs at the median level that compensate any better than they did thirty years ago (and below the median, real wages are decidedly worse.) Without progressive taxation and redistribution, real compensation would be down. In fact, the implication of Burkhauser’s data is that, for most people, the market has not created better jobs than thirty years ago. The bottom end is hanging on through transfers, not bargaining power and quality work. So when Burkhauser says “the notion that we as a society are not doing as well as we were 30 years ago, I think by virtually any reasonable measure, is just false,” this is not even true by his own measures. It’s certainly not true by the conventional conservative standard that people not be dependent on the state.

So far, we have just been considering the arguments on their own terms. In both cases, the authors do not prove that the economic situation over the past thirty years has been desirable or improving, which was their central intent. But that does not mean that the mainstream, default focus on median market income is still the right way to evaluate economic development. The median unit, whether it is an individual or household, is a narrow concern. It says nothing about class structure, how the worst off are doing, nor about economic possibilities and alternatives. For one, changes in wealth, not just compensation, are better indicators of class structure and advantage. In our society, it is wealth, especially financial wealth, more than income that confers security, greater bargaining power, and overall social power. And by that measure, our society is more unjust and exploitative. Recall this graph, showing decline in wealth for the lowest 60% of the population:

When we combine this graph, with some data on the actual distribution of financial (non-real estate) wealth, we are reminded why ‘median’ and ‘middle class’ are more ideological than they are analytical concepts.

Those who have no reasonable alternative but to sell their labor, as diverse a group as they are, still constitute roughly 80% of the population. These statistics suggest that behind ‘median’ income and compensation there is a much different distribution of wealth, and thus a different class structure than concepts like ‘middle class’ can make sense of.

We can ask even further questions – what kinds of jobs are being created, or could be created? Who controls job creation? Who has the freedom to ‘innovate’ and ‘create,’ and who serves the creators? An economy, after all, is never just about making new things, it is always about making new things under specific social conditions. Those social relationships always have to be reproduced, along with the goods and services that get produced. These are concerns about class structure and social power that mainstream economists are rarely interested in, but which cannot be dismissed by gesturing at living standards and compensation.

“A Populace Softened by a Market Rally”

19 Apr

Buried in an article on this week’s stock rally, the WSJ does some reasonable political analysis regarding public attitudes towards finance:

“Perhaps the biggest factor of them all is the market rally. The Dow Jones Industrial Average is up 12.7% in the last six months, 17.5% in the last two years and 97% from the crisis-era low in March 2009.

The recovery of wealth, leaving the market roughly where it was at the end of 2007, isn’t insignificant. Seventy-four percent of Americans who have yet to retire expect to tap funds they have in 401(k)s and other savings plans, while 40% will primarily use money invested in stocks and mutual funds. Even among those already retired, 30% draw most of their income from market sources, according to Gallup.

It’s only natural that people are feeling richer and less afraid. Reform Wall Street? Why spoil the party?

Tally all of it up and you have a populace softened by a market rally, distracted by home economics and lawmakers worn down by a record $474.1 million spent last year on lobbying by the insurance, real-estate, banking and securities industries.

Meanwhile, some of the protagonists are gone. Sen. Chris Dodd and Rep. Barney Frank have left the building. They both decided against running for new terms.

With resistance softening, it’s no wonder regulators are backing down and the president plays politics more than practicalities with his oil and tax policy.”

Of course, a 97% recovery of stock market values, and return to 2007 heights,  is not reflected in a 97% recovery of anything else. The unemployment rate remains 4% above where it was in 2007, and the upper 1% captured 93% of the growth during this ‘recovery.’  Why persistent high levels of unemployment, alongside stagnant wages and benefits, and and even more unequal ‘growth’ have not produced more social protest is still a mystery. Powerful Wall Street lobbyists can explain some regulatory changes (that’s the WSJ’s view), but not social passivity (very few Occupiers were retirees who had lost their 401(k)s…). It is conceivable that even very modest job gains are enough to give many hope that a recovery for everyone else is on the way. And that kind of hope might make many unwilling to rock the boat. But one suspects it has more to do with desperation mixed with the absence of a party or movement able to represent popular interests in a robust and sustained way.

Obama, The Economy and Upwards Distribution

17 Apr

A recent post by Matt Stoller over at Naked Capitalism drew our attention to one of Emmanuel Saez’s recent papers on ‘evolution of top incomes in the United States.’ Under Obama, the top 1% captured 93% of the growth since the recovery began in 2009. As Stoller observes, that’s 28% more than they captured under the 2002-2007 Bush expansion. It is also, on its own, reason to doubt whether it is reasonable to call the recovery anything like a recovery. Since 2009, the real incomes of the bottom 99% have grown 0.2%. (Saez does not break the data down any further.) Based on these numbers, the surprise is not the (momentary) phenomenon of Occupy, but that it was so short-lived and not more popular.

None of the economic data should be all that surprising since the lion’s share of the ‘recovery’ has been in stock market values and corporate profits (up 70-90% since 2009 Q1, highest since 1950), not employment, wages, and benefits.

Stoller explains this shift by Obama’s policy decisions, including his willingness to broker trade deals and stay the hand of regulations that might either impinge on the profits of the wealthy, or strengthen the bargaining power of the poor. And that may be some small piece of the puzzle. Stoller might have added the unwillingness generally among Democrats  to venture anything so radical as a public employment plan (public employment has in fact declined), or defend labor rights. But as much as we would like to blame Obama, there must be wider forces at play here, and we don’t just mean Republicans. The growth model itself, based on cheap labor costs, debt-financed consumption, and so-called ‘knowledge’ and ‘creative’ classes is what has stalled. That model, not just the banks, is what got bailed out, but it doesn’t do much of anything for most people. The upper end gets fantastically wealthy, throws crumbs and crust down to the professional classes, and the rest do what they can. Obama has surely done nothing to challenge the foundations of this economy, but then again, nor has anyone else.

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

10 Apr

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.

Interview with Hillel Ticktin

5 Apr

Following up on last year’s Current Moment interviews, today we are publishing an interview with Hillel Ticktin, Emeritus Professor of Marxist Studies at the University of Glasgow. An internationally renowned Marxist scholar, Professor Ticktin co-founded in the early 1970s the journal Critique.  He has published numerous books and articles over the years. In 2010, Critique published a special issue on the current crisis to which Ticktin and others contributed.

Eurozone leaders are going on record saying that the worst of the sovereign debt crisis is over. Are they right to be so optimistic?

No. But then, the Eurozone country politicians are not going to tell the truth as to what they think, as it would spook the markets. Without growth, it will be impossible to solve the indebtedness problem, and Germany is insisting on harsh terms for giving loans, so harsh that there will be negative growth. This is clear in the case of Greece, where the newspapers are talking of the need for a future Third Bailout. But in reality it is highly likely that other countries will require further substantial loans. While Portugal will not be too much of a problem, a Spanish or Italian bailout cannot be financed on present Eurozone funds.

Yields have fallen on sovereign debt as the European Central Bank (ECB) has injected over 1 trillion Euros of liquidity into the European banking system in the form of longer-term refinancing operations. How has the crisis changed the ECB and has the ECB been the saviour of the situation?

The ECB has clearly put off the day when the crisis will have to be faced down. Banks have acquired sufficient liquidity to avoid problems and have invested money in their governmental bonds. The rational solution would have been the issuance of sufficient Eurobonds which would be used to fund the various countries involved. Since the Eurobonds would be backed by the successful Eurozone countries, investors will buy them. The ECB has produced a temporary measure but the amount of money involved is insufficient. Until the ECB can act as the Central Bank of an independent country in order to issue as much liquidity as it sees fit, and can help to issue Eurobonds, it is not fit for purpose.

The European approach has combined the backdoor provision of liquidity to its banking system with a frontdoor assault on government budget deficits and on national labour markets. What is your assessment of this approach overall?

Crazy. It is not really a European approach so much as a Conservative policy supported by the UK Conservative party, the Christian Democrats and Free Democrats in Germany, the Republican Party in the USA etc. It is not supported by the social democrats in France or Germany. Hollande has made that very clear. Of course in practice the social democrats do not live up to their promises, but they would ease the situation and might be pushed further by popular pressure. The question is why such a policy is being adopted at all, given that it cannot possibly work, and indeed is not working. It looks as if a section of the bourgeoisie has decided to take the opportunity to attack the working class so far that they would end up with a 19th century approach to social relations. That, in turn, would ultimately destroy the social democratic parties and replace them with revolutionary left wing parties. Whom the Gods would destroy they first make mad.

A feature of the politics of the Eurozone crisis has been the replacement of democratically-elected governments with technocrats. This occurred in both Italy and Greece. Does this signal a trend of some kind, that economic imperatives are being placed above political ones for instance? And does it suggest that European integration today is really about preserving the Euro?

This is an inevitable feature of the present. Once the majority of the population began to turn to the left, as in Greece, the capitalist system itself began to be threatened. The use of the army is not possible at the present time. Nor is a far right popular movement based on the so-called ‘middle class’, So they have had the ingenuity to invent a new undemocratic category of a non-political government,  which makes a mockery of the Parliamentary system.  This is much like the idea that US judges of the Supreme Court are above politics when they pronounce on political measures, even though they have been specifically appointed for political reasons. It does not fool the working class but people may be grateful that it is not worse. Since it will not work, there will have to be even more undemocratic solutions. In the UK during the Great Depression, there was a National Government. In effect a coalition of all the large parties. The fact is that the Parliamentary system was already cracking, so this is another stake in its heart.

There is no question that ‘economics is being placed above politics’. The only rational way to run a union with a common currency is to accept that the richer areas will help fund the poorer areas, in order both to help them catch up but also to maintain cohesion, based on principles of human rights. European countries usually accept such obligations, unless they accept that parts of their country will break away. After all, Germany taxed the West Germans to help the absorption of East Germany. Today, however, the ruling parties in Germany, the Netherlands and Finland appear to reject such an approach. The reason ultimately lies in the fear of instability in those countries. So, economics is not really being placed above politics, depending on one’s definitions of politics and economics. Instead one politics is replacing another. The reason is discussed in the answer to the next question.

Is there an alternative to this approach of national budgetary austerity combined with a pan-European fund intended to offset any threats to Europe’s banking system.

As the current approach is being widely applied and is widely distrusted, and can only fail, there has to be another alternative if humanity is to survive, whether in or out of the Eurozone.

We are in a downturn of depression proportions. The last Great Depression only ended with the World War. War, on that scale, is however, excluded at the present time. The only way out of the present impasse is for a rationally planned economic reconstructive process, with governments playing a leading role. As the ruling class supports small government and the extension of private enterprise, it will oppose any such move. On the contrary, it is afraid that any attempt to go for reflation with government participation will lead to a political upheaval. In my view, they are right that the population will demand increased economic and political participation under conditions of full employment. That is in effect the immediate alternative, which is why the ruling class wants to take the opportunity, instead, to achieve a defeat of the working class of epochal proportions. Looked at this way, the policy of austerity is a defensive measure to preserve capitalism. Seen this way the policy is not crazy but rational, even if its application is mad.

The future is not as apocalyptic as it might seem from that last sentence, since the most likely result for the present is that the austerity policy will be pulled back, even if only by social democrats. Growth will be low, poverty increasing and discontent rising. Ultimately there will be a denouement, but when is not yet clear.

A European approach to the crisis

30 Mar

Largely because of electoral reasons, French President Nicolas Sarkozy has suggested recently that Europe is “turning the page” in its financial crisis. At a European summit at the beginning of March, he declared that it was the first summit since August 2011 not to have been a “crisis summit”. A few days ago, he declared the financial crisis over.

There is certainly a sense that the urgency and the gloom of 2011 has lifted in early 2012. The risk premium demanded by investors to hold the government bonds of countries like Italy and Spain has fallen considerably and stories of bank runs and Eurozone atrophy have fallen away. It is worth asking then what has been Europe’s approach to its crisis and whether we right to think it has been an adequate response.

Two features stand out. The first is the emphasis – policed by European institutions and formalized in the EU fiscal pact – on budgetary austerity and labour market reforms. Cutting government spending has become the prime goal of national governments across Europe, closely followed by reforms of national labour markets. Budgetary austerity runs across all the Eurozone: from the Netherlands where pressure to cut budgets looks like it will bring down Mark Rutte’s coalition government, to the UK, France and elsewhere, not least in Greece where it has been the basis for a fundamental assault on the country’s social fabric. National labour market reforms have been pushed mostly in the southern European countries: Greece, Italy, Spain, Portugal. There has been some change in Northern Europe: in France the retirement age was raised and the Sarkozy government has argued for shifting the burden of social security contributions from employers onto taxpayers in the form of a “social VAT”. Elsewhere, labour market reform is deep and painful and may yet lead to an unravelling of the alliance between national technocrats and EU-backed reform. But the sense in Italy, where Monti is fighting the unions, and in Spain where Rajoy faced down a general strike yesterday, is that changes will go through.

The second feature is the backdoor use of taxpayer Euros to prop up the continent’s financial system. Whilst the public assault on spending programs and on labour market regulation is an explicit policy of European governments, this latter feature is more hidden. It is nevertheless a key element in the European approach to resolving the Eurozone crisis. It has two elements to it. One is the commitment to European sovereigns in the form of the “bailout bazooka”. In an angry letter to the Financial Times last Wednesday, Klaus Regling, chief executive of the Luxembourg-based European Financial Stability Facility, took issue with the description of his Facility as a “toy gun”. He pointed out that in fact the sum of the bailout provisions provided by European governments is considerable: almost 1 trillion Euros in total has been disbursed since the start of the crisis. This includes the two bailout packages for Greece, the write-down of Greek debt (the so-called Greek private sector involvement operation), the Irish and Portuguese bail-outs, the European Central Bank’s secondary market purchases, 250 billion Euros of uncommitted EFSF resources and promise of 150 billion Euros to the IMF.

The second element is something Regling didn’t include in his list, namely the ECB’s longer-term refinancing operations (LTRO). These operations have been in two stages, first last December and again in February of this year. In essence, LTRO has involved the ECB in providing cheap three year loans to banks. This was intended as a way of injecting liquidity into the European banking system so as to avoid any bank collapsing altogether. Over time, the hope is that this liquidity will work its way into the real economy in the form of bank loans to business. The amount of liquidity provided by the ECB is huge: 1.019 trillion Euros in total.

Taken together, the European approach to the crisis has been to mix frontdoor assaults on government spending and labour laws with a backdoor taxpayer-funded bail-out of banks and of embattled sovereigns. There are two, deeply troubling elements contained within this approach. The first is the hypocrisy: a focus on austerity on the one hand and the provision of largesse on the other. The only way to understand this is as a massive wealth transfer away from taxpayers. It isn’t as simple as saying that cuts to social security provision are being used to fund the bail-out of banks since some the bail-out money has gone to pension funds who have faced serious losses on investments in southern European countries. But there is a wealth transfer at work that reflects a balance of forces within society and the transfer is not towards European labour.

The second is the doubt about whether throwing more money at the financial sector can really solve a more endemic problem. Debt-fuelled growth was a characteristic of the years leading up to the crisis: either government-debt in the case of southern European societies or private debt in places like the UK. The idea that issuing more debt can lift Europe out of the crisis seems ungrounded. More likely is what we are seeing: banks that have taken up the offer of the ECB’s loans have parked them back at the ECB rather than using them as a basis for a renewed round of lending to business. The economics of the European approach seem naïve, the politics are just plainly anti-labour.

Freedom in the Economy 2: Cooperative Control

14 Mar

In a previous post, we defended a universal basic income as a freedom-enhancing economic policy. Such a proposal seems to be of the moment. Peter Frase and Mike Konczal discussed it, built off a post Frase wrote defending a basic income and discussing a convergence between right-wing and left-wing defense of it. Despite the apparent convergence between Left and Right, we suspect a potential divergence is on the surrounding economic conditions (h/t Suresh Naidu on this difference). There are many good things about a universal basic income, but it has its limits. For one, a universal basic income is a lot more freedom enhancing if loads of public goods are already provided – roads, primary education, universal healthcare.

More importantly, a basic income is a good but limited instrument for securing economic freedom in workplace relations. It raises bargaining power, and makes it materially possible to exit work. But the freedom to leave work is not fully guaranteed by a basic income, nor is freedom to leave work all there is to freedom in and at work. Some recent debates between Corey Robin (followed up here) and libertarians, especially Jessica Flanigan at Bleeding Heart Libertarians, and a reminder of a post ‘against jobs’ by Peter Frase, have drawn attention to just this point. It is obvious that having the economic means to leave a job, or at least being able survive for a while without a job, does not remove some of the most significant obstacles to leaving a job. We can use economic language and call these ‘sunk costs’ or simply use common sense and point out that spousal employment, schools for one’s children, family networks, social commitments, expertise and re-training requirements, can all majorly raise the cost of leaving a job. Even on its own terms, a basic income might be insufficient to secure the conditions necessary to allow workers to leave a job, or at least make threats to leave credible enough to put off domineering employers.

But that is not even the most significant point, as it is still a matter of how to think about whether or in what ways we are free to leave a job. The deeper point is that the forms of domination and unfreedom that can exist in an economy are heterogeneous and variegated. A basic income, and the freedom to leave and choose among employments, is a crude way of securing overall economic freedom. After all, though a credible threat a worker makes to leave employment might very well forestall some kinds of abuse, it is something of a nuclear option. If the only way to resist coercion in the workplace is by threatening to leave then it is not all that hard for the employer to call the employee’s bluff, especially when many actual cases of coercion are minor. One suspects that, when the main way of guaranteeing freedom from coercion, abuse and intimidation is by threatening to leave, workplace relations become more antagonistic and conflictual. When all you have is a hammer every problem is a nail. If most problems that arise in the workplace fall below the threshold of needing that hammer, there is little for the worker to fall back on. Unless that worker had voice, not merely exit.

Moreover, even if a basic income can create less unequal bargaining power between employee and employer, it is impossible to write contracts that specify all the relevant conditions. Contracts are inherently incomplete for reasons of imperfect knowledge. A million decisions arise in the workplace itself that could not be predicted. The question then is who should have the rights to control these decisions? These ‘residual rights’ as the economist Oliver Hart called them, can be organized so one person monopolizes them, or they could be distributed more democratically. That is to say, the point is not merely that workers should be free to say what they want, there should be power behind their voices. That is a conventional defense for unions, but onecan take the argument further. It is the idea behind cooperative organization and control of work itself. Workplaces in which the assumption of a labor contract is not that you pick your master, but that you become a co-operator, allow workers to enjoy kinds of freedom that simply are not available if their only option is to stay and serve and employer, or leave and serve a different employer. It is only in this way that each can exercise equal power in the day-to-day structure and operation of the workplace.

A final word in defense of basic income despite its limitations. Workplace cooperatives without a universal basic income would be considerably worse than those when each has a basic income. That is because in cooperatives there will be majorities, not unanimities, and the subtler pressures of public opinion. It is always necessary that any individual be able to leave those conditions. Though one suspects those forces would be weaker, and workers more willing to exercise their control rights against popular opinion, if they enjoy the economic security of a basic income. So if a basic income deals with only one dimension of economic freedom, it is also supportive and supported by other dimensions. All in all, though, there is good reason to think that economic freedom is not exhausted simply by guaranteeing non-coerced contracts. How the workplace is organized, who controls daily decisions, is also its own, distinct question.

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