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Finance and Economy

The Hope for a New Model?

By Roosevelt 2012

A collective of French thinkers and activists have formed ‘Roosevelt2012’, dedicated to critiquing the neoliberal economic model and promoting a sustainable, European-wide response. This article is an introduction to their work.

There is a huge amount of dismay in our country, France. There are already 500,000 unemployed people registered to the unemployment office, hundreds of thousands of unemployed people who no longer qualify for unemployment benefits and millions of people living in poor and precarious conditions. Hundreds of thousands of families already have great difficulty paying for their rent or bills and everything points towards us entering into a new recession in the near future.

The Total Amount of U.S. Debt Reaches 358% of GDP…

In  2011, whilst U.S. public debt increased by 1.70  billion dollars  the GNP only increased by 1%. More debt for less growth! The world’s biggest economy is like a car that needs a litre of oil every 300 metres. At any moment, a piston rod may break and the engine will explode. Colossal budgetary cuts planned for 2013 may throw the USA into a recession of historic magnitude.

In China, the Real Estate Bubble…

Is double the maximum amount reached by the bubble in the United-States before the subprime crisis. In 2009, in order to avoid the recession, the government ordered banks to accept all the credit requests that they received.

In One Year, 44% of GDP Has Been Injected into the Chinese Economy…

30% is private credit and 14% by public debt. There is construction everywhere… a plethora of empty buildings. At the end of December, a Chinese official announced that we should expect a 40 to 50% drop in real estate prices in 2012! In February and January the home sales fell of 25%.

We saw what such a burst can do in Spain: unemployment tripled in three years[1]. What is going to happen in China where there is already 20% unemployment and where social riots are becoming increasingly violent? The bursting of the real estate bubble along with a drop in exports is an explosive combination.

All those that maintain that China and the USA l would drive growth and that there was no risk of a second recession, had completely misunderstood how the real economy works. Once again!

The next crisis may be more serious than the 2008 crisis because, unless the rules of the game are changed quickly, governments are no longer able to rescue the financial sector if it suffers another heavy shock. When Lehman Brothers fell, the panic only lasted a few days because Bush and Paulson said that they would offer up 700 billion dollars to these financial institutions. Calm returned very quickly because there was no doubt that they were able to pay the 700 bn, however the shock did still cause a global recession and put tens of millions of people out of work across the world… Three years later, no one knows how President Obama could find such a sum of money if it became necessary. We should therefore avoid coming to that bridge at all costs. ‘We must take quick and decisive action which requires, first and foremost, establishing a clear diagnosis of the financial crisis.

Why have the policies carried out over the last 4 years all failed to get us out of the crisis and at times worsened the situation? The answer is because the widely accepted diagnosis isn’t the right one. Today, our policies are paralysed by their desire to ‘reassure financial markets’ which have totally contradictory demands: faced with the risk of recession, should we implement new stimulus packages, to the point of being crippled with debt, or should we vote for austerity policies and immediately falling into recession (which causes social crisis and public finance problems, as we have seen in Greece and Portugal)?

How do we resolve this dilemma? Why are our economies falling back into recession if we are depriving them of their drug? Why have our countries become dependent on debt? It is by analysing the statistics of the American Federal Reserve for the last 60 years that we can understand the causes of this addiction. Until 1981, the GDP/debt ratio was perfectly stable[2].  The economy didn’t depend on debt to grow steadily because collective rules ensured a stable progression of salaries and fair and equitable sharing between employees and shareholders. The ‘Fordist compromise’ provided the United-States with 30 years of prosperity. Without debt.

However, in 1981, Ronald Reagan was elected into the White House. The neoliberals lowered taxes for the rich, while deregulation policies led to greater insecurity and lower salaries. From this point onwards, millions of Americans would begin to run into debt in order to maintain the standard of living and public debt would rise. The United-States is not an exception: for the 15th richest countries of the OECD, salaries which represented 67% of the GDP in 1982 now only represent 57%.

In a context of mass unemployment, which employee is able to negotiate a raise in salary? Who is able to ‘resign’ in the hope of quickly finding new employment? ‘If you are not happy, you can’t go elsewhere.’ The fear of unemployment is in all of us and what goes to salaries  from the wealth generated has fallen to a historical low. ‘In the Eurozone, each year companies take the equivalent of 1% of GDP from their employees’ pockets, on top of what they have made in the previous years.’ explains Patrick Artus, director of research at Natixis. For years the economy has only continued to grow because we distributed the purchasing power that we weren’t providing in salaries through debt: ‘without the increasing of the level of household debt, growth would have been at 0% in the Eurozone since 2002’ continues Artus.

In total, in 30 years, significant sums have gone to financial markets instead of going to employees and, in turn, to the government, through VAT. Has this money benefitted research and investment? No. All studies show that investment and research are stable. These colossal funds have been monopolised by a small number of individuals. For months, Europe has been struggling for find €110 billion to save Greece whilst the accumulated fortune of 0.2% of the world’s richest people is estimated to be €39,000 billion[3]!

In 2008, everyone maintained that the crisis was the cause of unregulated capitalism and unbearable level of inequality. Joseph Stiglitz denounced ‘the triumph of greed’. In 2007-2008, the diagnosis was clear: ‘as with the crisis in 1929, the crisis came from an unacceptable level of inequality. It comes from deregulation and neoliberalism.’ However, for months, because of Greece (where the State and non-State actors are largely responsible for the crisis), the welfare state is once again taking the blame.

A Dramatic Reversal!

Because of the situation in Greece, the neoliberals are wading back in with unbelievable indecency.

The question of government debt is obviously very important (between 80 and 90% of GDP in France and in Germany), but instead of cutting pensions and funding in the health and education sector, shouldn’t we use all the possible fiscal resources to recover a sizeable proportion of ‘market debt’, the significant sums that the 0.2% of the world’s richest people owe to the peoples of our countries, if we consider that the fair and equitable sharing between employees and shareholder was fair and effective in the 1970s?

This is not an attempt to trivialise the responsibility (or irresponsibility) of governments[4] and citizens but merely to provide the fairest diagnosis of the situation possible.

A Global Response for a Global Crisis

Confronted with a global crisis, we must provide a global response. The source of the crisis is 30 years of unemployment and insecurity[5]. The proportion of salaries in added value has fallen so much because of mass unemployment and it is because of unemployment, casual jobs and small salaries that our economies always need debt. Unemployment is not only a consequence of the crisis, it is also one of the main causes.

To eliminate our dependency on debt, we clearly have to regulate markets and tax the highest incomes but we must also, above all, directly deal with unemployment: it is only by giving real employment and a real capacity to negotiate salaries to the greater proportion of the population that we will get out of this crisis for good, by eliminating our dependency on debt.

In 1944, before calling the Bretton-Woods summit to rebuild the international financial system, Roosevelt organised the Philadelphia summit, whose absolute priority was the observance of a certain number of social rules: ‘there is no sustainable peace without social justice’ declared Roosevelt and the other heads of states before outlining rules on salary, working time and the fair and equitable sharing of salaries and dividends…  solid rules to be respected in each country and in global trade. Before the neoliberals dismantled them, these rules ensured 30 years of prosperity without debt.

Good News!

Although it was a political decision that led us into the crisis, other political decision can get us out. There is not fatality, no hand of fate that unrelentingly leads us towards chaos. Our future is in our hands!

Whether the neoliberals like it or not, social justice is not a luxury that we should give up because of the crisis. On the contrary! Rebuilding social justice is the absolute priority, the only way to eliminate our dependency on debt.

The First Battle That We Have to Fight Is the Intellectual Battle

Confronted with the neoliberals’ counter-offensive, and populist deviations, we must do everything to make sure that the debates in 2012 – both the debates on the European Treaty and the presidential debate- be undertaken based on a clear diagnosis:

The crisis, which we are heading towards if we do not change policies quickly, may be more serious than any of the crises that we have experienced in 30 years. We must stop with empty dialogue and half measures, and move towards administering emergency medicine.

It if first and foremost a crisis of unregulated capitalism and not a welfare state crisis. ‘No one dares speak of capitalisms anymore’, explained Michel Rocard in 2007[6]. I am the only person to use this word, whilst the system is a suicidal crisis for humanity. We, socialists, should be well place to explain it and take action against it’. ‘Social democracy has become silent on what was its main enemy’, regret Stéphane Hessel and Edgar Morin[7].

Many left-wingers prefer to remain unclear about the analysis of the crisis because they are afraid of ‘looking like awful Marxists’. At the same time, Michel Rocard, that people sometimes find too ‘centrist’, is one of the few to say things frankly: when the OECD shows that the proportion of salaries in the GDP has fallen by 10%, when the International Herald Tribune declares that never, in 80 years, the proportion of GDP that goes to shareholders been as high[8], when the director of research at Natxis writes that ‘each year companies take the equivalent of 1% of GDP from their employees’ pockets, on top of what they have made in the previous years’, we would hope that the left make a clear analysis of the crisis in the public debate and appear more on the defensive. Even more so as the neoliberals are attempting to cloud the issue and blame all the problems on the welfare state…

Deadly Confusion

This question of a clear diagnosis is essential. It is secondary or ‘theoretical’. If we do not dispel this current confusion, if we share double diagnosis of the gravity and true nature of the crisis among the greater proportion of the population, then it will be possible to build a wide and quick consensus over solutions, like the National Council of Resistance was able to create a wide consensus, from Gaullists and Communists, around measures of social justice. On the other hand, if confusion sets in, if the insult and this search for a scapegoat replace rational analysis, it is likely that we will not manage to change policies before the system collapses.

The final element of diagnosis: the gravity of the financial crisis and the social crisis may lead us to forget about the energy crisis, the climate crisis and the food crisis. All the studies published for the Durban summit show that climate change is speeding up. This summer, in several regions of France, farmers had to slaughter their cattle because the drought meant that they couldn’t feed all of the herds and at this very moment hundreds of millions of people are suffering from hunger all around the world.  We only have a few years to take action if we want to avoid the climate issue and the energy issue causing repetitive drama and very serious armed conflicts.

‘Never has a generation had to manage so many crises of such scale at the same time’ wrote Henry Kissinger recently in the Herald Tribune. The scale of the task must not discourage us. We have no choice. We are talking about our lives and the lives of our children. Looking away or counting on a miracle is impossible. We must take action if we do not want to undergo a crisis ‘worse than the 1930 crisis’. Instead of hoping for the miraculous and providential action of one man or woman  that will never come, we must join together as much as possible to discuss and act together. We can take up this challenge and impose our solutions in the public debate.In 2011, all over the world, citizen movements stimulated the public debate. In the United States, Occupy Wall Street is changing Barack Obama’s position.

That Is Why We Have Just Created the Roosevelt Collective 2012

It brings together men and women from different backgrounds, but who all share the same feeling of urgency and the same desire to take action for social justice. Our objective is simple: to use all of the possible resource in order to promote among the greater proportion of the population and impose on our leaders 15 radical but realistic measures to tame the financial market, to deal with unemployment and finally build a democratic Europe, capable of effectively dealing with globalisation. ‘We must not count on those who created the problems to solve them’ declared Albert Einstein. Politics is too important to be left to political parties.

 

[1] Le Monde, 28/10/2011

[2] The curve on this graph represents the USA total debt, excluding the financial sector’s debt: family debt + company debt + debt of the authorities and the federal government.

[3] Le Figaro 11 juin 2010

[4] If France had accepted de creation of a political and democratic Europe (as proposed by Wolfgang Schaüble in 1994 and Joschka Fischer in 2000) Europe would be obviously stronger for facing the crisis.

[5] Germany has not been spared of insecurity: since the Hartz 4 reform, there are so many ‘casual jobs’ that, even before the subprime crisis, the average working time fell to 30.3 hours (excluding the unemployed). In constant Euros (that is to say taking into account inflation), more than 80% of Germany saw their salaries fall since 2000. If the rest of Europe hadn’t given distributed more purchasing power and hadn’t bought German products, Germany would have been in recession several years ago.

[6] Le Parisien, 25/08/2007

[7] Le chemin de l’espérance, Fayard, 10/2011

[8] International Herald Tribune, 26/11/2011

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