Have we managed the crisis well?
The best that can be said is that we have managed the crisis better than they did in the 1930s. This time governments did not cut spending as tax revenues plummeted. This time, at least in the EU, we have had welfare states to provide social security and some active labour market policies instead of the mass poverty and unemployment of the 1930s.
The irony, of course, is that prior to the crisis, high public spending and our relatively strong welfare states in Western Europe at least were widely portrayed as barriers to competitiveness and better economic performance. Yet in the crisis, they have demonstrated their value in providing stability, and are now celebrated as ‘automatic stabilisers’.
So we have done better that we did in the 1930s. But there can be no room for self congratulation or complacency. As Martin Wolf said in the Financial Times of December 30 – we have prevented the patient from dying, not returned it to health. The global economy is very fragile and in many countries problems will get worse before they get better.
Unemployment continues to rise in most countries, with young people especially hard hit. Whatever the economic technicalities, no end will be seen to the recession in the popular mind until unemployment is falling and falling quickly.
Action to give all Europe’s unemployed young people a guarantee of jobs, education or training is now a very urgent priority. We risk driving many young people to despair with all the personal and social consequences which come from that. I pick out one – the growth of racism and the risks of conflicts with blameless immigrant and migrant workers. This risk increases with rising unemployment and deprivation.
A second problem is that we have very high public borrowing – not because of fiscal irresponsibility but because of massive failure in the financial services world. Many are worried by the levels of public debts being incurred and there is pressure to adopt exit strategies. Yet high public spending must continue in 2010 and for as long as the private sector remains flat. We must hold our nerve, not panic, and we must reject premature pressures to exit from applying the stimuli. The last thing we need is a tough round of public spending cuts which could well turn recession into depression. Indeed, we need an entry strategy to bring in new industry and labour market policies when the macroeconomic stimulus programmes are being eased down, policies which facilitate entry, or re-entry, into jobs and a greening of the economy.
Next, despite huge support packages, the financial system is still in a deep trouble, and it is clear that governments are not yet sure how to reform it. The sector is pressing hard for a return to business – and bonuses – as usual, with some success, blackmailing governments that it will emigrate if subjected to tough new rules.
In contrast, the ETUC is pressing that “never again” can this sector be allowed to inflict such damage on the world’s economy. Effective regulation at European and world levels is essential so closing off loopholes and tax havens. Getting all this right is proving a difficult task but it is essential that this becomes a top priority in 2010. The adoption of a transaction tax on financial services would be a big step in the right direction.
The economic crisis is a moral crisis too. The system of short-term deal making has been swamping the social market economy. It needs to be curbed by changes to corporate governance and accountancy practices. Companies should be responsible to all their stakeholders, not just shareholders. The present system lacks solidarity, increases inequality and is not sustainable.
This is not just an economic and moral crisis. There is also the crisis of global warming which was wholly inadequately addressed in Copenhagen. There Europe found itself marginalised as four large countries drafted the communiqué. We were not apparently in the room. This was a European failure and we need to assess why we were left on the sidelines in Copenhagen when we claim to be a leader in environmental matters.
Finally, this example highlights the need for a stronger EU. We need an effective EU-wide recovery plan focused especially on guarantees for young people and precarious workers; on industry and research and development policies to sustain manufacturing in the EU and to green our economy; and an effective social dimension which gives workers and others confidence that Europe is not just a single market for business, but is for people too.
And, as President Van Rompuy said on Monday, if Europe cannot improve its growth rates, then we are heading for less influence on world affairs in general as well as facing the problem of sustaining our welfare states and public services.
So, there are absolutely no grounds for complacency or self-congratulation. Thank heavens that we did not follow President Hoover and the other leaders of the 1930s. But the foundations of the global economy have been shown to be dangerously fragile and we are a long, long way from being out of the crisis.