Michael Roberts has an essential post on the propects for growth in Europe. Shorter version: there isn’t any – certainly not within the next decade if Europe’s leaders maintain current policies. This is not an unduly pessimistic analysis – it is simply based on practical illustrations of how economies work, how it has been shown that growth has been created in the midst of a great recession and why these guiding principles are not being followed by European leaders. The means of creating growth in currently depressed Eurozone economies is there, but Eurozone leaders are choosing not to implement these steps because they believe it “is better to have no growth than state-led or controlled growth”.
The reason, of course, is the provide the private sector with the opportunies to invest in those areas of the public sector where government investment is being removed. That is during a time when demand for private sector generated ‘products’ is declining they might instead be able to gain in areas where there is guaranteed demand: health, education, and infrastructure, even though this is notoriously inefficient and always requires public investment to compensate. Anyway, it simply won’t work.
So the major capitalist economies are likely to continue to experience weak growth for years ahead, while the weaker capitalist economies will stay in depression. Unemployment will fall only slightly and will still be higher than it was before the Great Recession several years down the road. Indeed, it is my view that before the end of the decade we shall have to face another slump in capitalist production in order to clear ‘excess’ dead capital in the private sector in order to revive profitability. For now, the private sector is unwilling to invest enough to drive a path for growth in Europe.
The post begins by mentioning the unpublished report by EU commissioners on the Greek Trokia team that are indicating that a further €12bn in public spending would be needed on top of the adjustment already agreed in the second bailout in order to meet targets. But this is something that would have to be implemented by whichever new government is elected this year, not the current technocratic led coalition government.
There is an acknowledgement now that austerity “on its own” will not achieve deficit reduction and reduce debt burdens. The solution? You guessed it – “increasing competitiveness”. I’m realising I’m quoting here at length, but anyway:
“The EU leaders are beginning to realise that austerity is not enough. Debt targets will not be met without economic growth as well. So more growth is now becoming the mantra of the Euro leaders and mainstream economics. But how is growth in the weak European capitalist economies to be achieved? They are contracting by anything between 1-6% of real GDP this year. The answer from mainstream economics is what we might call the traditional ‘neo-liberal’ solution. By that I mean that Europe’s economies must become ‘more competitive’. That means cutting wages to get down unit labour costs, ‘deregulating labour and product markets’ to break the power of trade unions to defend wages and increase the power of employers to hire and fire; and to ‘open up’ professional occupations to the less well-qualified and with poorer expertise at lower incomes. In other words, to try and create conditions for the private sector and especially big business (both domestic and foreign) to want to invest in these economies.
So the neo-liberal solution depends on praying that the private sector gets more profitable and then will invest and create new jobs and thus economic recovery. It is probably a vain hope. The reality is that since the trough of the Great Recession in mid-2009, profitability in the major capitalist economies is still generally below that in 2007 (see the graphic below showing rates of profit and my post, The UK rate of profit and others,4 January 2012 ). So there is no enthusiasm to invest in new capital while ‘dead capital’ remains a burden.”
Of course, in a Eurozone context such competitiveness by driving down wages is a nonsense. Eurozone countries export mainly within Europe, so this increased competitiveness is achieved by stealing the competitiveness of other Eurozone countries.
“Since the euro started, Germany has not become more competitive in Europe than others because it improved the productivity of its labour force through new investment. Indeed, productivity growth in Greece has been much more than in Germany since 1999 – up 25% compared to 10% for Germany. Of course, Germany’s level of productivity is still much higher. But Germany’s competitiveness improved because German workers’ wage growth was curbed. Since 1999 German wages have risen only 22% while they rose 66% in Greece. So although Greek competitiveness (as measured by unit labour costs) improved between 1999 and 2007 by over 5%, Germany did even better (see my post, Europe: default or devaluation, 16 November 2011). In other words, Germany stole some growth from Greece by squeezing wages at home. The neo-liberal solution is to make workers pay for the recovery and boost profits, not to raise productivity through investment and deliver higher incomes for all.”
What would work though is a proper restructuring of the bank debt and “public sector investment on a big scale in infrastructure, new technology and the environment, as well as funding for small businesses”. And of course we know this would work because both China and Brazil have proved that it works.
“Why have China and Brazil done so much better? The Chinese government launched a massive public investment programme in 2008 of $600bn, or 8% of GDP, to combat the impact of the global slump. Public infrastructure development took up the biggest portion. The projects lined up included railway, road, irrigation and airport construction. Reconstruction works in the regions were expanded followed by funding for social welfare plans, including the construction of low-cost housing, rehabilitation of slums, and other social safety net projects. Rural development and technology advancement programs were extended including building public amenities, resettling nomads, supporting agriculture works and providing safe drinking water. Technology advancement was mainly targeted at upgrading the Chinese industrial sector, gearing towards high-end production to move away from the current export-oriented and labor-intensive mode of growth. This was in line with the government’s aim to revitalize ten selected industries. To ensure sustainable development, the Chinese government also promoted environmental engineering projects.
To a lesser extent, Brazil did the same through its state-owned development bank BNDES that financed a huge infrastructure programme with cheap credit, much to the chagrin of the neo-liberal voices in the World Bank, the IMF and in Brazil itself.”
And we also now know that “China’s economy since 1978 is the greatest economic achievement in world history“.