ABSTRACT
Germany: a country whose population is less than one third compared to the US and only one fifteenth of the Chinese population, and yet has managed to be either the first or the second largest exporter in the world, almost on a par with China and often outranking the US, over the last decade. Germany has been able to run a trade surplus with China whereas the US has a massive trade deficit. The German economy remains remarkably competitive even as it has preserved its high salaries, very powerful labor unions, a generous welfare state, and with some of the toughest environmental regulations in the world. It is, in many respects, the perfect antithesis to all the dogmas of the Republicans and freemarket conservatives all over the world. Germany is not a lonely and exceptional case. Austria, Holland and Switzerland (albeit not a EU member) are similar in their social compact and economic performance. Scandinavian countries, some of which have higher per capita income than the US, are among the most egalitarian societies in the world. The fact that the gap between their wealthiest and their poorest citizens is much narrower than it is in the US, or in China, has not prevented Scandinavian economies from thriving. Thanks to their investment in education – their high-school students are among the best performing in the world, on a par with South Koreans, as measured by the OECD-PISA rankings – Scandinavians consistently rate among the ‘most satisfied’ people, when interviewed in international surveys about their own results in the global economic competition. Also, German and Scandinavian economies have proved that you can thrive in the global economy without having to pay outrageously high wages and superbonuses to your chief executives. Sweden is the utmost proof that social justice is not at odds with competitiveness: this country ranked fourth in the world in The Economist’s Democracy Index (2010) even as it ranked second in the global competitiveness index measured by the World Economic Forum. In fact, Germans and Scandinavians vindicate the concepts exposed by Wilkinson and Pickett (2009). Egalitarian societies have more ‘social capital’, i.e. reciprocal confidence among citizens and faith in government, which makes them safer, happier, less crime-ridden and exceptionally competitive. And yet, Europe does not seem to want to profit from these lessons of its own best champions. Specifically, the European Left has not been strengthened by the Great Contraction of 2008-2013 (Rogoff and Reinhart 2009). Why? One reason is linked to what happened when the German Left was in power. Gerhard Schroeder, the last social-democrat who was chancellor, reformed the welfare state in order to make it leaner and more efficient, by reducing waste, trimming benefits and subsidies for the long-term unemployed. He was a latecomer to the Third Way of Bill Clinton and Tony Blair. His moderate left-of-center policies opened a rift inside his own party, and some of the most progressive socialdemocrats followed Oskar Lafontaine in a new leftist party. The memory of that internal infighting and of the schism has stained Schroeder’s reputation. Even more so, his personal ethics have proved controversial: when he retired from office, he promptly accepted the nomination by his friend Vladimir Putin to the board of a large Russian energy company. That lucrative position seemed an outrageous payout and a flagrant conflict of interest: when he was still in power,
Chancellor Schroeder had been very active in promoting business links between Germany and Russian energy corporations. Socialist parties in Sweden and Denmark have their own problems. Both countries steered to the right, although the policies implemented by conservative governments do not differ much from the socialist tradition. One explanation is that you can have only so much egalitarianism, welfare state and government spending. Tax rates in Northern Europe are among the highest in the world. The US seems an exotic tax haven, when you compare the highest marginal tax rates that are paid by most German or Scandinavian citizens, not only the wealthiest ones. French President Hollande captured headlines in the world media when he raised the top marginal tax rate on income to 75 percent, and movie actor Gerard Depardieu applied for Russian citizenship in order to escape taxation in his country. Moreover, the ‘German model’ has proved less successful when mimicked in Southern Europe. Italy has grown a vast and inefficient bureaucracy, often despised as a ‘parasitic’ and ‘privileged class’ even by the voters of the left. Tax fraud is rampant in Southern Europe, enshrined in a culture of mistrust towards the government. One of the reasons why Ms Merkel has been so tough in dealing with the looming sovereign default of Greece is the perception of many Germans, including blue-collar union members, that they would have to sacrifice their hard-earned savings in order to bail out wealthy Greek citizens who evade taxes, investing their capital in offshore shelters, or Greek civil servants who can apply for early retirement when they are 55, and enjoy other perks funded by the EU. Alas, this is not really a caricature. When the social-democrat Schroeder was chancellor, his government worked hand-in-hand with the labor unions to build the foundation of today’s strong and competitive German economy, by trimming down some of the most expensive welfare programs. Denmark has been celebrated all over the world for its ‘flexi-security’ system, which draws from the same philosophy that inspired Bill Clinton’s ‘welfare-towork’. In France, Italy, Spain, Greece, the parties of the left share the same problem: advocating a reduction in economic inequalities is necessary but it is not enough. For sure, progressive taxation and other redistributive policies are necessary ingredients to inject purchasing power into the working poor and the middle class. The engine of growth will not restart without a strong Keynesian policy. But this cannot be achieved just by creating new public deficits, especially if any ‘stimulus package’ goes into feeding the same old bureaucratic dinosaurs. This is a major cultural problem for the left, especially in Mediterranean countries: we have inherited from the last decades a very low ‘social capital’. Trust in public institutions, civil servants and the government runs at its lowest point ever. High-profile corruption cases have instilled the suspicion that any new public spending will be an opportunity for further waste or fraud by the political elite. Therefore, a new strategy for growth must not only take a distinct egalitarian approach, it should also explore non-traditional, non-governmental tools. Ideas like Benefit Corporations, social entrepreneurship, could find a fertile ground
in Europe. These economic and social innovations might be able to reignite the passion that the European Left invested a century ago in creating the cooperative movement, a ‘third economy’ that wanted to emerge as an alternative to Big Business on the one side, and government-owned corporations on the other side. Today the impetus towards new forms of economic organization is supported by a growing environmental awareness: a vast majority of Europeans understand that they have to explore a sustainable path to growth, that growth cannot restart just by turning back the clock and reviving old patterns of wasteful overconsumption. The left still has a ‘cultural competitive advantage’, in its tradition of shared universal values, global solidarity, and an international approach to common economic challenges. At the very beginning of the era of globalization ‘2.0’, i.e. when Western countries were negotiating with China for its membership in the World Trade Organization, the French Socialist Jacques Delors (who was president of the European Commission) advocated a new ‘social contract’ as the indispensable framework for trade agreements. Delors had a clear view at the beginning of the 1990s. He understood that developed Western countries could use their leverage to accelerate a positive evolution in emerging countries towards human rights, labor rights, environmental protection. As the recent wave of social unrest in China proves, this is still a very hot issue, and one that the European Left must rediscover from its own legacy. The 2013 elections in Italy have shown that the left pays a very high price if it chooses the easy path of ‘politics as usual’. The general elections held on February 24 and 25, 2013, were a disaster for the Democratic Party and its allies of the radical left (Sinistra Ecologia Libertà). The Democratic leader, Pierluigi Bersani, was considered until late 2012 as a super-favorite and should have won an easy victory. Instead, he won with the slightest of margins, and only thanks to a controversial ‘majority premium’ enshrined in the electoral rules. He was able to master a clear majority only in the House, not in the Senate. The real winner was the Movimento 5 Stelle (M5S) led by former comedian Beppe Grillo, who did not even exist a few years ago and came out as the single largest political party in 2013 with 25 percent of the popular vote. Berlusconi had a strong showing too, coming in a close second to Bersani in terms of elected representatives. The 2013 campaign was brutal to the left. The Democrats and their allies campaigned mainly on labor and economic issues, advocating progressive taxation and an ‘equality agenda’. But the message of M5S proved much more effective, denouncing political corruption and government waste. Grillo attracted disappointed voters both from the left, the center and the right of the political spectrum, especially among the young. His rhetoric is populist and antiEuropean. He wants to hold a referendum to exit the euro. He opposes immigration, thereby capturing the xenophobic vote that previously went to the Northern League. His denunciation of austerity policies as both destructive and imposed by Angela Merkel resonate among many Italians. Some of his proposals – a 20-hour work week, a guaranteed salary paid by the government to all Italian
citizens – sound unrealistic, irresponsible or pure demagoguery. And yet he triggered a wave of enthusiasm, participation, new-style political commitment, by a bold use of the Internet. He proved that he could overcome Berlusconi without ever appearing on a TV talk show. Grillo brought into the Italian Parliament a new generation of very young representatives, many of them women. His message has been perceived as ‘revolutionary’ because he wants to get rid of a whole ‘nomenklatura’: the professional politicians who are despised as parasites. The left bears a terrible responsibility for the success of populism. Just a few months before the general elections, a scandal hit the most ancient bank in Italy (and in the world), the Monte dei Paschi di Siena. Corruption, fraud, all the usual ingredients were there. And in this case the left was the culprit. The city of Siena has always been governed by progressive politicians, formerly the Communists, then the Democrats. The local bank was deeply involved in politics and controlled by the ‘red nomenklatura’. This scandal, not the first one to hit the Democrats, seemed to confirm Grillo’s message: that there is not a great difference between Berlusconi and his traditional adversaries, all of them being included in the ‘rotten politics as usual’. This is populism at its best, but Grillo has a point. His victory is another setback for the whole European Left. Meanwhile, the so-called ‘euro crisis’ had already been stopped by another Italian, the president of the ECB, Mario Draghi. In July 2012, in a conference in London, he declared that the Central Bank would do ‘whatever it takes to save the euro’. That message was clear enough. It meant that the ECB would resort to its own brand of ‘quantitative easing’, by purchasing Spanish or Italian bond, if this became necessary to stem a confidence crisis. That statement proved effective. But supporting the euro and avoiding an implosion of the monetary union does not address the fundamental issues of growth, job creation, education, inequalities. Socialist France is itself under serious economic stress and unable even to reach the deficit reduction target that is requested by the EU ‘fiscal compact’. President Hollande desperately needed to find an ally in a leftist government in Italy, in order to counterbalance Ms Merkel’s hegemony. The result of the Italian election was a disappointment in that respect, too. The new prime minister, Enrico Letta of the Democratic Party, has been supported by the left, the center and the right. The only large party that chose to oppose Letta’s government was the M5S, at least until November 2013 when Berlusconi was ousted from the Senate after being sentenced for tax fraud. In November, the conservative Partito della Liberta split, with a small fraction of moderates still supporting Letta’s government and the others following Berlusconi in the opposition ranks. For the vast majority of Italians, what matters is that under Prime Minister Letta nothing changed: Italy maintained the same austerity policies, the recession continued, unemployment (especially among the youth) escalated to new historically high levels. In his first year of his tenure, Letta has been unable to establish himself as an alternative voice in Europe advocating for a change in economic policies. France, Italy, Spain have not been able to unite their efforts and to counter-balance the influence of Germany.
