Poor recovery, high costs
The Great Recession shows no clear signs of ending, but conservative solutions to it have already wrought great long-term social damage.
Has the world economy begun firmly and unambiguously recovering from the Great Recession, the worst global economic slowdown since the Great Depression of the 1930s? Two years on, the answer would appear to be, not quite; the repair is incomplete, uncertain, fragile and reversible. Many perceptive economists do not rule out a “double dip”, a second sharp fall in output in the industrially advanced OECD countries.
Most of the long-term factors responsible for precipitating, first, the financial crisis of September 2008, and then, the great global economic slowdown are still in place—except that the banking system has been partially rescued by huge government bailouts and some economies like Germany have seen unemployment fall. The OECD governments’ ability to stimulate their economies is limited as much by factors like the prevailing ultra-low interest rates as by their reluctance to take bold, radical, thorough-going measures, as opposed to timid semi-cosmetic steps.
...leaders of the world’s major economies have missed the opportunity offered by the Recession to give a new direction and thrust to economic policy by making a decisive break with neoliberal dogma.
Meanwhile, the Recession’s social costs continue to mount, with 220 million people unemployed worldwide, 34 million of them since 2008. The employment prospect in the OECD in particular is bleak. The International Labour Organisation’s latest forecast says they would have to wait until 2015 to regain the level of employment before the crisis and concludes that this delay would increase social tensions: “In the 35 countries for which data exists, nearly 40 percent of jobseekers have been without work for more than one year and therefore run significant risks of demoralisation, loss of self-esteem and mental health problems.” As much as 50 percent of OECD jobs are precarious.
Whatever the uncertainty about the short-term prospects for global growth, three things are clear. First, the leaders of the world’s major economies have missed the opportunity offered by the Recession to give a new direction and thrust to economic policy by making a decisive break with neoliberal dogma. They could have used the trillions of dollars pumped into the financial system to create a large-scale public banking system through nationalisation, which would make far-reaching investment decisions and transform the overall allocation of resources.
They did not, and allowed private banks to return to their speculation-obsessed ways and absurdly high bonuses for top executives. They could have launched the international equivalent of a Roosevelt-style New Deal through a massive public works programme to rebuild and renew the social and physical infrastructure based on climate- and people-friendly quasi-collectivist principles.
For instance, they could have redesigned and redone urban roads so as to discourage private cars and prioritise efficient, low-carbon, clean, public transport. They could have restructured cities by building a new environmentally sound and socially equitable relationship between workplaces, residences, mobility and telecommunications. They did not.
Secondly, global economic cooperation, which seemed impressive two years ago, is giving way to rivalry especially over currencies, and new crises are arising, such as sovereign debt problems in many economies of the European Union’s Southern flank. The currency rivalry has already taken the form of sharp political exchanges between United States and Chinese leaders, with mounting pressure on Beijing to allow the yuan to appreciate on pain of high duties on Chinese exports.
In general, there is a drift to the staid and conservative policy approaches that the OECD leaders are familiar with. The West is compelled to acknowledge the pivotal role that China can play in a global economic recovery, with its $3 trillion foreign reserves, and the positive effects of its $580-billion stimulus. Indeed, the dominant intellectual discourse and mood in Europe, as I discovered during two recent visits there, is deeply pessimistic about the prospects of slowing down, leave alone, reversing, the West’s seemingly inexorable decline and the rise of China, India and other powers from the Global South.
Yet, the OECD countries are loath to increase these countries’ share in International Monetary Fund quotas beyond a measly five percentage-points, which does not reflect their true economic weight. It is also part of the same drift that the “emerging economies” fight shy of demanding more.
Third, and most important, the bulk of the burden of the effort to resolve the economic crisis has been passed on to the people through greater poverty, unemployment, social exclusion and huge cutbacks in public services and welfare benefits. As the recommendations of the Asia-Europe People’s Forum in the government-level Asia-Europe Meeting 8 in Brussels in early October (in which this writer participated) put it: “The gap between the rich and the poor is widening, and access to resources, livelihood opportunities and basic services remain grossly unequal ….
Despite the policy failures of trade liberalisation, market deregulation and privatisation, governments continue to ignore the growing tangible consensus for fundamental policy change. Instead of fulfilling the needs of people and reinvigorating local economies, hundreds of billions of dollars have been mobilised to save the banks and financial system, while essential social services remain under-funded and threatened.
This is starkly obvious in countries like France, Spain and Portugal, besides Britain, where the Tory-Liberal Democrat government is applying a 25 percent cut in government spending. In France, President Nicolas Sarkozy has announced a series of anti-welfare measures, such as raising the age of retirement from 60 to 62 years and delaying full retirement benefits till the age of 67, on top of lengthening the working week from a landmark 35 hours. He has also unleashed a xenophobic campaign by summarily expelling the Roma (gypsy) minority, one of Europe’s most impoverished and vulnerable groups. A spate of protests broke out in more than 300 French cities, including a three million-strong demonstration in Paris and strikes by public sector and transport unions.
Parts of Western Europe are returning to the social unrest and the politics of protest that marked the 1960s and 1970s—except for one big difference. The power of corporations and Big Business is incomparably greater today than 30 years ago, while the forces of the Left are much weaker and more divided. In consonance with this is the role of the IMF in imposing neoliberal policies on the OECD’s debt-trapped economies much in the manner it did in the 1980s onwards in the Global South. This is a cruel irony in respect of an institution which got widely discredited with the Asian financial crisis of 1997-98, and which found very few takers for its loans until only a few years ago.
As the AEPF declaration says on corporate power: “Despite existing laws, regulations, standards and mechanisms, governments have failed to prioritise human rights, environmental security and labour rights, over the profits of companies. There has been a lack of political will in implementing regulation and establishing redress mechanisms for companies operating in, and beyond their territories. Companies and businesses have used their expanded legal rights and exceptional access to decision-makers to aggressively push for policies that open up new markets and allow access to raw materials regardless of the social or environmental costs.”
The declaration further states: "The consequences of this corporate domination are experienced in the lives of millions of women, men and children …. This has led to a hollowing out of democratic accountability as elites make decisions and implement policies with little or no scrutiny from citizens, creating the conditions for poverty, inequality, environmental devastation and growing social unrest."
The Recession is one component of the multiple crises that grip the global capitalist system: an energy crisis (slow growth of non-fossil energy sources even as fossil fuels get rapidly depleted), a climate crisis (reflected in rapid and dangerous alterations in the delicate balances in the globe’s climate system which threaten the earth’s survival), a crisis of social reproduction (a huge disproportion between livelihood needs and the ability to provide and sustain them), a crisis of political legitimacy (which once-stable governments are fast losing), and a crisis of global governance (paucity of institutions that can provide real leadership and develop a consensus on the international distribution of power and orderly management of relations between states).
Militarism, nuclearism, Islamophobia and war-mongering flourish amidst strategic insecurity and instability as political crises fester in West Asia (Palestine, Iran) and Southwest and Central Asia (Afghanistan, from where the United States is preparing to withdraw, leaving a veritable mess).
Not least, there is a crisis of ideas—the erosion and growing absence of visions of collective survival and living together within the existing system. Put simply, capitalism is in a civilisational crisis. It is no longer able to offer a democratic, inclusive and liberal platform or agenda that can appeal to large numbers of people or persuade them that they have a future in bourgeois society other than one of disempowerment, marginalisation and social and political disenfranchisement.
In retrospect, the Golden Age of Capitalism (1945-1973) looks like an aberration in its three centuries-long history. Capitalism’s neoliberal avatar cannot even remotely hope to reproduce anything like the building of the infrastructure, generalised spread of prosperity, and establishment of a system of social security of the Golden Age. Indeed, it manifestly lacks even such a goal.
One of the greatest casualties of the present crisis is the European social project, of establishing a comprehensive system of basic entitlements and social protection for all, along with democratically legitimate states and a fairly high degree of political inclusion. This model is under sustained attack by what has been called the Demolition State. The core of the model has eroded in countries like Sweden, which pioneered it and carried it to its apogee, as well as many poorer states of the EU like Greece, Spain and Portugal, not to speak of the more recent entrants from Central and Eastern Europe. Even where it survives substantially, e.g. Germany, it is under threat.
EU leaders cannot summon up the will to return to the Social Democratic orientation in which the social project was anchored. They have become prisoners of corporate power and cannot think of raising taxes on the rich to the levels of 75 or 90 percent (on top brackets) prevalent until the 1980s, imposing a financial transactions tax, re-regulating banking and finance, or promoting Decent Work as defined by the ILO, leave alone supporting a just international trade and investment system, making corporations globally accountable, or concertedly fighting climate change.
EU leaders have turned the Union into a neoliberal and undemocratic entity through the Lisbon Treaty and embraced the lazy option of a “Global Europe” through “Competing in the World”, as the EU’s 2006 growth-and-jobs strategy is called. This means business as usual along neoliberal lines at home, while drawing more and more Southern countries into free trade agreements (FTAs). India is supposed to conclude an FTA with the EU by the year-end. This will have harmful consequences for fragile livelihoods in agriculture, industry and services including retail trade, and in raising the prices of medicines and seeds through monopolistic intellectual property protection.
The two dominant approaches being advocated to resolve the crisis in Europe are market-based self-regulation (which caused it in the first place), along with a limited stimulus through doleouts; and a short-run weak Keynesianism which recognises that markets are not self-regulating, but quickly yields to neoliberal policies as soon as there is a recovery in GDP growth, no matter how poor its quality and effects on poverty and unemployment. Both these will leave the fundamental causes of the multiple crises unresolved. Indeed, they are both a recipe for worse crises in the future as the state fails to regulate industrial and financial capital and to restructure fiscal and monetary policies, and becomes further indebted and gets locked tighter in capital’s grip.
However, there is an alternative. It consists in radical, foundational change which aims to transform the economic system on a post-capitalist basis. This means giving centrality to universal social protection, strict regulation of capital, redistribution of income and wealth within and across nations, and creating a new global reserve currency system while restructuring the international financial institutions to make them accountable to and representative of the global public. It entails supporting just and fair trade and investment, putting FTAs on hold, abolishing tax havens, making corporations accountable to governments, writing off developing country debt, protecting the public’s right to food and water, and working for climate justice while stabilising greenhouse gas emissions at a low level. It also means promoting Decent Work, and guaranteeing universal access to social protection, job security, healthcare and other essential services.
This agenda is undoubtedly ambitious. But the crisis demands nothing less. The choice, as Rosa Luxemburg put it decades ago, is between Socialism (a just, humane post-capitalist society) and Barbarism (continuation of capitalism in its most degraded, misanthropic avatar ever).