People's Democracy

The European Economies And The Pangs Of Globalisation

S M Menon

IN the perception of the globalisation camp, France is the one advanced capitalist country that just refuses to change its ways and learn the tricks necessary for flourishing in the new order. All through the month of March, the French lived up to the role they have been cast in. After a cycle of dispersed but still massive demonstrations through the month, labour unions, student bodies and a number of other organisations, united on March 28, 2006 for a demonstration involving upto three million people in the main cities of France. It was an unequivocal signal of mass discontent at new labour legislation introduced by the French government. Called the “first jobs contract”, the law would have made it considerably easier for employers to sack workers without assigning reasons, through the first two years of their labour contracts. On April 4 again, a second wave of nation-wide demonstrations was staged, involving an equal number of people, in various cities of France.

Prime Minister Dominique de Villepin, who moved the new legislation, warned that with its high and persistent unemployment, France could not afford to continue with the assurances of job security introduced after World War II. He found the audience he was addressing completely unreceptive to the plea. Sensing the public mood, president Jacques Chirac proposed a rather artful compromise to save face: he would sign the decree into law but not seek its implementation. And as the legislation lapsed, the government would engage workers and students in a sustained dialogue to evolve feasible strategies to deal with the crisis of unemployment. When that option was laughed out of court, the French government found it had no alternative but the unconditional withdrawal of the law.

“Flexibility” is the word that is often used in economic policy circles to signify the freedom for capital to switch its attentions from one sector to another without friction or impediment, and with an eye on merely the main chance for profit. The neo-liberal consensus between governments, finance capital and corporations, that emerged after the crisis of the late-1970s, works on the basis of certain fundamentals. First, taxation of the wealthy should be minimal, so that they do not suffer an erosion of their incentive to produce. Second, excessive government pre-emption of savings should be avoided. High government deficits create an environment that starves the supposedly more productive investors – private corporations – of the capital needed to make the most of opportunities. And thirdly, labour market rigidities should be eased. Excessive protection for the working classes, apart from fostering a mood of complacence, would pin down private investors in unprofitable sectors, denying them the freedom to move from one activity to another, in accordance with the potential reward to be earned. Since employment is ultimately dependent on investment, protection for the work force militates against the long-term objectives of growth and prosperity for all.

NEO-LIBERAL ORTHODOXY

Neo-liberal orthodoxy has captured the Anglo-Saxon world, but continental Europe faces it with a rather different prospect. As The Economist of London, an accurate barometer of the mood of the neo-liberal camp, put it in a comment bemoaning the defeat on the streets of the French jobs law, the only constant theme that Europe has played out over the last two years has been “the minimising of change, even the kind that should, in theory, come easily when a government has a clear mandate”. The countries that manifest these symptoms most acutely just happen to be the three largest economies of Europe – France, Italy and Germany – who between them, principally underwrite the stability of the new currency, the euro.

In Italian elections held early-April, voters were called upon to choose between two different kinds of solutions to their economic crisis. Silvio Berlusconi, the media tycoon whose prime ministerial tenure since 2001 has been an unending story of seeking to legislate his way out of numerous business scandals and conflict of interest situations, had one kind of answer. His rival Romano Prodi, who headed a centre-left coalition, supposedly had another. The election was finally decided by a margin of 20,000 votes nationwide, though Berlusconi is yet to give in to this reality after the country’s highest court ruled Prodi the winner.

Since the introduction of the euro in 1999, Italy is estimated to have significantly lost industrial competitiveness. Berlusconi’s right-wing coalition had a rather simple formula to regain lost competitive strengths: to allow for labour market flexibility, and cut back on social services so that more funding is available for infrastructure, research and development, and information technology. One of the few respects in which the centre-left coalition managed to differentiate itself from this program, was in opposing labour market “reforms”, and in advocating the reversal of legislative changes introduced over the last five years, which allowed for short-term job contracts with little liability for the employers and for a higher retirement age.

Ultimately though, Prodi’s rather too ardent courtship of finance capital and the corporations, limited his mass appeal. There was not enough separating the two coalitions to make a decisive difference. In this respect, the Italian election results mirrored those that Germany returned last September. Going into the campaign with a substantial lead in public opinion polls, the right-wing coalition headed by the Christian Democrats, saw a dramatic erosion of their fortunes. On voting day, their margin in the popular vote share was down to one per cent, and their advantage in seats over the rival centrist coalition, a mere four. The only party that made significant gains in that round of federal elections was the Left Party, a successor to the older Communist Party and a breakaway faction of the Social Democrats. The resultant grand coalition of the right and centre in Germany, it is widely believed, would be too divided within, to effect the kind of significant changes in policy that are required to retrieve an economic situation that is rapidly turning sour.

With Europe’s three largest countries showing distinct signs of economic and political dysfunctionality, there is considerable scepticism that now attaches itself to the European integration project. To say that this is one manifestation of a generalised crisis of neo-liberalism would be no exaggeration. For over two decades, the claims of the globalisation camp have been dressed up in the authoritarian argument that there is no alternative. This is an effort to put the demands of finance capital and private corporations above those of working people and the youth, indeed, to defeat the processes of independent thought that these movements have nurtured, and to obtain their acquiescence in the globalisation project. France, though, has been among the few advanced capitalist countries, where the resistance to this authoritarian logic has been relatively strong.

RESISTANCE IN FRANCE

In 1995, public sector workers in France began a wave of strikes in protest against the broad-ranging policy changes proposed by a newly elected president Chirac and his hand-picked prime minister Alain Juppe. These involved a radical overhaul of social security, demanding higher contributions from the employed work force and a higher threshold of active service before a worker could enjoy benefits. A revamp of the health care system was also proposed, which would steeply increase the costs borne by the beneficiaries. In addition, public services that were maintained by the French State at some cost were to be trimmed and implicit subsidies greatly reduced.

Confronted with an unprecedented explosion of popular discontent on the streets, the government withdrew and opted for a policy of “reforms by stealth”. France was by now part of the European Rate Mechanism that required a close alignment of currency values with other countries on the continent. This effectively reduced one area of policy flexibility. France was also irrevocably committed to adopting the euro as a common currency across Europe by 1999 and this meant effectively ceding monetary policy authority in its entirety to the European Central Bank in Frankfurt.

With the euro being an established fact soon, the main European economic powers turned their attention to consolidating on the process of integration, to propel the grouping into a position where it could challenge the US for world dominance. This led to the adoption of what is called the “Lisbon strategy” in 2000. Though the strategy makes the routine genuflections to the causes of social security and the environment, its principal aim was to tilt the social contract towards capital. The devices that were proposed included a number that subtly attacked the entitlements of the working class. These included the stated objective that the European Union should by 2010, maximise the utilisation of the work force, extracting a greater share from them for the sustenance of social security systems, and extending the average number of years worked, so that retirement benefits would be deferred for every worker.

France meanwhile, had managed to push through a limited reform of the pensions system in 2003. Despite a massive wave of strikes and demonstrations almost reminiscent of 1995, the unions finally fell in line after an arduous process of negotiations. In 2005, after a mid-term review, the Council for Europe concluded that it was way behind target as far as the fulfilment of the Lisbon Strategy was concerned. This led to a sharper focus on the labour market and the declaration of 2006 as the year of European labour mobility.

Labour mobility as it is conceived in the official discourse, of course, refers to the freedom for workers in any European country to relocate anywhere else and enjoy the same opportunities and benefits. In practice though, it is more narrowly defined, as the freedom of capital to retrench its workforce according to convenience and profit calculation. This, to a great extent, is the picture that prevails in the US and the UK, where that Reagan-Thatcher counter-revolution of the early-1980s succeeded in breaking union strength and cutting social security sharply to the working class. The consequent shift in the balance of advantage in favour of capital has supposedly fuelled a two-decade long process of growth in these economies, that for the proponents of globalisation, represents the model that all countries should emulate.

This orthodoxy may however, be close to collapse. Both the US and the UK for one thing, have been deep in deficit and debt since the early days of the Reagan-Thatcher counter-revolution. Their growth processes have been fuelled above all, by personal consumption and by an entirely artificial boom in the share prices and the real estate market. The “wealth effect” generated by the asset price boom has pushed consumers into buying more, irrespective of what could happen tomorrow. Consumer debt is now at unprecedented levels in the US and the UK and with the prospect of a rise in interest rates in the near future, the possibility of acute debt-induced distress for the mass of consumers, more real than any time recently. Debt delinquencies in both countries have been rising and could at some stage – sooner rather than later – threaten the viability of the financial system itself.

RISING GLOBAL INEQUALITY

And with all this, the working class in the two countries have had to do with the measly benefits of “trickle-down economics”, having to content themselves with the crumbs from the table as it were, after the rich have had their fill. Globalisation has been a polarising process, increasing the gaps between industrialised and developing countries on one side, while sharply widening the disparities within classes in each of these countries. Since the ideological predilections of the 1990s and beyond have tilted towards the celebration of globalisation, few studies have highlighted these aspects. But that could now be changing. The World Bank, the chief missionary of globalisation today, devoted its 2005 World Development Report to the theme of economic inequality and confirmed for the sceptics what other more critical-minded observers had been pointing out for years before: Global inequality was sharply rising, as also inequality within nations.

The World Commission on the Social Dimension of Globalisation in its report submitted early in 2004, found for instance, that many of the claims made on behalf of globalisation were in fact, illusory. Since 1990, it pointed out, “global GDP growth rate (had) been slower than in previous decades”. It added with some delicacy that “at the very least this outcome is at variance with the more optimistic predictions on the growth-enhancing impact of globalisation”.

The World Commission has also found, on the basis of fairly definitive data, that income and wage inequality increased almost without exception, in the advanced industrialised countries. In the decade since the mid-1990s, for instance, the highest paid 10 per cent of workers in the US were earning close to 450 per cent  more than the lowest paid 10 per cent. This ratio had increased by only 36 per cent in the decade since the mid-1980s to mid-1990s. The minimum wage in fact, has stagnated in the US since the Reagan counter-revolution.

The UK saw a similar order of increase in inequality as the US, though in other countries like Italy, Finland, Australia, Canada and Sweden, the difference between top and bottom earners was more modest. Only in Germany among the countries considered, did the ratio actually fall. These factors apart, the top one per cent of income earners in the US increased its share to 17 per cent of gross income by 2000. This ratio was last seen in the 1920s. Similar sharp increases in inequality were seen in the UK and Canada.

In 1998, two economists Tomas Piketty and Emannuel Saez, completed a pioneering study of income inequality in the US. In introducing this work, they mentioned in passing, as a curiosity, that few studies since Simon Kuznets’ work in 1953, have really been concerned with this issue. Clearly, there have especially in recent times, been serious ideological barriers to research on inequality. And the reasons though not part of the focus of the Piketty-Saez study, are inferentially established by its conclusions: a sharp increase in the share of the top 10 per cent of the US population in total income has been a feature of US growth processes since the early-1980s. The trend indeed, begins to accelerate in the mid-1980s and gains further momentum in the mid-1990s. A similar increase in the share of the top one per cent of the population is also evident. Indeed, if 42 per cent was the share of the top 10 per cent in the national income, the top one per cent alone accounted for 14.5 per cent in 1998. And even though the Piketty-Saez study does not cover this period, it is a reasonable conjecture that the degree of inequality should have increased with the sweeping tax cuts ordained by George W Bush as his first major act of policy since ascending to the presidency in 2001.

The US experience, as Piketty and Saez indicate, has been rather different from that of France, which witnessed a relatively more equal distribution of income through the 1990s and beyond. Referring back to the findings of the World Commission cited above, it is possible to imagine that the European experience as a whole was akin to that of France. The rapid increase in inequality seems in fact, to be – among the richer nations – a unique experience of the Anglo-Saxon element.

In their efforts to imitate the US experience, the European governments seem oblivious to the many pitfalls that lie ahead of that economy. Or perhaps, they are too deeply mired in the compulsions of finance capital. In the process of creating the euro as a global counterweight to the hegemony of the US dollar, the European governments may have surrendered too much of their policy autonomy. And matters have not been helped any because of the sharp rise in the value of the euro against the dollar, which has cut sharply into Europe’s export competitiveness. More and increasingly bitter confrontations between capital and labour are foretold in the effort by European governments to negotiate their way through these difficulties. The elementary wisdom that financial systems exist to serve people rather than vice versa, seems a long way still from dawning.