ΑΝΝΑΔΙΑΜΑΝΤΟΠΟΥΛΟΥ
ΑΝΝΑBEATING THE RECESSION:
DOES THE LEFT HAVE THE ANSWERS?
The first years of Globalisation were characterized by the complete dominance of the markets that led the process and dictated most of the (limited) rules. Governments had taken a back seat and the fair-weather economy was doing fine. Global competition was only beginning to have an impact, the financial markets were booming with new products, growth was positive. In short, it was a period which nobody thought would ever end. Then came the crisis and everyone started to talk about politics again.
We have reached a point where we cannot claim that solutions can be automatic and the system can correct itself. Now is a time for the Left and the Right to carefully analyse the situation and present a clear framework for the way forward.
Ideological differences have re-emerged sparking debate on further regulation options.
For the Left, the challenge is to draw the dividing lines and to propose effective action on four variables: Where to act? How? With whom? And for whom?
1. First, there are differences in the diagnosis of the current crisis.
For the Right, it is first and foremost a crisis in the financial sector which is affecting the real economy.
For the Left, it is seen mainly as a crisis of the real economy which has been expressed through the current financial turmoil.
RULEBOOK
Defining the global challenges and the political answers to them is also the subject of intense debate throughout the world.
Issues like Environmental protection, Migration, widening the markets in order to sustain consumption, and employment are all subject to different political approaches which promote often contradictory policies.
Perhaps though the biggest difference between the Left and the Right that emanates from the crisis is in terms of the consequences to the system.
For the Right the crisis threatens the existing system and creates a whole new set of losers particularly among the ruling classes. Hence the emphasis on financial measures.
Yet for the Left the crisis represents also an opportunity to improve on many of the ills that have led us here. In this respect it must convince the people of its intentions and its capabilities.
2. The second difference lies in the policies that will result from the current crisis.
Our societies and economies have to adapt to new realities. Therefore new policies are needed not just for crisis management but for the post-crisis world.
GLOBALISATION
New policies must focus primarily on the real economy. They must also be clear with respect to their framework of application, namely the globalised economy and society. I believe that the benefits of globalisation outweigh the costs. Social Democrats have not always been as unequivocal. Anxiety and even fear of globalisation have left us unable to formulate measures that would improve it. Yet that is where we are at.
The opportunity from the economic crisis comes first from the chance to change the rules so as to create a more “fair globalisation”.
· Supporting political and institutional cooperation in a new model of global governance (ILO, WTO, UN, World Bank, IMF, the UN Environmental Agency). These institutions will work with common membership, common obligations and commitments on all fronts.
· Strengthening dialogue with developing economies on employment, social policy and the environment.
· Promoting and strengthening ILO standards.
Would create a new global governance model which:
· ensures a fairer redistribution of the risks and benefits of globalization
· Puts social inclusion at the centre.
· Defines the limits between the public and private spheres with the provision of public goods in mind
•• Re-interprets social justice and fairness in the 21st century context.
Regulation
The smooth functioning of the markets can be ensured by stringent regulation which governments must enforce as a minimum. These regulations can be stricter than they are today but they cannot be looser.
The Left’s regulation model provides for strict rules for Competition, environmental protection, consumer protection, health and safety at work, public health, transparency, and more. We need however a clearer picture of what is allowed and what is forbidden and an explanation of the potential “management benefits”.
Regulation of Financial Services is also crucial smooth functioning which includes transparency, information, addressing the imbalances caused by short term-profiteering, but also accountability, long-term goals and a clear delineation for the role for Sovereign Wealth Funds.
In this respect, one could argue that the Left must propose a “Liberating Regulation” model which empowers and enables governments at all levels, to act effectively and responsibly. This Liberating Regulation is the opposite of the liberal Regulated Liberty where regulation removes criteria, obligations, and standards in the belief that the market will adjust and provide them automatically.
At the heart of this approach lies the concept of the protection of the public interest. In the 21st century, we must intervene to ensure the smooth functioning of the markets just as we intervened to ensure the protection of public health at the beginning of the 20th century with health regulations in the food processing industry.
3. State intervention and international cooperation
These are needed both for the stabilisation of the financial system and for the support of the real economy.
However we must resist calls for protectionism. It is a mechanism designed to help the stronger elements of the economy and, in a European context would undermine many of the fundamental values and policies of the EU.
Where to act?
Public investment plans aimed at stimulating the sectors suffering the most, but with an eye to simultaneously improving their competitiveness, social standards, protection of the environment, jobs are important. The construction sector for example could benefit from increased public spending for greener buildings. It would keep the sector in work, improve our collective energy consumption, promote the knowledge-based aspect of construction, and even provide housing or schools in the process. In short, public investments can and should provide significant returns through growth and jobs.
Banks
The argument for state aid must also be viewed with the end product in mind. When providing funds for the support of the banking sector, governments are faced with the following dilemma. Do we buy the losses or do we buy the banks? In my mind, there is only one obvious answer. We buy the banks.
Environment
There is also the need for international cooperation and state intervention on environmental issues. The crisis must not act as an alibi for less action on climate change. Instead public spending should focus on forward looking projects (green buildings, schools, mass transport, clean energies).
How to act?
Speed is of the essence. The EU allows speedier procedures for absorbing EU funds. Greece implemented a similar scheme in order to prepare for the Olympic Games with significant success.
Governments can also bring forward planned public sector investments. This measure entails hardly any extra costs, since the investments were already planned, and it has a large stimulating impact.
State intervention with funds for businesses, banks or other, are empty words unless we make it specific and have a clear view of which parameters we want to influence:
Investment is crucial. But public investment is not enough. Private investment must also be stimulated through financial measures, tax breaks for real employment creation, and PPPs.
Intervening with respect to employment is also within our reach. Uncertainty and fear are bad counsel for workers. Decent and stable work is a crucial goal. But employment is not only about jobs and growth. It is mostly about people and we must ensure that all workers, are protected, even if their jobs are lost.
But we should also try to keep existing jobs. Dialogue with social partners must be continuous, honest and in a spirit of cooperation. The latter has unfortunately not always been forthcoming as in the case of Flexicurity. As part of Social Democrats’ new employment strategy, Flexicurity was aimed at protecting workers and employers. But it has been misused, abused and ignored to such an extent that it has made people weary, cautious and distrustful of it.
The choice between running deficits today and reducing debt tomorrow is a false one: economic stimulus can be both a powerful and fiscally responsible instrument. If government intervention is effective, it will protect against a deeper and more protracted recession, job losses and further fiscal deterioration.
There is a new openness to alternatives. To capture people’s attention and support, they must be practical and immediately feasible. For this, democratic control over financial and economic institutions must be part of the equation.
Cooperation must also be part of the equation. An equation which includes national and European policies. Although there are arguments for national action, usually on the basis of flexibility and reflexes, we still need more Europe, especially for the post-crisis world, where we can use the lessons we have learned in the creation of a truly European economic policy. No single EU country has the power or the influence to go it alone.
We should strive for more economic cooperation, a common economic policy for Europe. In the globalised world, Europe is not only an important player along with the US, China or India. It is a force with forward-looking priorities, a deep respect for the weaker elements of society and the will to protect them. With common policies, strong leadership and democratic support, Europe can lead the effort to make the world a better place.