The following article has been translated and published in the Dutch libertarian journal DE RAAF (June 1997) and in the Greek Left journal UTOPIA (March 1998)
Against the Europe of Markets*
In June, the process of European integration entered a new higher stage which may end up at the beginning of the new century with several European states locked together into an Economic and Monetary Union (EMU) . This union does not in any way represent the old socialist dream of a "Europe of peoples". It does not even represent a fusion of states into a new superstate, although the possibility of a future federal state cannot be excluded. What it does represent is the creation of a European market economy as an integral part of the presently dominant internationalised market economy. But, how this process started, which factors necessitated the integration and what the EMU will mean for European peoples, as against the economic elites which have taken the decision for integration? These are some of the questions to which this article will attempt to give an answer.
1. Statism versus internationalisation
The two basic and conflicting trends that characterised the first quarter of a century after the end of World War II were, first, the expansion of statism (in the sense of active state control of the economy and extensive interference with the self-regulating mechanism of the market aimed at directly determining the level of economic activity, i.e. level of production, employment etc.) and, second, the growing internationalisation of the market economy. The expansion of statism reflected not just the economic needs of the economic elites, given that economic growth and the increase of profits, to a large extent, depended on state activity to create conditions of rising domestic demand. It also reflected, particularly in the form of the expansion of the welfare state and the state commitment to full employment, the European peoples’ demands for the creation of a different society than the pre-war society of mass unemployment, poverty and deprivation.
But, the post-war expansion of statism had a very important economic effect. It has led to a long-term rise in the cost of production: directly, because the expansion of the welfare state meant a growing burden on employers' contributions and taxes; indirectly, because, under conditions of near-full employment, organised labour could press successfully for wage rises that significantly exceeded productivity increases. This became a problem particularly painful for those controlling capitalist production in the period 1968-73, when a massive strike movement, not actually controlled by the trades union bureaucratic leadership, led to a fast rise in wages and a corresponding encroachment of profits.
However, despite the rapid expansion of statism in the immediate post-war period, the growing internationalisation of the market economy, as a result of its grow-or-die dynamic, was, also, actively encouraged by the advanced capitalist countries, both at the world level (GATT rounds of tariff reductions) and at the regional level (European Economic Community [EEC], European Free Trade Association [EFTA]). The old nationalist rivalries that characterised the first half of the twentieth century and led to two world wars were swiftly overcome, in view of the expansion of `actually existing socialism' and the flourishing of national liberation movements in the Third World. Thus, commercial rivalries between major capitalist nations were replaced by a rapid expansion of trade (mainly between themselves) so that, by the early 1970s, one-sixth of manufacturing goods consumed in Europe were imported from abroad. Since then, the internationalisation of the economy has accelerated further.
But, growing internationalisation implies that the growth of the market economy relies increasingly on the expansion of the world market rather than on that of the domestic market. This is a fact that has very significant implications with regard to the state's economic role. Thus, as the accumulation of capital started depending much more than before on the world market, the state's role in enhancing domestic demand was not as important as it used to be in the past. So, competitiveness began playing a much more significant role with respect to accumulation and economic growth than direct expansion of domestic demand through government spending. Under conditions of free trade, competitiveness is crucial not only with respect to an increasingly export-led growth but also with respect to import penetration that could have serious repercussions on the levels of domestic business activity and unemployment. In this context, the prevailing conditions on the supply side of some minimal guarantees (those compatible with the neoliberal consensus requirements) regarding the protection of the environment and the social space. So, the Single Market Act as well as the Maastricht Treaty set as their main aim to enhance competitiveness by eliminating all ‘institutional’ barriers to free competition that had been introduced by the social-democratic consensus. Such institutional barriers were the Keynesian type of state interventionism to secure full employment, the large welfare state that created fiscal problems, the labour unions’ `restrictive practices’ and the public corporations, which did not always act on the basis of micro-economic criteria to raise economic efficiency.
Thus, the Maastricht treaty’s basic aim was to attack the symptoms of these institutional barriers and, in particular, inflation and the huge public sector deficits caused by the expansion of statism. So, the EMU, as indeed the single market, signifies not the integration of peoples, or even the integration of States, but just the integration of free markets. Still, free markets mean not just the unimpeded movement of commodities, capital and labour, but also `flexibility’, that is, elimination of barriers to the free formation of prices and wages, as well as overall curtailing of the state’s control on economic activity. And this is, in fact, the essence of the neoliberal consensus that characterises the EU’s new institutional framework; namely, that its fundamental aim i.e. is the further marketization of the European Union’s economy. Thus the aim of the new institutions is obvious: to maximise the freedom of organised capital, the concentration of which is facilitated in every way and to minimise the freedom of organised labour, through any means available and, particularly, through the threat of unemployment.
It is indicative that national economic control on the level of economic activity and employment (which, in effect, is phased away through the abolition of fiscal freedom imposed by the ‘convergence’ criteria) is not replaced by a common European control of economic activity to secure full employment. Thus, whereas in the fight against inflation, which directly endangers the competitiveness and profit margins of European capital, there is provision even for the creation of a new supra-national institution (common central bank), the fight against unemployment is, in effect, left to the market forces. Finally, the collapsing national welfare state is not being replaced by a common social policy that would guarantee the coverage of basic needs (health, education, social security, etcetera) and a minimal income for all that would drastically reduce `Euro-poverty’ which presently touches 50m people. Thus, in the interest of enhancing competitiveness to face America and Japan, the European ideal has degenerated today into a kind of `Americanised Europe’, where luxury and extreme poverty stand side by side and the comfortable life of the `40 percent society’ is a mirror image of the marginalization of the rest.
The EMU arrangements (common central bank, common currency, convergence criteria) in effect mean that member states will be deprived of any effective economic policy, in the form of monetary, fiscal and exchange rate policy. The reward is supposed to be a strong common currency, low prices, long-term lower interest rates and higher growth, as a result of higher investment and trade because of the reduction of instability and currency turmoil as well as transaction costs implied by the common currency. But, in the absence of national aggressive fiscal policy (because of the restrictions on deficits and the public debt) and national monetary policy (because the central bank would determine it), for each component of the system to remain competitive it would have to keep the cost of production as low as possible and to create as much as possible income from profits, dividends etc. The former aim could be achieved either through high productivity and/or low cost of labour (taking into account the indirect cost of employers’ contributions etc.). The latter aim can be achieved through low taxation and consequently low spending. Any idea therefore of taxing capital (instead of cuts in welfare spending) is excluded because multinationals will move to the other economic blocks or to the various tax paradises. Furthermore, higher taxation on higher incomes is also ruled out because it will be objected by the ‘contented’ minority, but electoral majority, within the middle classes, which determines the electoral result.
This means that in the absence of any other effective economic control on the markets, under EMU, the burden of economic adjustment will fall on the labour markets. This is why the labour market is the main target of liberalisation. Thus, many important controls are being eliminated (for instance, minimum wage legislation, job security in the privatised sector), and others are being drastically amended (e.g., controls on part-time work and unfair dismissal) with the explicit aim to make labour more `flexible', that is, more amenable to market conditions (`hire-and-fire culture'). The weakening of these controls, combined with the abandonment of the full employment state commitment and the anti-trade union legislation, meant that the effects of the technological changes, which had led to structural unemployment, have not been offset by effective state action; instead, it was left to the market forces to sort out the unemployment problem. Furthermore, neoliberal policies, by restricting the state sector, have contributed directly to the massive rise of unemployment, which has reached the 20 m. mark in the European Union.
However, it seems that the present period of massive unemployment is a transitional period which will move the market economy from the relative full employment conditions of the period of the social-democratic consensus to a new period of massive low-paid employment. This development would be the outcome both of the liberalisation of labour markets and of a determined effort by the political elites to reduce open unemployment, which carries a high political cost and completely discredits the market/growth economy. Thus, after the recent collapse of the "Rhineland" model of ‘social market’ capitalism, the fierce competition among the countries in the Triad can safely be predicted to create conditions, not so much of massive open unemployment, but of low paid employment, part-time employment and contingency work in the context of ‘flexible’ labour markets. The trend setters today are the USA and the UK on the one hand and the Netherlands, on the other, with the "Dutch" model being, in fact, the case of ‘the Anglo-American model with a human face’. Thus, today, the UK and Netherlands have some of the lowest unemployment rates in the E.U. competing with the US rate. Even more important, the Netherlands and the US were among the 5 most competitive countries in the latest international competitiveness league whereas Britain jumped from 19th to 12th position. At the same time, all recent reports show that, as a result of these trends, there is a rapidly growing insecurity and inequality between the ‘lucky’ ones in full time jobs and the rest of the population.
Furthermore, the uneven effects of EMU should be stressed. A common monetary and exchange rate policy can only work if there is a high degree of eveness in economic conditions, measured in terms of productivity, investment, infrastructure, natural resources etc. The greater the degree of unevenness within the union the greater the problems, as tensions will develop between the strong and the weak links in the system and the tensions will be enhanced by the fact that the weak links will not have anymore any means to fight back (protection, change in interest rate devaluation etc.) and will have just to rely on higher unemployment and greater ‘flexibility’ in the labour market to reduce labour costs. Also, a massive transfer of income from the strong to the weak links will be impossible given the low level of the EU budget (currently one tenth of the US federal tax base). So, not only will there be no central mechanism for redistributing resources but members will have less budgetary autonomy, as they will have to conform to the strict convergence terms, under the threat of heavy penalties. So, with most economic controls on the markets phased out, countries whose inflation is higher or productivity lower than the average will have to take deflationary measures, pushing wages and prices down, so that competitiveness improves and the profits of the economic elites can remain intact.
3. Is there a way out within the E.U.?
Therefore, the institutional framework that is being established today in Europe consists of a model in which the continuation of growth depends on a process of further internationalising its economy, through the destruction of local economic self-reliance and the continual expansion of exports to cope with a growing volume of imports. In this process, which takes place both between regions (EU against the Japanese and American parts of the Triad) and inside each region, the victors will be those most competitive ones, who possess the production and technological bases that allow for the continual increase in productivity required by the tough international competition.
It is obvious within this problematique that the social democrats are not to be blamed for ‘betraying’ the socialist ideals and consenting to the neoliberal content of the new Europe now emerging. Nor simply is the present recession to be blamed ―which for some social-liberals is due to the recessionary policies adopted by EU member-states in their effort to meet the Maastricht convergence criteria. If we accept interpretations such as these, then the replacement of the neoliberal institutional framework is simply a matter for the ‘true’ socialists to gain power, who, in the context of economic recovery, would reinstate the institutional framework of the social-democratic consensus. In fact, there is no betrayal involved, nor is the radical change of the institutional framework ‘from within’ possible in the future. In other words, iIf we take for granted what social democrats and their fellow travellers in the Green movement take for granted, that is, the internationalised market economy, as well as the need to continually improve competitiveness by freeing further the markets for commodities, capital and labour, then the content of social democracy must necessarily be the one supported today by social-liberals.
The reason is that, within the framework of the internationalised economy, which constitutes the latest phase in the marketization process, the minimisation of the state’s social role does not constitute a choice but a pre-condition for European capital to effectively compete with the Far Eastern and American capital, which, given the lack of a social-democratic tradition in the United States and the Far East, face much weaker institutional barriers. Today, therefore, social democracy has meaning neither at the national level-nor at the supra-national level of post-Maastricht Europe. Any attempt by European social democrats to change the present institutional framework, in order to radically enhance the state’s social role, would make Europe less competitive than Japan or the United States and would result in a mass exodus of European capital. Also, a new, Europe-wide Keynesianism is not feasible, unless it was going to be combined with a self-reliant growth led by a highly protected internal market economy. But, such a solution is in direct contradiction to the system’s logic and dynamics. For the same reason, the proposals to re-negotiate the Maastricht treaty, in order to introduce social-democratic aims in the European Union, are equally utopian in the negative sense of the word.
Still, European social democrats, faced with the fact that the adoption of the ‘social market’ is not feasible anymore at the national level, are now proposing the creation of a European ‘social’ market, on the grounds that the countries of E.U., together, have the power to regulate the financial markets, control capital flows and to play a part in compelling the US and Japan, as leaders of the other regions, to regulate their relationship better, as part of a world deal.
However, the case for market controls can only stand if these controls are of the simple regulatory type. It is obvious that the US and Japan will have no difficulty agreeing on the introduction of such controls that will make the functioning of the market economy smoother. But, if these controls take the form of real social controls on the markets to protect labour and the environment, neither Japan nor the US will have any incentive (nor any pressure from their electorate given the weak socialdemocratic tradition in these countries) in agreeing to such controls that will deprive them of a significant comparative advantage over European, particularly German, industries. Therefore, the only possibility for introducing such controls at the European level will be through cutting off Europe from the internationalised market economy. In fact, the case for a "new protectionism" to protect employment or the environment, lately, has gained ground among European socialists and environmentalists
But, the fact that multinational corporations play a crucial role in the internationalised market economy, and that their activities are not just intra-regional but inter-regional, prescribes the fate of protectionist movements. Indicative is the fact that it was mainly inter-regional rather than intra-regional trade that benefited in the period of accelerating internationalisation (1958-89). Thus, despite the growth in intra-regional trade, particularly within the EU, the largest increases in trade flows in the period 1958-89 were for inter-regional trade, i.e. trade between North America and the EU with Asia. It is obvious that the grow-or-die dynamic of the market economy cannot be restricted within the boundaries of an economic block like those in Europe (EU) or in North America (NAFTA), in the same way that it was never contained historically in the boundaries of the nation-state.
The demand for a new protectionism, if it takes for granted the existing framework of the market economy and competition (as it is the case with protjectionists either of the "left" ―Green protectionists― or of the Right ―Buchanan et al in the US, Goldsmith in UK) is both a-historical and utopian, in the negative sense of the word. It is a-historical, because it ignores the structural changes that have led to the present neoliberal consensus and the internationalised market economy. It is utopian, because it disregards the fact that any effective attempt to intervene with the system of the market economy in the form of protectionism (either of the `old' or the 'new' variety) is bound to be inefficient and non-competitive and, as such, against the logic and the dynamics of the system itself. Furthermore, it is utopian because it assumes that the ‘greening’ of trade, or the IMF/World Bank, or capitalism itself, is just a matter of persuading people about the evils of the free trade ‘ideology’.
Finally, equally utopian are the demands to reform drastically the E.U. like, for instance the demands put forward by the ‘European march against unemployment’ which is planned to converge to Amsterdam in June. Thus, the initiators of this march, instead of calling the marchers to express their disgust about the plans of the European elites for a Europe of markets and to demand the replacement of the E.U. with an alternative Europe which is not based on the market economy, they call for a different distribution of wealth ―mainly through taxation― and a massive reduction of labour time, without diminution of the wage-earners income. However, it is obvious that such measures, and particularly a massive reduction of labour time without corresponding pay cuts which will adversely affect productivity, will never be accepted by the economic elites; had they adopted such demands, they would simply face the threat of extinction in the competition with the other members of the Triad.
The real therefore issue today is whether political, economic and social power should belong, as at present, to the ruling European elites or, instead, to the European citizens and their communities, within an institutional framework entirely different from the present one. At the moment, it is becoming increasingly clear that the only way out of the present multi-dimensional crisis would be the creation of a massive new liberatory movement aiming to replace the internationalised market economy and its by-product, the E.U. with a radical new institutional framework based on an inclusive democracy (political, economic, ecological, social) aiming to meet true needs, rather than the ones created by the growth economy itself. On such a system, based upon the political and cultural autonomy of the European regions, as well as their economic self-reliance, a new and true European `Community’ could be founded.
* Parts of this article are based on Takis Fotopoulos’ latest book Towards an Inclusive Democracy-The Crisis of The Growth Economy and the Need For a New Liberatory Project, (London and N.Y.: Cassell, 1997)
© 1997, Takis Fotopoulos. All Rights Reserved.