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Finance and Economy

The Crisis Is an Opportunity to Reform the Economy

By Gerhard Schick

A corporatist economy doesn’t leave businesses much room for ecological and social concerns, says Member of the Bundestag Gerhard Schick. In an interview, we discuss his book “Corporatist Economy – No Thanks!”

GEJ: What, in your view, are the most visible symptoms of the fact that something is wrong with today‘s economic system?

Gerhard Schick: For one thing, there is the crisis, which continues to result in high unemployment. But there has also been a structural change: the market economy is no longer functioning in the way it was intended to. On the one hand, this has something to do with the fact that some companies have acquired a great deal of power and can use this to dictate the terms, but also with the fact that financial markets continue to play much too big a role and to influence market conditions strongly. And the third reason, which is bound up with the first two, is that corporate interests very often dominate politics. Often, the state no longer sets the rules, as it is supposed to do in a market economy, but instead it is companies which are trying to set the rules themselves. These three phenomena are what I collectively refer to as the ‘Corporatist Economy’, because our economy is not dominated by fair markets but by big private companies.

You mention in your book that you had the opportunity in Hong Kong to talk to small investors who had suffered losses and who demonstrated in front of the offices of the banking supervisory authority. What did you learn from this meeting?

What was interesting was to see that the problem of protection for [small] investors was the same there as it is in Europe: the big banks had transferred the risks on to inexperienced clients. This took place in Hong Kong just as it did in Germany. And you can see that big companies are able to strategically exploit the weaknesses of different production locations, and consumers become the pawns in this game. This is not a good thing: markets should be organised for the benefit of consumers.

 

I think it is very important that people try to buy fair trade products when shopping. But we can only achieve what is really important politically by changing the regulations.

 

That’s an issue that ought to be familiar to everyone since the Lehman Brothers crash. So it also raises the question of why the economy seems to continue to operate almost exactly as it did before the crisis happened?

Many things have changed in the last few years. A huge number of laws have been passed, at the national level as well as the European. But the crucial change has not happened because the power relations are still wrong. Financial markets are still growing, the imbalances are still there. It is still often the case that the state is not capable of properly grasping what is happening on the markets. And the legal regulations often can’t be enforced, either because the public authorities are far too weak or because the political will to enforce those regulations simply isn’t there. In my personal experience, in many cases, although the laws exist, the authorities simply have no chance of understanding what the banks are doing without information from the companies, and as a result many problems are not noticed in time.

But you also write that the big banks still receive subsidies from the taxpayer amounting to billions. That doesn’t suggest that the state has the will to actually use its powers of enforcement.

There has already been a tightening of the regulations on capital requirement, so it would be wrong to say that nothing has happened. But big companies often continue to enjoy special advantages, just as they always did, not just the big banks. In the area of taxation, for example, where big companies in the EU play the states off against each other. At the end of the day, small businesses and employees have to pay their taxes, but big companies only pay a small amount of tax on their earnings. That’s an advantage which small businesses can never make up, no matter how good they are. And of course that has an influence on competition.

In recent years, or decades, the state has lost considerable legitimacy as a regulator because it failed to solve the problems. What could or should the state be doing in this situation?

It is very important to address the deficiencies in the state too. The big parties are often only interested in keeping them hidden. We’ve seen that in very many countries. Germany is a good example too, because there, too, hardly any politicians have had to bear the consequences of the mistakes that led to the bank crisis. And as a result of course people are simply unwilling to trust the state, which has got so much wrong. I believe that the Greens, with their predominantly sceptical attitude to state power, are actually well placed to provide a good answer here by saying, “We need firm and simple rules,” instead of leaving the whole issue to be sorted out by state bureaucracy. Public sector banks also need very good management control systems, because otherwise they are just as capable of making a mess of things as private banks. There were a great many shocking examples in Europe showing that public sector institutions were no better than those in the private sector.

We can also see that the customers often play along with the big companies’ game. We know that lots of products are harmful for us but we still buy them. Why?

Often we don’t have enough information. Sometimes we know but find it difficult to switch. I think it is very important that people try to buy fair trade products when shopping. But we can only achieve what is really important politically by changing the regulations. We have to make sure that the consumers are on a level playing field with the companies so that they can fight back. We have to have rules that mean that financial products that are too obscure to understand can simply be taken off the market, and that there is greater liability for harmful products, so that companies are scared of putting bad products on the market in the first place. I don’t think the responsibility should be dumped on the individual consumer alone.

 

I believe all countries benefit when citizens are socially engaged and political issues are not just left to the career politicians. And vice versa: the political system must not exclude civil society.

 

You also write about CSR (Corporate Social Responsibility) in the big firms and suggest that this kind of activity usually only serves the firm’s own public relations and marketing purposes.

Of course there are positive examples in some sectors, but the goal of private companies overall is to increase the wealth of their shareholders. All ecological and social aspects are subservient to that goal. That’s why I say that we have to change the DNA, the underlying structure of companies if we don’t want our economy to be only about finances and money. Otherwise the economy will fail to meet our needs, because human beings are not interested only in money. That’s why it is important to require companies to include social and ecological issues in their public reporting.

But how can we change the DNA of these firms?

In addition to the public reporting requirements we should change the laws on corporate ownership and governance so that it becomes possible for social and ecological targets to be integrated into the corporate goals and mission of a firm. And here I would like to come back to the issue of the corporatist economy: we have to prevent companies growing too big for us. Owner-managed companies can recognise their responsibility to their community and their bosses can sometimes allow themselves not to pursue profit at any cost in order to treat their employees fairly and avoid damage to the environment. But managers of corporations have to maximise profits. A corporatist economy therefore doesn’t leave them much room for ecological and social concerns. That’s another reason why I as a Green politician am involved in economic policy issues: if we want to protect the climate, if we really want to protect biodiversity, if we want to make sure that ethical issues are not entirely ignored, then we have to take on the powerful, big organisations who are only interested in profits. If we don’t do that, then there is no chance of achieving green goals like climate change.

 

Unlike in other EU member states, where cuts are being made, here the state has been able to spend more money. So most Germans are not aware of the dramatic impacts of the European crisis and they do not feel the need to protest against the mistaken political response to the crisis.

 

Do you feel that, as a result of the crisis, the climate issue has been completely pushed off the agenda? It seems that everyone is now focused only on finding financial and economic solutions to the problems of our economy.

Up until now, neither we Greens nor the wider environmental movement have succeeded in getting the economic, ecological and social crises dealt with in Europe together and at the same time. It’s not just the silly, financially catastrophic construction projects that have been started; many, many people have also lost their houses and their incomes because of the high indebtedness. And besides that, vast resources have been squandered on business projects that nobody needs, even though we do have real problems that need to be addressed. That’s exactly what we mean by the Green New Deal: we must try to use this crisis to reform the economy, because the way it has operated in recent years has been the cause not only of economic damage but of social and ecological damage too.

But the Greens do not hold the balance of power in Europe. So how can you get other parties to take up the aims of the Green New Deal?

I think that in the last few years we Greens have made a mistake in failing to think through rigorously enough how the three dimensions are linked, and we have engaged too strongly with the economic argument in isolation. Of course, in the crisis, that has been very much at the forefront; but if on the other hand we focus solely on ecological issues then we are not close enough to people’s current everyday concerns. So we have to address all three dimensions together, and then to win over other partners who also want to change our way of running the economy..

At the end of your book you make a plea for a different style of politics. What would such a ’politics of being heard’ look like?

It is the conclusion I reach from seeing that in many cases the state and the political system cannot solve our problems – in fact, they were and remain a part of the problem. Politicians need to be very wary of promising that “we can do it all better!” Without support from the people it will not really be possible for us to achieve a new alignment of economic policy in the face of the dominant power structures. TTIP and the financial transactions tax are both good examples, where Green members of parliament have done good work, but it then required the signatures of many thousands of citizens to create the pressure that was needed to change the political debate. I believe all countries benefit when citizens are socially engaged and political issues are not just left to the career politicians. And vice versa: the political system must not exclude civil society.

Many people feel that this economic system is not there for them, and I believe that the fundamental answers cannot come only from the top down. People need to get actively involved.

The critique of the economic system that comes from the Blockupy demonstrators is on many points similar to your own demands. What do you think of those – sometimes violent – protests?

Although many of the demands being made were correct, I reject the kind of violent protest that took place in Frankfurt, and we in the party are completely unanimous about that. I also think it was not a good idea to target the criticism at the European Central Bank. I think that was the wrong target, because at the moment the ECB is doing quite a lot to combat the crisis. It is true that it has also made a lot of mistakes, for example in the negotiations with the crisis countries, as a part of the Troika. Nevertheless the real problems lie in Berlin and the other European seats of government, where the politics of austerity were adopted and where the necessary reorientation of European economic policy towards investment and reducing unemployment is being blocked. That is what we should be protesting against.

My impression of Blockupy is also that it is a relatively narrow grouping that has failed to engage and mobilise the wider population. I think if we really want to achieve something we have to get many more people involved, and to exclude those who resort to violence.

Why are there no mass protests in northern Europe as big as those of the Indignados in Spain or Occupy Wall Street in New York?

At the moment, Germany and a couple of other northern countries profit from the crisis. Unemployment is falling here and wages are rising because the Euro exchange rate is too low given the current state of the German economy, and interests rates too. So since the start of the crisis, the Federal German budget has benefited from 94 billion Euros in debt service reductions. Unlike in other EU Member States, where cuts are being made, here the state has been able to spend more money. So most Germans are not aware of the dramatic impacts of the European crisis and they do not feel the need to protest against the mistaken political response to the crisis. But the policies being pursued are very short-term and will be harmful to Germany too in the longer term, because we can only do well when our European partners are also doing well.

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