Konventum, Helsingor, Denmark, 07/06/2010
Last time, I came to a SAMAK event, it was in Oslo and the hot topic was a self critical examination of whether Nordic countries could have done more to handle the effects of the Asian tsunami which killed thousands, including hundreds of Scandinavians.
This time, as we meet, we are considering the effects of a financial tsunami, which has exploded on the world in the past two years or so, causing widespread devastation. And this time, as we reflect on the crisis, we must ask as social democrats why in general is it the right which is succeeding, and the left which is struggling to obtain popular support.
After all, this should be the left’s moment; financial capitalism, which after 1989 sought to crush the power of the state and make it subordinate to market power, has had a heart attack.
It is not a fatal one and the patient shows every sign of wanting to get back to business – and bonuses – as usual. But the life support has been provided in most countries by the taxpayer (although Iceland, Ireland, Hungary and the Baltic States did not have this choice and had to cut immediately). Elsewhere, billions perhaps trillions have been committeed to bail out the banks and others, with the inevitable consequences that the public finances are weak, and now we know, vulnerable.
Now the markets have moved to attack sovereign debt, focussing on the weakest economies in the EU. But the effect of these attacks has been not only to affect the weakest but also the strongest. I was in the Netherlands on Saturday and the General Election there is now about major cuts in public expenditure, with the opinion polls favouring those who have embraced austerity programmes with the most enthusiasm.
The ETUC has been warning – we saw President Barroso on Friday – that slashing spending while still suffering from low growth and high unemployment is crazy. It’s what leaders did in 1931.
The ETUC has been warning – we saw President Barroso on Friday – that slashing spending while still suffering from low growth and high unemployment is crazy. It’s what leaders did in 1931.
It will deepen the slump and aggravate unemployment. It will do little to improve the budget outlook, because a weaker economy depresses tax receipts and wipes out any gains from governments spending less.
Far from appeasing the markets, the cuts deepen market gloom, as Spain is finding out. The fact is that markets are looking for growth prospects and the cuts will kill growth.
That OECD, IMF and G20 are encouraging cuts and the cancellation of any more stimuli packages reflects badly on them.
In 2007/08, the leaders of the world did not do what President Hoover and the others did in 1931, they did not impose simultaneous cuts in public expenditure so contributing to a repeat of the Great Depression; two years ago, they bailed out banks, kept spending up and, in some cases, introduced stimuli packages. They were exemplary Keynesians.
But now, they are, with the important exception of the USA, doing what President Hoover did in 1931. And the markets are again asserting a paramount influence over economic policy.
And is it a coincidence that the three eurozone countries most under pressures are the only three with Socialist governments? Generally I am not a conspiracy theorist but at the margins I suspect these things matter.
And the polling from the Netherlands and Germany suggest that austerity, however unacceptable in Southern Europe, is attracting political support, despite the pain it will inflict. The UK General Election pointed the same way.
This pre Keynesian reflex, this instinct in the North for balanced budgets is not new. After all, in Hamlet, Polonius advised his son in that famous play centred, of course, here in Elsinore “neither a lender nor a borrower be”. I blame the Danes for inventing austerity packages.
I return to my first question, and add another.
First, why is the left not benefitting from this crisis? And what can we do to change the direction of the tide in our political favour?
First, why is the left not benefitting from this crisis? And what can we do to change the direction of the tide in our political favour?
Is it that the left is associated with high taxes and public services which are not always seen as operating at optimum efficiency? Is it that the third way died in vacuity and even derision with President Clinton’s falling reputation and, in the UK, with New Labour’s capacity for new thinking constrained by its romance with business, especially finance, and the dysfunctional relationship between Tony Blair and Gordon Brown?
Yet the elements for Left success are there – that markets operate successfully only when embedded in communities, that trust and co-operation are essential to a market economy, that the driving force of innovation is pluralism and experiment, not greed and monopoly, that corporations acquire legitimacy only from the contribution they make to the societies in which they operate, that the European and international dimensions are essential and that advocates of nationalistic responses and excessive market liberalism alike need confronting, and that strong, responsible unions are an essential counterweight to stop executive excess and bad corporate behaviour.
Specifically, now is the time to argue for a European Recovery Plan to boost spending on Research and Development in green technologies, and on special measures of education, training and work experience to reduce youth unemployment. Now is the time to regulate financial markets effectively and introduce a new Financial Transaction Tax.
Now is the time to fight for a more co-ordinated, social Europe where collective bargaining is not subordinated to market freedom. Social progress, not social undercutting, not social dumping, is the way forward for the left and for all working people.
Now is the time to fight for a more co-ordinated, social Europe where collective bargaining is not subordinated to market freedom. Social progress, not social undercutting, not social dumping, is the way forward for the left and for all working people.