Abstract
This book on the current ‘fractures and crisis in Europe’, authored by a group of researchers at the Complutense Institute for International Studies (Instituto Complutense de Estudios Internacionales – ICEI) of Madrid’s Complutense University, sets out to offer, in relation to the economic crisis, an alternative diagnosis to the understanding favoured by much of today’s conventional wisdom. The authors take as their tool for this purpose Regulation Theory, an approach that has greatly influenced critical thought in the countries of southern Europe. This review considers five aspects: first, the book’s main thesis; secondly, the nature of the current split within Europe; thirdly, the methodology adopted by the authors; and, fourthly, the alternatives they propose; fifthly, I add a few critical comments.
I. Thesis. The origins of the crisis actually go back to the heyday of neoliberal policies in the 1980s. It is then that the seeds of the economic crisis we are experiencing today first began to develop. Insofar as the current economic crisis is the outcome of an interrelationship among several factors, it may be said to be multi-causal. The causes referred to by the authors include the following: financial deregulation; debt accumulation; excessive risk-taking; financialization of the economy as a prevalent trend and ethos; the euro; global current account imbalances; conflicts of distribution. The most deeply rooted of these causes have been in gestation for three decades. These multiple causes have been categorized by the authors as belonging to four groups:
a gradual deterioration at the level of income distribution within the European economy, reflected in a drop in the share of wages in national revenue;
an increasing financialization of the economy, to be viewed and understood in terms of both the weight of the financial sector in the economy as a whole and the growing presence and significance of a financial rationale in economic transactions: this is reflected in the prevalence of ‘short-termism’, or what Richard Sennett refers to as ‘impatient capitalism’, an ethos guided by the principle of the stock exchange value of company shares – a casino-style economy, in other words.
a high degree of asymmetry within the European Union between different economic sectors and territorial units. To take one example: in 1986 per capita GDP in Spain, Portugal, Ireland and Greece was 66 per cent of the EU average, a figure that had risen to 89 per cent by 2006. With the economic crisis this process of approximation was jolted into reverse so that by 2012 the per capita GDP in this group of countries had fallen back to 85 per cent of the average (see Pérez, ‘La crisis de la solidaridad europea’, El Païs, 7 October 2013). The main reason for the imbalance between countries and regions within the EU is different forms of product specialization. Specialized industrial and hi-tech production, which generates high added value, remains confined to the economies of the European core and those subject to the influence of Germany. Southern Europe, by contrast, specializes in services of low added value, resulting in lower income from wages and less capacity for redistribution.
the creation of the single currency and of an economic policy that has promoted the interests of the European core to the detriment of the periphery. One example in this respect is furnished by the comparison between Germany and Spain supplied by the authors in a chapter of this book. The most important macroeconomic imbalances are associated with creation of the Monetary Union (p. 19) which has led to the development of strong current account imbalances in the euro area countries. In this respect, the majority of the core euro area countries have recorded a surplus that may be attributed to export-based growth. The peripheral countries, on the other hand, have consistently recorded high deficits. A feature of the euro crisis has been the asymmetry of its repercussions between the core and the periphery. This aspect has recently come in for criticism from the United States Treasury Department which asserts that Germany’s huge current account surplus is harmful in that it causes a deflationary bias within the euro area (see Paul Krugman, El País, 10 November 2013).
II. The split within Europe. The crisis of the Monetary Union has contributed to the misgovernment of the economy and to a splitting of countries between a core and a periphery – not that this is a new division, but it is one that the euro crisis has served to exacerbate. In other words, inequality between different countries and groups of countries has increased. The countries studied in this volume are 12 out of the 17 euro area states. They are classified by the authors into core and periphery:
The countries making up the core are Germany, the Netherlands and Austria, together with Belgium and Finland. The main common feature characterizing these core countries is their current account surplus, with domestic spending below the national revenue accompanied by an excessive level of savings such that they form the group of creditor countries to which the peripheral states are indebted.
The concept of periphery is applied, by contrast, to those countries whose per capita income is systematically below average; these countries display a significant current account deficit, indicating growth in domestic spending above national revenue, with a resulting increase in the level of the national debt expressed as a percentage of GDP. These countries are Greece, Portugal and Spain. Italy and Ireland are located in a borderline position. The split between core and periphery is reproduced also within countries, the most striking cases of this phenomenon being the North-South divide found in both Italy and Spain.
III. Methodology. The methodological approach used to study the subject in question takes its inspiration from Regulation Theory, on the one hand, and from Wallerstein’s World-System Theory on the other. Regulation Theory seeks to understand the interaction between social institutions and the economy, including an explanation of the different modes of articulation between political institutions, institutions of economic redistribution, functions of social actors and the mode of regulation of Social Order in the different phases of capitalist development. The Keynesian-Fordist accumulation model is, for instance, a fundamental reference in current French thinking along these lines (see Aglietta, Michel, 1979: Regulación y crisis del capitalismo. Madrid: Siglo XXI). Modern system theory, meanwhile, provides a structural view of capitalist development since the 15th century (Wallerstein, Immanuel 1976: The Modern World-System. New York: Academic Press), with particular reference to the relationship between colonial territories and the metropolis of the developed countries and their post-independence relations. It is, in other words, a systemic vision of capitalism as a whole: the development of the industrialized countries at the centre is explained by their interactions with the peripheral economies and societies.
The period studied covers broad economic cycles across two distinct periods: a) the Keynesian-Fordist period from 1960 to 1980; b) the post-Fordist period from 1981 to 2007. The authors analyse large statistical data sets (using Eurostat, the OECD and other databases) to illustrate the change in the model of capitalist accumulation, the transition from the Keynesian-Fordist model to the new model of capitalist accumulation characterized by the indebtedness-growth conjunction (the indebtedness being both private – ‘private Keynesianism’ – and public). Indebtedness, as is argued, constitutes a powerful weapon for imposing new forms of social discipline, for coercing labour and the trade unions.
IV. Alternatives. The book concludes with a series of proposals intended to offer alternatives to austerity policy. These proposals are as follows:
Replace austerity policies by a policy of fiscal stimulus designed to provide the boost required to bring the economy out of recession. A policy to foster new growth would have to take account of environmental problems to ensure the promotion of sustainable development;
The countries of southern Europe should opt for a more robust form of growth, different from the current labour-intensive model characteristic of sectors such as construction, catering and tourism, etc. The new form of development would be technology- and knowledge-based, requiring an active role to be taken by the public sector;
Steps should be taken to promote decent work, entailing higher wages and a redistribution of income;
The financial sector should be required to operate in the service of social needs and measures are required to tackle over-indebtedness;
The financial sector should be converted to the development of productive activities rather than focusing on speculative activities geared to the short term;
The burden of over-indebtedness in the economies of the peripheral states should be reduced by means of a debt moratorium or even amnesty;
The European political project should be formulated anew so as to encourage changes in wage policy, competitiveness and current account imbalances. The new policy should tackle the production asymmetries between core and periphery by means of institutional mechanisms to monitor and correct territorial inequalities;
A policy of European coordination of nominal wages should be promoted and other flexibility mechanisms, not based exclusively on wage and employment flexibility, should be established;
Wage increases should be linked to productivity increases.
V. Critique. The reading of the contemporary situation offered by this book may perhaps be regarded as excessively focused on macroeconomic variables, though it does of course analyse the political implications entailed by the current state of the European economy. The authors acknowledge that the crisis is one that transcends economics. And yet other important dimensions of analysis are lacking, such as the role in the European integration process of social players or of institutions – such as case-law and its ‘inductive’ effect in relation to competition and liberalization as described by Scharpf, 2010 (‘The asymmetry of European integration, or why the EU cannot be a social market economy’, Socio-economy Review, n°8, 211–250).
The authors do, however, look closely at a number of economic-institutional aspects associated with Monetary Union, such as the budgetary discipline standards, the absence of a common budget, the non-existence of wage coordination instruments and the independence of the European Central Bank. The absence in some of the analysis of a political dimension – the omission, for instance, of the role played by inter-governmental agreements, of that of the European Parliament, or of trade unions and employer associations – should not be taken to mean that the book suffers from an economistic bias; on the contrary, there is plentiful consideration of the political socio-economic implications inherent in the economic split within Europe, in particular as these stem from – and simultaneously reinforce – the huge territorial inequalities. There is no doubt that the book represents an important contribution to our understanding of the current economic crisis and its possible alternatives.
Translation from the Spanish by Kathleen Llanwarne