Archive for May 4th, 2011

The Plague Of Fantasy Politics

Mr. Jean-Claude TRICHET, President of the Euro...

A Helping Hand

As requested by an ILR reader, I have published further down this post a translation of the Vicenç Navarro article I cited in the May Day International piece.

Funny enough, there is a Vincent Browne piece in today’s Irish Times that touches on some of the same matters. In it he has a go at assorted leftists, and popular bankers, advocating default. His remedy is basically for Ireland to be brought to a point where the state collects a proportion of GDP in taxes comparable to other Eurozone countries. He advocates wealth and income redistribution, but gives no indication as to how that might be achieved. Presumably the mechanism by which it would be achieved would be through the legislature. But he doesn’t say how a right-wing government with a massive majority would decide to do this in advance of sovereign default happening.

He cites the ‘incalculable’ risks of default. But has anyone tried calculating them? Any time I hear people talking about what might happen if there was a default, I never hear any talk about contingency plans in conjunction with the calculation, that is, what ought to happen if the ECB decided to do x, y or z as a result, what and who would need to be protected, how would this best be achieved, what sort of social formations would be needed to cope with the consequences, and so on.

What is most disconcerting, on what passes for debate about default, is that it tends to assume that the existing array of government officials and advisers will act on behalf of the people in this regard, or, at the very least, that these can at least be put in a position where the only actions they are able to take are those commanded by the people. When this assumption is declared to be faulty, the discussion is supplemented by the idea you can bring in some crack team of capitalist true believer popular banking experts who will turn the tables on the ECB.

Don’t get me wrong, I totally oppose the payment of any private banking losses laundered as sovereign debt and fully support the repudiation of illegitimate debt in the process advocated here. But this is something altogether different from the way the discussion of default is framed, day in, day out, in fantastical terms that divorce the whole question of payment from the questions of politics and power, and serve to mask the basic matter of the socio-economic system that has produced the current crisis.

I mean, if the ECB would decide to sink Ireland, doesn’t that say something about what the function of the ECB is? And wouldn’t any decision on default, and the public debate that preceded it, have to take into account this function in explicit terms? Consider this sentence from the Irish Independent: ‘ECB president Jean-Claude Trichet has extended a helping rather than a grabbing hand to this country.’ At what level of chronic idiocy does public discourse operate when someone can get away with writing a sentence like this in a national paper?

Under the conditions being engineered through the EU-IMF-ECB bailout, the power of the owning class relative to the working class is growing, not dwindling. So, returning to what Browne is advocating, where is the political will (I’ve changed my mind on the validity of this term) going to come from, so that a government is going to legislate for redistribution of wealth and income, given that the conditions of the bailout militate against legislative measures of this kind, and given that neither the incumbent government nor the likes of IBEC and the US Chamber of Commerce, nor the ruling class defined more broadly, shows any appetite for doing anything of the sort (and why would it ever?)? What sort of collective action would be needed to bring about this situation? To my mind it would require a radical transformation of Ireland’s society and political economy. I think this would be an excellent and necessary thing, but we need to be realistic about the odds and not entertain the pretence that a conservative government backed by a conservative ruling class has the potential to take radical action. The only suasive power that this argument has is its power to demobilise.

On to Navarro’s article, translated below.

This article analyses the characteristics of the peripheral countries of the Eurozone (Portugal, Ireland, Greece and Spain, the result of having similar histories. All of these have been governed by profoundly conservative forces during the majority of the 20th Century, and this explains how these countries have very poor states, with highly regressive and scarcely redistributive fiscal policies, and a low social spend. The article points out that these are the causes of their economic stagnation.

What are the characteristics of the peripheral Eurozone countries that today have the greatest difficulty in recovering and exiting from the economic crisis, in which they have been submerged for more than three years? To answer this question one has to understand what it is that these countries, known pejoratively as PIGS, have in common. And the answer is easy to see: they have all suffered totalitarian or authoritarian governments, extreme right or profoundly conservative, across many years. In these countries, the conservative forces were, during a large part of the 20th century, the dominant forces in their political and economic life.

Spain is an example of this. For 40 years it was governed by an ultra-rightwing dictatorship that was characterised by enormous repression (for every political assassination carried out by Mussolini, Franco carried out 10,000) and extremely low social concern. This dictatorship (which was principally of a dominant class against a working class and other components of the popular classes) ended in 1978, after a makeshift transition from a dictatorship to a very incomplete democracy. This transition was made under the auspices of the conservative forces that controlled the main apparatuses of the State. There are many examples of this. In no European country, for example, would it be conceivable that a magistrate could be sanctioned by the Supreme Court for wishing to investigate crimes carried out by the dictatorship that preceded democracy. And in no other country of the EU-15 are State exchequer receipts as low as in Spain; only 34% of GDP, compared to 44% in the EU-15 and 54% in Sweden [Ireland’s is below Spain, according to Vincent Browne’s article in today’s Times, citing Eurostat figures for 2010 – HG]. The Spanish state is poor (part of the State’s rigidities are based on its poverty) and very scarcely redistributive. In reality, it is the least redistributive in the EU-15. And it is among those that treats capital gains and higher incomes very favourably. This also occurs to a greater or lesser extent in the other PIGS.

This poverty of the State has many consequences. One of these is the underdevelopment of their welfare states. When the dictator died, Spain had, by a long way, the lowest public social spending in the Europe that would become the European Union. Much has been done since. But Spain still has the lowest public social spend per inhabitant in the EU-15, which is, Spain is the country where less is spent per capita in health, education, social services, social housing, family assistance, infant schooling, domestic services and the prevention of social exclusion. To define these countries as exuberant in their public spending, as neoliberal theses maintain, is a falsehood, easily shown by looking at the data. However you look at it, Spain and those other PIGS countries are at the tail of Social Europe. The percentage of the adult population that works in public services in the Spanish welfare state (health, education and social services, among others) represents only 9%, the lowest percentage in the EU-15 (whose average is 15%).

But another consequence of the poverty of the State is its indebtedness. If the Spanish state took in what the average in the EU-15 is, it would need to get into a lot less debt. So, if Spain, instead of having been governed for 40 years by an ultraconservative dictatorship and for 30 years by a State in which conservative forces have remained very strong, had been governed by the greater part of this period (1939-2010) by the left, as has been, for example, Sweden- the Spanish state (centrally and regionally) would take in 200 billion euro more than it does now, allowing for a much more developed welfare state (applying the percentages of taxes, public spending and public employment of Sweden to Spain), with which unemployment, which stands at four million, would have disappeared. In reality, the high unemployment rate in Spain is largely due to the low amount of public employment, caused by a meagre public spend, the result of a regressive fiscal policy.

But what is even more important is that these 5 million new jobs would have resolved the enormous problem of the lack of economic recovery as a consequence of insufficient demand. It is this scarce demand (a result of high unemployment) that maintains the Spanish economy stagnant, and makes deficit reduction more difficult. Other countries such as Brazil and Argentina have shown that the best way of reducing the deficit is through economic growth, the result of a public spending stimulus directed to the creation of employment. And this was what Lula advised the Portuguese Prime Minister.

Spain has the resources to generate this employment. The problem is that the State (centrally and regionally) does not collect them. And there is the problem. The enormous domination that conservative forces enjoy in Spain explains why the Spanish state responds to the crisis by cutting public spending, instead of growth from such spending and public employment, financed by a greater fiscal burden on those that benefited most from the neoliberal policies imposed in recent years. This is the reality, rarely discussed and analysed in the country’s economic and financial forums, where the conventional wisdom is generated and reproduced, and promoted in the main news and persuasion media.

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