Neo-Liberal Economics and the danger to nations' sovereignty. From Social Europe Journal.

The TPPA debate has echoes in Europe as Neo-Liberal economists conspire to remove national sovereignty through the Juncker Commission.

Will The Juncker Commission Continue To Entrench Neoliberal Policies?

Lukas Oberndorfer

A few days ago, the designated European Commission finally showed its true colours: It wants to make sure that its economic policy recommendations become enforceable. Deregulation of rent setting systems, adjusting the retirement age to account for life expectancy and increased flexibility in wage-setting mechanisms were mere recommendations in 2014. That is supposed to change now. Its instruments are the competitiveness pacts 2.0 and a separate budget for the Euro area, even though there is no legal basis for such a measure. A decision is going to be made at upcoming meetings of the European.
Convergence and Competitiveness Instrument; Competitiveness Pacts; Partnerships for Growth, Jobs and Competitiveness – as numerous as their names are the attempts of the European Council to create consensus about binding contracts for neoliberal structural reforms.
Angela Merkel – the organic intellectual of a “reform alliance” consisting of trade associations, the financial industry, national ministries of finance and the economy, the EU Commission, neoliberal heads of state and government and the ECB – has been pursuing such plans since the beginning of 2013.
But is this about the countries who face financing difficulties on the financial markets or about the economies that show excessive trade deficits? No. For those countries, instruments were already put in place in the wake of the economic crisis that obligated them to accept the standards of the neoliberal reform alliance as economic policy.

The Neoliberal Reform Alliance Is Targeting The Remaining Countries

Now, the competitive pacts aim to include the remaining countries, such as France, Germany and Italy. For all Euro states, a mechanism shall be created that will, in the words of the Commission, overcome “political [...] deterrents to reform”: In binding contracts, the countries shall commit to “structural reforms of the labour market, the social security and health care systems and of retirement regulations”. Countries with timely adoption shall receive “financial” incentives.
No mention shall be made of the abuse that corporations inflict on social systems through tax evasion, which deprives public coffers of one billion euros yearly, according to estimates by the Commission itself. No mention of the ever quicker redistribution of wealth from the bottom to the top. And no mention of the erosion of democracy, in both economy and society, that is driven by financial markets. Rather, the competitiveness pacts strengthen those actors who have spent years calling for “painful but necessary” reforms of the social infrastructure. In times of tight budgets, who can afford to leave money in Brussels?
But for now, voting in the European Council has not been unanimous, as would be required for the competitiveness pacts. Resistance by the unions and by transnational alliances such as “Another Europe is possible,” among others, was too strong and the outgoing Commission too weak.

Will Jean-Claude Juncker’s Commission continue the push to entrench neoliberal economic policies? (photo: CC BY-SA 2.0 euranet_plus)

Old Ideas, New Candour: Enforceability For The Commission’s Recommendations

That is supposed to change now. Just a few days ago, the Handelsblatt reported that EU commissioners Moscovici and Dombrovskis, who have been suggested as heads of the relevant departments, want to “ensure that governments follow the EU’s economic recommendations, which have so far been accorded little attention”. Even though this was “one of Merkel’s ideas which had been regarded as rejected,” parts of the proposal are new:
1) Up to now, the Commission has shied away from stating explicitly that its country-specific recommendations should be the object of the pacts.
2) In order to provide the financial incentives for fulfilment of the competitiveness pacts, a separate budget for the Euro zone shall be established in the medium term.
But what, exactly, is the content of the country-specific recommendations? Since the competitiveness pacts, according to all proposals to date, must be concluded between “the member states of the euro zone and the Commission,” it is worthwhile to take a look at the recommendations that the Commission issued in 2014, before they were toned down by the Council:
Belgium, for example, should aim for a “reform of the wage-setting system, including wage indexation [and] to provide for effective automatic corrections when needed”. Bulgaria is advised to lower its minimum wage. France should commit itself to the German model: The unemployment benefit system shall be “reformed” in such a way that “incentives to return to work” are strengthened. Germany, in turn, shall lead the way once more and “[increase] incentives for later retirement”. Slovenia and Croatia are called upon to privatize and Sweden is even asked to deregulate its rent setting system in order to ensure “more market-oriented rent levels”. For Austria, the Commission envisions linking the statutory retirement age to life expectancy and harmonizing the statutory retirement age for women and men sooner.
But are the competitiveness pacts really about a contest between the EU and the nation state? No. Rather, nation state actors belonging to the neoliberal reform alliance are trying to use the European level to further their interests — to push through demands that are, to date, not enforceable within the democracies of the nation states due to a power balance that does not favour these interests that strongly.

Overcoming Democratic Obstacles

The manner in which the competitiveness pacts are to be established makes it obvious that the main conflict is not between “the EU” and, say, “France,” but rather between the executive (both on the European and the national level) and representative democracy. Jean Claude Juncker, the new president of the Commission, lets us know on that point: “I want to launch legislative and non-legislative initiatives to deepen our Economic and Monetary Union during the first year of my mandate. These would include [...] proposals to encourage further structural reforms, if necessary through additional financial incentives and a targeted fiscal capacity at Euro zone level [...].”
The wording suggests that the competitiveness pacts are to be implemented through a regulation. However, the European Treaties clearly do not grant the Commission authority to establish competitiveness pacts or to pay out the financial incentives associated with them. It seems that also the new president of the Commission has chosen the path of authoritarian constitutionalism which will weaken both national parliaments and the European parliament by circumventing regular treaty amendment procedures.
Yet, you cannot accuse the Commission of being dishonest. For two years now, it has clearly articulated what this is all about: overcoming political obstacles. It remains to be seen, however, if the heads of states will join in this new instance of bypassing the parliaments where the wage-earning population is able to advance their interests with comparative ease. A landmark decision will probably be made at one of the next two upcoming European Councils (October 23 or December 18, 2014).

Trickle Down Economics? No way. Rather it's wealth capture by the selfish few. (From Social Journal Europe)

If You Look At One Graph About Inequality Look At This!

Henning Meyer

You might have heard about recent reports stating that global inequality is decreasing. This is a nice example of constructing the comparison according to the result you would like to see. Yes, inequality between countries has declined but the most important comparison is what is happening to inequality within countries as this tells you how the distribution system, that is under direct political control, works. And if you look at this you can only shake your head in disbelief.

Pavlina Tcherneva tweeted two graphs from her research that were also picked up by Vox.com. The graphs answer a simple question: Who actually got what share of growing national income in different periods of time? Here is the answer for the US:

Is there any question that there is something fundamentally wrong with this distribution? And if you think this is only the case in the US look at the equivalent graph for Sweden:

Something is going seriously wrong here! If you look at one graph that tells you all you need to know about income inequality look at who actually takes home the gains of economic growth.

Robert Reich on the 7 big lies told by neo-liberal politicians.

This video is worth watching and listening to as Robert Reich exposes the fallacies that underpin the neo-liberal economics so beloved by John Key and his asset stripping cronies.

http://youtu.be/mM5Ep9fS7Z0

The Great Economic Malaise - the failure of austerity economics (Social Journal Europe)

The Great Malaise Drags On

06/01/2014 by Joseph Stiglitz 1 Comment

Joseph Stiglitz

There’s something dismal about writing year-end roundups in the half-decade since the eruption of the 2008 global financial crisis. Yes, we avoided a Great Depression II, but only to emerge into a Great Malaise, with barely increasing incomes for a large proportion of citizens in advanced economies. We can expect more of the same in 2014.

In the United States, median incomes have continued their seemingly relentless decline; for male workers, income has fallen to levels below those attained more than 40 years ago. Europe’s double-dip recession ended in 2013, but no one can responsibly claim that recovery has followed. More than 50% of young people in Spain and Greece remain unemployed. According to the International Monetary Fund, Spain can expect unemployment to be above 25% for years to come.

The real danger for Europe is that a sense of complacency may set in. As the year passed, one could feel the pace of vital institutional reforms in the eurozone slowing. For example, the monetary union needs a real banking union – including not just common supervision, but also common deposit insurance and a common resolution mechanism – and Eurobonds, or some similar vehicle for mutualizing debt. The eurozone is not much closer to implementing either measure than it was a year ago.

One could also sense a renewed commitment to the austerity policies that incited Europe’s double-dip recession. Europe’s continuing stagnation is bad enough; but there is still a significant risk of another crisis in yet another eurozone country, if not next year, in the not-too-distant future.

Matters are only slightly better in the US, where a growing economic divide – with more inequality than in any other advanced country – has been accompanied by severe political polarization. One can only hope that the lunatics in the Republican Party who forced a government shutdown and pushed the country to the brink of default will decide against a repeat performance.

But even if they do, the likely contraction from the next round of austerity – which already cost 1-2 percentage points of GDP growth in 2013 – means that growth will remain anemic, barely strong enough to generate jobs for new entrants into the labor force. A dynamic tax-avoiding Silicon Valley and a thriving hydrocarbon sector are not enough to offset austerity’s weight.

Thus, while there may be some reduction of the Federal Reserve’s purchases of long-term assets (so-called quantitative easing, or QE), a move away from rock-bottom interest rates is not expected until 2015 at the earliest.

Ending low-interest-rates now would not be sensible, though QE has probably benefited the US economy only slightly, and may have raised risks abroad. The tremors in global financial markets set off by discussions earlier in 2013 of tapering QE highlighted the extent of interdependence in the global economy.

Just as QE’s introduction fueled currency appreciation, announcing its eventual end triggered depreciation. The good news was that most major emerging countries had built up large foreign-exchange reserves and had sufficiently strong economies that they could withstand the shock.

Still, the growth slowdown in emerging economies was disappointing – all the more so because it is likely to continue through 2014. Each country produced its own story: India’s downturn, for example, was attributed to political problems in New Delhi and a central bank worried about price stability (though there was little reason to believe that raising interest rates would do much about the price of onions and the other items underlying Indian inflation).

Social unrest in Brazil made it clear that, despite remarkable progress in reducing poverty and inequality over the past decade, the country still has much to do to achieve broadly shared prosperity. At the same time, the wave of protest showed the growing political clout of the country’s expanding middle class.

China’s decelerating growth had a significant impact on commodity prices, and thus on commodity exporters around the world. But China’s slowdown needs to be put in perspective: even its lower growth rate is the envy of the rest of the world, and its move toward more sustainable growth, even if at a somewhat lower level, will serve it – and the world – well in the long run.

As in previous years, the fundamental problem haunting the global economy in 2013 remained a lack of global aggregate demand. This does not mean, of course, that there is an absence of real needs – for infrastructure, to take one example, or, more broadly, for retrofitting economies everywhere in response to the challenges of climate change. But the global private financial system seems incapable of recycling the world’s surpluses to meet these needs. And prevailing ideology prevents us from thinking about alternative arrangements.

We have a global market economy that is not working. We have unmet needs and underutilized resources. The system is not delivering benefits for large segments of our societies. And the prospect of significant improvement in 2014 – or in the foreseeable future – seems unrealistic. At both the national and global levels, political systems seem incapable of introducing the reforms that might create prospects for a brighter future.

Maybe the global economy will perform a little better in 2014 than it did in 2013, or maybe not. Seen in the broader context of the continuing Great Malaise, both years will come to be regarded as a time of wasted opportunities.

© Project Syndicate

Neo-Liberal Economics a faulty concept based on corrupted statistics. (Social Europe Journal)

Flexicurity: The Model That Never Was

06/12/2013 by Ronald Janssen 1 Comment

Ronald Janssen

This article is highly pertinent when read against the neo-liberal employment law reforms being propounded by the National-Act government's Simon Bridges and his side-kick Jami Lea Ross. It demonstrates the fallacies that their anti-Union, anti-worker logic is based on.

Flexicurity – Remember the flexicurity model that was launched by the European Commission in the mid 2000’s? Claiming that there existed such a thing as a ‘golden triangle of flexicurity’ (see illustration below), the Commission urged member states and trade unions to give up on job protection in exchange for adequate unemployment benefits and active labour market policies.
The inspiration for this was clearly found in Denmark with the country being hailed as the perfect illustration of how a flexible labour market with low restrictions on employers to fire workers could still offer high security of employment.

Source: OECD Employment Outlook 2004

In this context, the latest OECD Employment Outlook from the summer of 2013 is extremely interesting. In this publication, the OECD thoroughly reviewed its database on job protection indicators. In particular, job protection arrangements resulting from collective bargaining practice and case law have now been included more systematically than was the case before. This implies that these new OECD indicators should provide an improved picture of reality, in particular when weak job protection in labour law is corrected by collective bargaining agreements and/or case law imposing additional and more stringent job protection.

Flexicurity, what flexicurity?

This review of the OECD database leads to surprising conclusions, in particular regarding the system of flexicurity in Denmark. The graph below shows the newly estimated employment protection indicators for regular (open ended) contracts, thereby also adding job protection in case of collective dismissals. The value of the employment protection legislation (EPL) indicator in the graph is obtained by applying weights to these two sub indicators, with regular contract protection counting for 70%, and collective dismissal protection for 30%. Indicator values close to zero indicate a very low level of job protection, whereas scores going up to an indicator value of 5 or 6 point to employers experiencing extreme difficulties in firing workers.

Protection of regular workers against individual and collective dismissals, 2013

Source: http://www.oecd.org/employment/emp/oecdindicatorsofemploymentprotection.htm

The graph shows that Denmark does not have a labour market that is particularly flexible. With an indicator value of 2.3, the level of job protection in Denmark is not below but exactly at the OECD average. It can also be seen that regular contracts and collective dismissals in Denmark are protected at a level that is similar to Germany, Spain and Greece. Also, Danish job protection is not very much below the levels of job protection registered in France and Italy. Meanwhile, the gap in job protection between Denmark and the flexible Anglosaxon labour markets is significant, with the UK and the US at values as low as 1.5 and 1. In practical terms, the 2.3 score for EPL in Denmark translates into 4 (2)  months of advance notification for a white collar (blue collar) worker having 4 years of tenure in the job, with additional notification periods, procedures and delays in case it concerns a collective dismissal.
Delving deeper into the history of the statistics allows us to further back up the conclusion that the OECD has been widely off the mark on this all these years. In the final graph we see the values for the sub-indicators on job protection of regular contracts for the year 2004 as estimated by the OECD back in 2004, (source: the OECD  2004 Employment Outlook). These are then compared with the EPL values for the same year 2004 which are now to be found in today’s 2013 OECD database. From this comparison, it is clear what has happened. Back in 2004 the OECD (the blue bars in the graph) estimated that regular jobs in Denmark were poorly protected with an indicator value of just 1.5. Based on the estimates done in 2004, Denmark could indeed be characterised as having a flexible labour market, with the degree of job protection as low as in the UK and Ireland and substantially below continental countries such Germany or France. (Look at the poor protection NZ has for individual regular jobs compared to Denmark on which this article is based. Note there are no protections for collective employment protections recorded for NZ either.)
Now look at the red bars, registering the current OECD estimate from 2013 of the level of regular job protection back in 2004. This turns the picture completely around. For Denmark, the new estimate for 2004 now comes out substantially higher, at a value of 2.1. This actually means that, in contrast to the estimates from the earlier database, Danish workers in 2004 were benefiting from a level of job protection that is twice as high as in the UK and is not far removed from the job protection levels of France and Germany.

A similar comparison (not shown here) can be done on the other sub-indicator, the protection of jobs in case of collective dismissals. Its conclusion is that, in case of collective dismissals, Danish workers were as strongly protected as German workers and even more protected than their French or Italian colleagues.

All of this actually means that the whole policy of flexicurity, as it has been promoted all these years by the European Commission, has been based on a statistical illusion. The argument according to which the success of labour market performance in Denmark can be put down to the fact that workers and not their jobs are being protected is simply not correct. Through its system of collective bargaining, Danish workers are being offered robust levels of job protection. The true peculiarity and advantage of the Danish system lies in the fact that Denmark invests heavily in both passive and active labour market policies. (Note the conclusion... it is certainly damning for New Zealand's employment and productivity statistics.) It does not lie with employers having the possibility of easy firing.

Neo-Liberal Economics survives because politicians believe inthe Easter Bunny and other Fairy stories.

Why Are Neo-liberal Ideas So Resilient?

30/10/2013 by Vivien A. Schmidt and Mark Thatcher Leave a Comment

Vivien A. Schmidt

Given the abject failure of the Neo-liberal policy offer, why has it persisted as the dominant approach to European policymaking and is there any way out?

Despite the economic crisis that hit the US and Europe full force in 2008, political leaders have made little attempt to rethink the neo-liberal ideas that are in large part responsible for the boom and bust, let alone to come to terms with how immoderate the ‘Great Moderation’ really was. Much the contrary, neo-liberal ideas continue to be the only ideas available.  In the financial markets, where the crisis began, reregulation remains woefully inadequate, while the only ideas in play are neo-liberal, either for more ‘market-enhancing’ regulation or in favor of greater laissez-faire. The biggest puzzle, however, is the response to the crisis by Eurozone countries that have embraced ‘market discipline’ through austerity and, in so doing, have condemned themselves to slow or no growth.   This is in contrast to the US, which has posted better economic results, despite being torn between Republican fundamentalists advocating austerity and a more pragmatic leadership focused on growth.

Mark Thatcher

Our question, then, is:  How do we explain the resilience of neo-liberal economic ideas?  Since the 1980s, why have such ideas not just survived but continued to be dominant? Neo-liberalism entails belief in competitive markets enhanced by global free trade and capital mobility, backed up by a pro-market, limited state that promotes labor market flexibility and seeks to reduce welfare dependence while marketizing the provision of public goods.  The watchwords for such neo-liberalism are liberalization, privatization, deregulation, and delegation to non-majoritarian institutions such as ‘independent’ regulatory agencies and central banks.  The touchstones highlight the importance of individual responsibility, the value of competition, and the centrality of market allocation.  The neo-liberal mantra presents the state as the perennial problem, the market as the solution – even today, despite the fact that the crisis was caused by the markets, not the state.

So why, in light of the crisis, has there been no major shift in ideas, either back to the neo-Keynesianism that brought the postwar ‘Golden Era’ or forward to something new? How do we explain the fact that neo-liberalism continues to permeate how people think and talk about state and market?  We propose five lines of analysis to explain such resilience:  the flexibility of neo-liberalism’s core principles; the gaps between neo-liberal rhetoric and reality; the strength of neo-liberal discourse in debates; the power of interests in the strategic use of ideas; and the force of institutions in the embedding of neo-liberal ideas.

First, the generality of neo-liberalism’s core principles, focused on competitive markets and a limited state, make it highly adaptable to changing circumstances and needs.  Thus, neo-liberalism has been able to move from ideas focused on the ‘rollback’ of the state to free up the markets in the 1980s under conservative leaders to the ‘rollout’ of the state to make markets work more freely under progressives in the 1990s.  It has also been able to absorb seemingly contradictory ideas, as in the case of the welfare state, where after an initial clash with social democratic ideas, through attempts at passive reduction of social spending and job protections, it incorporated such ideas in programs that sought to make active use of the welfare state to promote market efficiency via ‘active labor market policies.’ Finally, it has equally been able to undergo metamorphoses such that ideas discredited in previous periods recur, returning in new guises, such as the 1920s discourse of ‘sound money’ reappearing in the 1970s as monetarism and in the late 2000s as ‘sustainable debt.’

Second, neo-liberalism often works only in the rhetoric, not in the reality of implementation.  Notably, many neo-liberal policies – such as cutting public spending, reforming welfare, and reducing regulatory protection – are difficult to implement and extremely unpopular politically.  This helps explain why promises to cut back the state for the most part turned out to be hollow, in particular as state restructuring did not lead to a decrease in its size, nor did it necessarily reduce public spending.  Deregulation, rather than getting rid of the state, simply led to reregulation of a different kind.  But rather than a weakness, this can be seen as a strength, since lack of implementation can serve neo-liberal politicians also as a rallying cry, to call for more neo-liberalism.

Third, neo-liberal ideas have generally been more successful in policy debates and political discourse, winning in the ‘battle of ideas’ against weaker alternatives.  In some cases, that strength may come from the seemingly common sense nature of neo-liberal arguments.  For example, appeals to the ‘virtue’ of sound finances using the metaphor of the household economy—extrapolating from the need to balance one’s household budget to the need to do the same for the state budget—may resonate better with ordinary citizens than the Keynesian counterintuitive proposition to spend more at a time of high deficits and debts.  In other cases, neo-liberal success can be attributed to the reframing of current problems—say, as a crisis of public debt rather than of the banks; to the narratives—about public profligacy being the problem, belt-tightening the solution; and to the myths—for the Germans, that belt-tightening is the only way to avoid the risks of hyperinflation of the early 1920s, thereby ignoring the risks of deflation and unemployment of the early 1930s that led to the rise of Hitler. Equally importantly, it may be that neo-liberals are not so strong but their opponents are weak.  Where, after all, have the center-left parties been in all of this, in particular in Europe throughout the Eurozone crisis?  Notably, only very recently have European social democratic leaders called for growth, even as they continue to dole out austerity.

Fourth, powerful coalitions of interests often take up neo-liberal ideas for their own strategic purposes, whether they believe in them or not.  Economic actors may benefit materially, notably through lower taxes or the new opportunities opened up by ‘deregulation’ and privatization. Bankers have been laughing all the way to the bank.  Politicians also can benefit by using neo-liberal ideas to gain or retain political power while institutional actors—regulators, central bankers, and the like—gain autonomy and increasing power.  All of this, moreover, tends to be self-reinforcing, since the more neo-liberalism takes hold, the more it is likely to consolidate such actors’ commitment to neo-liberal ideas, as well as to create an attitude of ‘if you can’t beat them, join them,’ as in the center-left’s adoption of neo-liberal ideas beginning in the 1990s.

Fifth, the neo-liberal ideas gain force from their institutionalization in rules and regulations, as well as in the organisations, including the ‘non-majoritarian’ independent regulatory bodies such as the independent central banks, the international credit-rating agencies, and the standard-setting bodies that are out of the reach of national state control.  Moreover, in the EU, the successive pacts for stability in the Eurozone – beginning with the Stability and Growth Pact that consecrated the 1990s Maastricht criteria for monetary union and culminating with various pacts during the Eurozone crisis – ensure that neo-liberal ideas about fiscal consolidation will be difficult to reverse, regardless of their failure to solve the crisis.

These five lines of analysis leave us with one final question: given all this resilience, is there any way out of neo-liberalism? One pathway could be collapse from within, as the contradictions inherent in neo-liberalism become increasingly clear—such as between the ideal of a limited state and the practice of the state playing a strong role to enhance markets.  Another could be rejection from without, as the broken promises, indeed the failures, of neo-liberalism become ever more apparent to citizens.   Yet another is that strong ideational alternatives to neo-liberalism gain strength, say, with new approaches to economic governance that put the polity before, rather than after, the economy.  It is also possible that neo-liberalism loses the support of powerful interests, or that new coalitions emerge.  Perhaps the social democrats will begin to coalesce behind a new set of ideas.  Finally, it may very well be that the institutions of neo-liberalism break down, are replaced, or evolve as a result of new coalitions of interests with new ideas about how to solve the problems.  But for any of these eventualities, things are likely to become much worse, before we see any new light at the end of the tunnel.

The Emporer's Clothes & the Global meltdown

The Guardian commentary is spot on and should be required reading for all New Zealanders after their fool-hardy love affair with the neo-liberal economics of the NACT government of the naked money speculator turned pseudo-politician.

http://www.guardian.co.uk/commentisfree/2009/mar/26/anticapitalism-protest-recession-g20