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New Economy and New Prosperity

The economy must be embedded in society... Economic structures that form the basis for social prosperity have become dysfunctional. The financial markets have expanded their original function and are now self-financed markets in which protection from risks has become a highly speculative business... A policy for people and not for markets must be the guiding principle.
NEW ECONOMY AND NEW PROSPERITY


By Cordula Drautz


[This article published in the 2010 socialist SPW journal is translated from the German on the Internet,  http://www.linksnet.de.]


The return of modesty, a new entrepreneurial ethic and the end of profit-mongering are several demands that are urged as lessons from the economic crisis. We have every reason to morally question whether the motives underlying the decisions and actions of business leaders and politicians are following sufficiently ethical considerations. Many conservative and neoliberal politicians and economists and opinion-manipulating institutions like the New Social Market Economy try to persuade us that castigating the "greed" of managers and denouncing the decay of values is enough to prevent future crises. Burkhard Mueller in the Sueddeutsche Zeitung newspaper rightly remarked in 2013:


"If there is a stubborn tone in the accompanying music of this economic crisis, it is the moral tone: as though the present misery were the result of an excess avoidable with better will and better control instead of the logical product of the current economic system."


The harshest defenders and causal agents of the economic crisis amid the pressure of public criticism only continued the status quo as in the past under the repentant mantle of partial public contrition.


Alongside individual findings from the political-communicative arena, the systemic discovery about the driving forces and catalysors of our economic mode in crisis is important for effective political instruments. An understanding about the goal and function of economic policy is necessary that must include a debate about values and a discussion about the qualities of our life together in the future. The idea that the economy must be embedded in the normative order of society underlay the whole "political economy" of classical authors around Adam Smith, John Stuart Mill and Thomas Robert Malthus. With the dissolution of political economy through the neoclassical economic theory, the step to a "pure" economics first occurred in which moral aspects are consciously factored out. However the "two-worlds conception" arising out of value-neutral economic theory and non-economic ethics is increasingly recognized as a problem today in theory and praxis - outside of the unteachable ones who just will not learn.


In the current debate, there is a great chance to develop a new economic model. The challenge is to act in the short-term to stabilize the situation and set out a measurable economic program in the medium-term that develops a diversified regional, sustainable economy, assigns a serving function to finances and their markets and creates social and ecological values.


In the short-term, many effective measures are already taken up to control the social effects of the crisis. The instrument of short-term work developed under the social democratic ministry of work is an example. However there is a need for discussion on medium-term measures of social democratic economic policy. A debate over our understanding of prosperity and growth can bring clarity. This discussion must solve a political dilemma connected with our growth-oriented economic mode and the social system based on that mode. Either we accelerate the ecological collapse with more growth or social collapse occurs with less growth. Integrated economic-, environmental- and social-political concepts are necessary. The pure catastrophe- and renunciation jargon also formulated by the left side makes impossible the mobilization of many people necessary for the transformation of our economic model.


High growth rates based on excessive debts and virtual speculation cycles are jointly responsible for financial- and economic crises like the present crisis with fatal consequences for the real economy like the loss of thousands of jobs, social insecurity and destabilization. A similarly important question stands on the other side: what social perspectives does a country like Germany have - heavy debts and right in the middle of demographic change without or with trifling growth? Is an economic system conceivable that does not need to grow or must grow differently and nevertheless can guarantee social prosperity, economic stability, job efficacy and ecological compatibility?


Several aspects that provide first answers can be outlined here. At the same time these aspects should be understood as stimulation for further debate around the central political challenges of this time.


Economic structures that form the basis for social prosperity have become dysfunctional. The financial markets have expanded their original function and are now self-financed markets in which protection from risks has become itself a highly speculative business. The enforcement of the shareholder-value principle conceals massive problems since it creates blockades for a sustainable development of the whole national economy through innovation barriers, institutional uncertainties and the instability of the financial markets.


An economy in short-term competition has little room for innovation and is backward from a medium-term perspective. If Germany falls back in international competition, this is because bet-and-win-capitalism lives at the expense of its substance, not for cost reasons. The sum of global financial investments ($200 trillion) is nearly four times as great as the global social product ($55 trillion). These imbalances cannot be permanently cushioned by wages policy, extending short-term work and new products. The stability and efficiency of markets cannot be guaranteed automatically.


Given its uncoupling from the real economic output, the necessity of a global framework regulating the financial markets and assigning them a "serving" function is urgent. Proposals are already developed. They include a global financial market transaction tax, the economic-cultural embedding and social organization of the fund economy, investment funds (especially pension funds) and capital partnerships, examination of the criteria of operational- and national-economic accounting and balancing that are in no way "objective" but economically-culturally determined. A policy for people and not for markets must be the guiding principle of the cultural and storyline discussion. This must be consistently defended in the discourse and in the proposed instruments.


According to the judgment of the British Treasury, the crisis developed because of risk misjudgments on the US sub-prime market. The resulting losses of the banks led to banks reciprocally doubting their creditworthiness which then led to a general credit-shortage. The fall of Lehman Brothers made the system crisis manifest. A positive vision of the overarching tasks to be fulfilled by the banking and financial system is urgently necessary. "Banks must understand people; people need not understand the banking system" is an advertising logo of a New Zealand bank. The Nobel Prize winner Robert Merton defines the core functions of the financial sector as follows: "Guaranteeing the supply and distribution of economic resources - spatially and temporally - for sustainable activities and maximizing the long-term financial and social returns under the conditions of uncertainty."


The export-orientation of the German economy has become a fate. Germany has offensively expanded its trade surplus with the improvement of the German economy's competitiveness. German exports have become cheaper in an international comparison through wage reserve, lower non-wage labor costs, shifting burdens and reducing contributions to unemployment insurance for employees. However the domestic consumer demand was weakened. In the future, an (internationally) stable economic model must be built more strongly on the domestic market. The goal must be to set up Germany as less export-dependent without shriveling the successful export-oriented branches (chemicals, automobiles and mechanical engineering) in absolute numbers. Higher public investments - for example in education and infrastructure, new services - for instance in the care- and health sector- and a change in wage policy - for example through minimum wages and strengthening nationwide wages - are starting points.


Although Germany is a forerunner in ecological reforms, the consumption of natural resources grows rapidly on a European- and global scale with disastrous effects on the environment and people. All ecological considerations and reform proposals are limited by the natural limits of the environment. Traditional industrial Fordism hit its growth limits. Markets must be brought into balance again and operate within scientifically recognized (ecological) limits. Prices must be real and not reflect fictional social values and ecological costs. They must be tied to the public sphere and the life world. The state is the place where goods are organized that are best or only made collectively. The state supports citizens and cooperates with them to produce prosperity together in the health- and education areas for example. The relation of market, state and society must be rebalanced.


To limit the rise of unemployment through the financial crisis, the state and the social partners are urged to intervene in a socially regulatory way through measures like the flexible short-time work rule. This solidarity pillar of our economic- and social system has stood the test in crisis times as an effective protective component and as a short-term prosperity guardian. Nevertheless the constantly high mass unemployment remains a fundamental problem in financing the social state. This problem is more serious in contribution-financed social systems than in tax-financed systems since the revenue base is only spread over a few shoulders. Therefore spreading the financing base is a challenge for the German social state. This base was weakened by the declining number of jobs paying into social security which was politically forced, by the introduction of mini- and midi-jobs with reduced contributions and the promotion of new independence ("I- Inc"). The hope of creating new jobs by lowering non-wage labor costs has not been fulfilled. Rather regular jobs paying into social security were replaced. The structural change of paid labor has led to a flexibilization and precariousness of working conditions. Therefore the orientation of the social state in normal working conditions and gainful work does not offer sufficient protection to these employees. An enormous exclusion potential arises for a society that can no longer provide enough work for everyone. The security of one is purchased with the insecurity of others...


Distributing the existing work so everyone can share in it and have the security of finding other work in case of the loss of a job is vital. Demographic pressure on the social security systems is first expected between 2010 and 2015. If the current problems could be solved through consistent and just restructuring of the revenue side of social systems (reflecting social wealth, increased productivity and economic growth), the social state could be stabilized in the long-term and the demographic change better managed...


The necessity of growth is independent of all practical needs of people... Whoever insists his vacuum cleaner is big enough and does not need a larger once risks not having any vacuum cleaner at the end... All production is bound to the application of capital, Mueller wrote in the Sueddeutsche Zeitung newspaper article. Therefore a systematic integration of ecological and social criteria in our economic indicators is necessary, for example through introduction of an alternative welfare index alongside the gross domestic product that "measures everything except what is rewarding in life," as Robert Kennedy knew in 1968. In 1972 the king of the south Asian monarchy Bhutan declared that happiness must be the most desirable goal of development and introduced a Happiness Index. If we do not change our standards and measurements for alleged economic success, our orientation in purely quantitative profit-oriented growth possibly wasteful of resources will not change as a goal of economic conduct.


The outlined strands of the debate show energy, vigor or enterprise are lacking, not powers of imagination. A long-term political strategy is imperative that considers a new understanding of prosperity and growth and can reorient itself from fast profit to long-term resource-sparing economics and develop and pursue a value-creating policy oriented in changed consumer interests and social needs. The crisis-laden nature of the capitalist economic mode cannot be stopped but its destructive power can be limited.

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From real capitalism to finance capitalism and (hopefully) back, 11pp 04.Oct.2014 15:18

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 link to stephan.schulmeister.wifo.ac.at

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