Europe in Question: And What to Do About it

343 Pages·2014·1.83 MB·English

by  Stuart Holland

Europe in Question - and what to do
about it
Stuart Holland
He is not a good citizen who does not wish to promote, by every means in his
power, the welfare of the whole society of his fellow-citizens.
Adam Smith. The Theory of Moral Sentiments, 1759, Part VI, Section II.
In memory of Ken Coates and Egon Matzner
– brilliant advocates of a democratic and social Europe –
and to Alex and his generation, trusting that the book may help them
achieve it
Annex
A Modest Proposal for Resolving the Eurozone Crisis
Yanis Varoufakis, Stuart Holland and James Galbraith
Figures
1.1: Jastrow-Wittgenstein and Gestalt
1.2: Deflation by Decree: Weimar and Greece
5.1: Denial, Projective Identification and Forecasting
10.1: Keynes, Fisher and Gestalt
10.2: Friedman, Fisher and Gestalt
10.3: Recovery and a European New Deal
12.1: Asymmetric Global Capital and Labour Flows
13.1: Psychological and Social Contracts
15.1: On the Centrality of Human Value
16.1: The G20 and a World Development Organization
Tables
10.1: Multipliers from Public Spending and Investment
12.1: Europe’s Lagging Small and Medium Firms
14.1: Denial of New Deal Employment Creation
Acknowledgements
Without having known and worked with many of the politicians cited in the
book it would have been different - even if Europe itself would have been
different if Harold Wilson had followed through the confederal opening when
Charles De Gaulle agreed to a 2nd British application to join the EEC.
Knowing Jacques Delors since the mid-1970s and being able to work with him
on policies and institutions that could realise the cohesion pillar of the 1986
Single European Act was invaluable, as was Andreas Papandreou’s endorsing
the call for a New Messina conference which had led to it. As was working with
Antonio Guterres when he was prime minister of Portugal and would go into a
European Council in a minority of one, but then win, as he did in gaining the
case for the terms of reference of the European Investment Bank to be extended
to finance investments in health, education, urban renewal and the environment.
To be shadow minister for development in the 1980s when Neil Kinnock was
Leader of the Opposition was brilliant, and when Neil showed leadership
qualities in turning the Labour Party on Europe that Harold Wilson lacked. Not
in the sense that Europe since has been a success. Its current failure risks
disaster. But that when capital is multinational, politics also should be so while
the agenda Neil jointly endorsed with Andreas Papandreou and François
Mitterrand still is relevant to this.
Giuliano Amato and Romano Prodi, formerly prime ministers of Italy, have been
strong advocates of several of the proposals made in the book. As were Ken
Coates and Egon Matzner both in the Out of Crisis initiative of the early 1980s
and after, when Ken also was a member of the European Parliament. Working
with Willy Brandt, Michael Manley and other members of The Socialist
International on what became its Global Challenge report was a privilege and
led to strong interest in its proposals from parties in Latin America and from the
governments of India and China which still are relevant to the feasibility now of
global economic governance.
In a more conventional sense of acknowledgements I am indebted to Gerald
Wooster, a psychoanalyst, who encouraged me to develop the relevance of
splitting and projective identification to how the European project has failed to
fulfil its initial aspirations, as well as to Henry van Maasakker for briefings on
fulfil its initial aspirations, as well as to Henry van Maasakker for briefings on
materials I could have missed and for a range of insights that I lacked. I also owe
much to colleagues in the Faculty of Economics of the University of Coimbra,
where I have been welcomed as a Visiting Professor for some time, including
Teresa Carla Oliveira, co-author of several papers cited in the book.
As well as to Raphael Kaplinsky who introduced me to the case that it was the
failure of flexible labour markets that led to flexible production and continuous
improvement in Japan. Also to Yanis Varoufakis and James Galbraith both for
their good humour and friendship, and for their joint authorship of The Modest
Proposal appended to the book. Which is modest only in reflecting one of its
main themes that Europe does not need new institutions, or new treaties, or fiscal
transfers, or federalism to resolve the Eurozone crisis and restore what have been
usurped rights of national democracies. The final stages of preparing the text
were supported by the European Union and the State of Hungary, co-financed by
the European Social Fund in the framework of the TÁMOP 4.2.4. A/2-11-1-
2012-0001 ‘National Excellence Programme’.
Biographical Note
Born in 1940, Stuart Holland studied and taught history and political theory at
Oxford, then became an adviser to Harold Wilson on European affairs and in
1967 gained the consent of Charles De Gaulle for a 2nd British application to
join the European Community on the basis of a confederal Europe, mutual
currency support and a European Technology Community.
Resigning from No. 10 when Wilson did not follow this through, he finished an
economics doctorate at Oxford and taught at Sussex University. His case that
Britain needed selective public ownership of big business and banks,
accountability of multinational companies and an industrial policy was adopted
in the economic programmes of the British Labour Party for a decade from 1972
but also strenuously resisted by Wilson and other members of the 1974-1979
Labour government.
From 1979 to 1989 he was a Labour Member of Parliament and then worked
with Jacques Delors on EU policies for economic and social cohesion. His 1993
proposals to Delors for EU bonds to offset the deflationary effects of the
Maastricht debt and deficit criteria were supported thereafter by heads of state
and government at successive European Councils but not enacted. Eurobonds
then hit headlines from the onset of the Eurozone crisis when opposed outright
by Angela Merkel and German finance minister Wolfgang Schäuble. Whereas,
from September 2014 an initiative for an investment led recovery financed by
EIB bonds was on the agenda of European finance ministers and could in
principle achieve the 1993 design for them.
His earlier advice to Andreas Papandreou, backed by François Mitterrand,
prompted the first revision of the Rome Treaty with commitment to the principle
of economic and social cohesion in the 1986 Single European Act. His later
advice to Portuguese Prime Minister Antonio Guterres resulted in a cohesion and
convergence remit for the European Investment Bank to invest in health,
education, urban regeneration and the environment.
He has published papers and books on economic theory, social and political
theory, public enterprise, planning, regional policy, economic integration,
international development and global economic governance. He currently is a
Visiting Professor in the Faculty of Economics of the University of Coimbra,
Portugal, and Senior Research Scholar of the Institute for Social and European
Studies at Köszeg, Hungary within a programme jointly funded by the the
European Social Fund and the government of Hungary.
Introduction
This book is in part autobiographical since, for better or worse, I have been an
actor since the 1960s in initiatives to try to gain a democratic and social Europe
in which markets would serve people rather than people serve markets whereas,
since the onset of the Eurozone crisis, the European Union has been sacrificing
their wellbeing and welfare on the altar of austerity.
It is commonplace to attribute this failure to design faults for the introduction of
the euro. But Europe in Question submits that these also were earlier in Jean
Monnet’s flawed supranational ambition rather than a more confederal
framework that could enable nations to do better together what they could not do
well by themselves, and thereby enhance rather than deny national democracy.
It draws on political and economic theory and also psychology in the sense that
what are assumed to be facts depend on how they are perceived. Such as
equating debt with guilt, or seeing public spending as draining rather than
sustaining the private sector. Or the failure to recognise that while, as an
outcome of salvaging banks, many European member states now are deep in
debt, until May 2010, with the first major financial response to the Eurozone
crisis, the European Union itself had none
Further that EU has an under-recognised late starter advantage that America
could welcome now, since its own borrowing still is less than the level from
which the Roosevelt New Deal not only recovered employment in the US
through shifting savings into investments through bond finance but also gave the
private sector confidence in recovery and the public confidence that
governments could govern rather than markets rule.
A main claim in the book is that a European New Deal can be achieved by
recycling global surpluses without these counting on national debt, without fiscal
transfers or guarantees by member states, without an increased European budget,
without new institutions and without a federal grand design.
The case that Europe could countervail the deflationary debt and deficit
conditions of the Maastricht Treaty by bond financed investment was integral to
a report on economic and social cohesion that I made to Jacques Delors in 1993.
As this book goes into production there are indications that such a case for
investment-led recovery may finally have gained agreement. Whether it does so
effectively remains to be seen.
But the book also delves deeper, such as that postwar German concern with price
stability neglects that it was not the hyper inflation of the early 1920s that
enabled Hitler to seize power, but the deflation and austerity in the early 1930s
insisted on by the government of Heinrich Brüning which increased
unemployment, lost him support in the Reichstag and drove him to govern by
decree, as Troikas recently have for several European countries.
It relates this to the error of seeking ‘structural reforms’ and more ‘flexible
labour markets’ to compete down on labour costs. Not only since, in Germany,
this has reduced internal demand and imports from other EU member states and
the rest of the world but also that not all goods or services are subject to
international competition. Hospitals, health centres, schools, social services,
other civic services and urban transport are local not global. And their economic
and social efficiency can be gained by ‘continuous improvement’ to mutual
advantage of both their employees and the public through innovation-by-
agreement which was recommended in the 2000 Lisbon Agenda as a means of
restoring the European Social Model.
Also since it is Schumpeterian process and product innovation rather than
reducing the cost of labour that can lift economies and societies to higher levels
of income and welfare. Much of which, as illustrated later, has been achieved
through public sponsorship and synergies, including most of the innovations in
the US in recent decades including the world-wide-web itself, Google’s
algorithm and entirely new sectors such a nanotechnology.
It also submits that innovation should promote both efficient economies and
efficient societies and recognise the centrality of human and social rather than
only the market values which, since the endorsment of neo-liberal policies from
the 1980s have encroached on the social domain with alleged ‘New Public
Management’, which in reality has been a regression to Fordist concern with
throughput and Taylorist surveillance.
Further that while Keynes was right to stress effective demand, there also is
latent social demand to be met if societies are to be able to achieve wellbeing
and welfare. Such as for more labour intensity in education, health and social
services - smaller class sizes, shorter waiting lists, more care for the young and
the elderly – which actually was endorsed twenty years ago by the Essen
European Council as a commitment to achieving a European Social Model. And
which could be achieved in revenue terms if investment costs in education,
health and urban renewal were shifted from national to European borrowing.
In making this case it echoes the claim of Adam Smith that functional economies
depend on functional societies, and that this implies recognising mutual
advantage for the welfare of the whole of society rather than the comparative
advantage which was a deceit of David Ricardo’s that became dominant in the
IMF, the World Bank, GATT and the World Trade Organization.
It relates this to models of global governance. Since the G20 of heads of state
and government was formed after the financial crisis it has not even formed a
permanent secretariat. Failure to allow the emerging economies a more
significant share of voting rights in the Bretton Woods institutions has prompted
their creation of their own development bank and, potentially, monetary fund.
In this context it recalls that the postwar European recovery was not through the
IMF and World Bank, but by a new, simpler and non-hegemonic institution - the
Organization for European Economic Cooperation. It submits that the G20
should parallel the earlier success of the OEEC by nominating the governing
body of a World Development Organization rather than trying protracted reform
of the Bretton Woods institutions and that, unlike the 1943 Keynes Plan, do so
on a confederal rather than supranational basis.
It also analyses the limits of economic theories which have displaced or denied
the feasibility of social welfare, some of which have been well critiqued by other
economists, but which it seeks to explain in a manner which is accessible to non-
economists. In doing so it recovers the case of Wilfred Pareto that there is no
basis for projecting past market trends into future outcomes, which was an error
of the ’rational expectations’ and ’efficient market’ theories that paved the path
to the subprime crisis and the second Wall Street Crash.
It also shows that Leon Walras, one of The Economists who, with Pareto, has
been taken to be a founder of ’pure theory’ and equilibrium outcomes in
mainstream economics, fulminated against this misrepresentation and not only
stressed that all land, public utilities and public transport should be publicly
owned and run on a non-profit basis but that all banks and other financial