Der andere Blick auf Boom und Krisen

Der schottische Ökonom Mark Blyth hat am Montag den erstmals vergebenen Hans-Matthöfer-Preis für Wirtschaftspolitik verliehen bekommen – ein Preis, mit dem neues ökonomisches Denken jenseits alter Muster gewürdigt werden soll. Hier sind die Gedanken, die Mark Blyth bei der Verleihung geteilt hat.

„It is both an honor and an irony to stand here today and receive the 2014 Hans-Matthöfer-Preis für Wirtschaftspublizistik.

The honor is to be recognized at all, given the competition. To name but a few of my fellow contenders, Thomas Piketty may be my favorite economist and Wolfgang Munchau may be my favorite journalist, so to be recognized amongst them is an honor.

But it is also somewhat ironic to be so recognized in the one country that seems, at least at the elite level, utterly impervious to the message of the book that you are recognizing this evening.

Austerity as economic policy simply doesn’t work. In the cases where it looked like it worked, something else was really doing the work, usually the devaluation of a sovereign currency at the same time as the expansion of a much larger trading partner gave exports a short term boost. Budgets were cut as exports expanded, but it wasn’t the cuts that mattered, it was the expansion.

But I have stood here before and spoken about Austerity, so let’s take the few minutes we have here today to look forward rather than backwards.

All eyes are on Greece and the possibility of default or ‘Grexit.’ Indeed it’s an impossible position for all sides. The Greeks cannot pay back what they owe given that the policies enacted to help them grow have resulted in the collapse of nearly a third of their economy. The young and the talented have left, leaving pensioners and the public sector behind.

But to recognize that fact and accommodate opens up issues in debtor countries such as Ireland and Portugal and Spain that creditor countries such as Germany do not want to deal with. So how do we move forward, and what is the role of a social democratic party in shaping this path?

Two issues stand out for me:

The first is what I refer to in Austerity as ‘the false promise of structural reform.’

There can be no doubt that the debtor countries of Europe need major reforms in taxation systems, labor markets, business regulation, and a host of other areas. But…

a) When we say ‘structural reform’ we really have no idea what those words mean, and we just fall back on them as a back-handed acknowledgment that austerity has failed…or…
b) We misunderstand what we did, and thereby miss that it is impossible for anyone else to do do what we did.

Let me explain…

‘Structural reform’ used to be called ‘structural adjustment.’ And European lefties, like us, used to condemn it as absurd, ridiculous, neo-liberalism gone mad…and yet we seem quite happy to unleash these policies, despite the damage that they have done in the developing world, upon our European partners.

When you ask for content, it seems to be a checklist of lower taxes, deregulate everything is sight, privatize anything not nailed down, and hope for the best.

But is this not disturbingly American if not Thatcherite? Indeed, isn’t this everything that the SPD is supposed to be against, and much of which the German public would never put up with?

European reforms take the more subtle cover of simply asking everyone to become ‘more competitive’ – and who could be against that?

Until one remembers that being competitive against each other’s main trading partners in the same currency union generates a ‘moving average’ problem of continental proportions.

It is statistically absurd to all become “more” competitive. It’s like everyone trying to be “above average.” It sounds like a good idea until think about the height of your children. But definition, someone has to be the short one.

But something has to be done, and we are often told that Germany was the ‘sick man’ of Europe, she took the ‘bitter medicine’ of the Hartz reforms and became more competitive. Because of this when the crisis hit Germany survived and came back stronger. The conclusion – the rest of Europe needs to embrace ‘structural reform’ – quickly follows.

This is a popular story, but it’s quite wrong, and its application to other countries rests upon a rather obvious misreading of recent German history.

Christian Dustmann of the LSE and his colleagues have examined this question in depth and concluded that what really made the German economy more competitive were three interrelated phenomena that happened a decade before Hartz.

First, Reunification. Having ten million extra workers suddenly enter the labor market puts massive downward pressure on wages that begins to show up around 1994.

Second, moving parts suppliers for the German Auto complex out to the former eastern bloc countries makes the inputs for exports even more competitive. This starts around the same time.

Third, German unions, at the same time, realize that globalization starts east of the Elbe and simply stop asking for wage increases.

The combined result is a squeeze on wages that lasts for nearly 20 years that is masked by the transfers of the welfare system. This is where competitiveness comes from.

What Hartz does, a decade later, is to remove young single people from the welfare rolls and places them in mini jobs. The result of this is an expansion of the sheltered service sector, and of chronic low pay, that has to be addressed by the introduction of a minimum wage.

Indeed, almost all the jobs created by Hartz are low productivity, sheltered sector jobs. The export sector, the ‘competitive part’ of the economy, depends upon demand generated elsewhere in the world, and it continues to shed, not add jobs, as capital substitutes for labor in high skilled production.

If Dustammn et al are correct, and I think that they are, then the ability to transfer these lessons to other countries is zero.

No one else has an East Germany waiting around the corner to push down labor costs, and even if everyone did, all that would do is reduce consumption in the aggregate, thereby impoverishing everyone.

The take home lesson is perhaps then that Germany is only Germany because everyone else is “not Germany.” To try and make everyone a bit more like Germany can only mean the expansion of a poorly-paid service sector and the introduction of a minimum wage to compensate.

I do not think that’s what structural reform advocates recommend, but its where we may end up.

My second point returns us to the notion that we have grown quite comfortable talking about ‘creditor nations’ and ‘debtor nations,’ rather than ‘European nations,’ as if being a debtor or a creditor is a national characteristic.

Indeed, one of the most poisonous aspects of Austerity is the discourse it produces that reduces complex formations of class and institutions to essentials of race and identity.

But look beyond this, and there is a bigger issue for left parties to deal with, one that they unfortunately helped to create.

Back in the 1970s, a period that now seems quite benign, corporate profits were very low, labor’s share of income was very high, and inflation was rising. We were told that this was unsustainable and new institutions were constructed to make sure that this particular mix of outcomes would never happen again.

In this regard we were singularly successful. Today, corporate profits have never been higher, labor’s share of national income has almost never been lower, and inflation has given way to deflation. So are we happier for this change?

What we have done over the past 30 years is to build a creditor’s paradise of positive real interest rates, low inflation, open markets, beaten down unions, and a retreating state – all policed by unelected economic officials in central banks that have only one target – to keep such a creditor’s paradise going.

In such a world, why would you ever get a pay rise? Indeed, is it any wonder that inequality is everywhere an issue?

In Europe this plays out at the national level, and at the international level of creditor countries (good) and debtor countries (bad), where the rights of the creditors must be protected and the mantra that ‘you must pay your debts’ must be respected.

Yet even in terms of simple welfare economics, this is nonsense. If the cost of squeezing the debtor is to keep them in debt servitude, or if the losses to the creditors are less than the costs of servicing the debt in perpetuity, then default is efficient, if not moral.

Today it is a profound irony that European social democrats worry deeply, as they should, about the investor protection clauses embedded in the proposed Transatlantic Investment Treaty with the US, and yet they demand enforcement of exactly the same creditor protections on their fellow Europeans without pausing for breath.

Something has gone badly wrong when social democracy thinks this is OK. It is not. Because it begs the fundamental question, “what are you for – if you are for this?”

The German Social Democrats, the heirs of Rosa Luxemburg, today stand as the joint enforcers of a creditor’s paradise. Is that who you really want to be?

Modern European history has turned many times on the choices of the SPD. This is one of those moments.

Its great that my book has helped remind you of this. But the point is to recover your voice, not just your historical memory. Your vote share isn’t going down because you are not shadowing the CDU enough. Its going down because if all you do is that, why should anyone vote for you at all?

I hope that reading my book reminds the SPD of one thing, that the reason they exist is to do more than simply to enforce a creditor’s paradise in Europe. I thank you for this award, and I hope that this book encourages us all to think again about the economy we want to build for ourselves, our children, and our fellow Europeans.“

End – Diese Zeilen sind die Redenotizen, die uns Mark Blyth fürs WirtschaftsWunder zur Verfügung gestellt hat.