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Globalcrisis Unsereuni



Vortrag 27.10. 18 Uhr: Özlem Onaran, Global Crisis and the policy reaction in Europe: Can policy save capitalism from itself?

Vortrag 27.10. 18 Uhr: Özlem Onaran, Global Crisis and the policy reaction in Europe: Can policy save capitalism from itself?



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  • Özlem Onaran & Engelbert Stockhammer Wirstschaftsuniversitaet Wien
  • Özlem Onaran Wirstschaftsuniversitaet Wien
  • Özlem Onaran Wirstschaftsuniversitaet Wien

Globalcrisis Unsereuni Globalcrisis Unsereuni Presentation Transcript

  • Global crisis and the policy reaction in Europe: Can policy save capitalism from itself? Full paper: Özlem Onaran
  • What does the crisis have to do with the university politics?
    • Commercialization & precarization
    • Education and science for the interests of the wealthy elite
      • Standardization X pluralism
      • Domination of ideology
        • “ free” market=efficiency?
        • Markets are not free=depend on the wealthy
    • Crisis=failure of neoliberalism
    • Alternative:
      • self management=democracy=peoples’ needs
  • Multiple crises
    • Economic
      • Inequality & Financialization = realisation crisis
      • Global inequality
    • Ecological
      • Sustainability: need for low/0 growth=unemployment & inequality under capitalism
      • Energy
      • food
    • Political
      • Ideological inconsistency: privatize the profits, socialize the losses
      • Unemployment and discontent
      • East: back to the crisis after 20 years of capitalism
      • Political alternatives/organizations yet to challenge the hegemony
      • space for radicalization; no immediate change but diverging degrees of mobilization
    • debatable where the recovery will come from, even if the bottom of the recession were reached.
  • Outline
    • Understanding the crisis
    • Western Europe
    • Eastern Europe
    • Policy reaction
    • There is an alternative
  • Global crisis 2007-?
    • Capitalism‘s answer to its crisis in the 1970s:
      • Deregulated global capitalism, neoliberal macroparadigm
        • Goods, services, labor markets, finance, trade, capital flows
    • Pro-capital redistribution of income & power
        • “ race to the bottom” in labor share in both developing & developed countries
    • Realization crisis: too high rate of profit & exploitation
      • Low consumption due to low wages: underconsumption; growth w/o jobs
      • Financialization: too low investment/profit; ‘downsize and distribute’ despite high profit; profit w/o investment
    • Debt-led consumption & financialization
      • US, UK, but also Netherlands, Denmark, Eastern Europe
      • Housing buble, mortgage debt, equity withdrawals: US, UK, Spain, Ireland
    • Global imbalances↑; related to inequality
      • Current account deficit in the US, Spain, UK, Eastern Europe
      • Low domestic demand in Germany, Japan, current account surplus
      • Developing countries accumulating reserves after the Asian crisis, China
  • WAGE SHARE ↓ ( total wage bill/GDP) Profits are too high, and wages are too low: realization crisis Further increases in top income share and wage differentials: US, UK, Germany, Netherlands...
  • Wage share & unemployment in the Euro-area Wage share=total wage bill/GDP=wage*#employees/GDP=wage/productivity
  • Different countries, different crises: Western Europe
    • fiscal capacity to better weather the shock
      • policies that were denied to the developing countries!
    • less severe at the beginning compared to former crises in the developing countries, but might persist & deteriorate
      • +long recession ->L-crisis?
    • UK deeper: dependence on financial sector, deleverage in the banking sector, housing bubble, household debt, deflation?
    • Continental European Banks: conservative at home, but compensation via purchasing CDOs of US banks
      • Austria, Sweden, partly Greece: high exposure to the risk of credit default in the East as a ratio to GDP
      • Ireland: large financial sector/GDP
    • Germany, Austria: fragility of neo-mercantilism, dependence on export markets, wage dumping (low domestic demand)
    • Spain: housing bubble bust, contraction of construction sector, deflation, shift from casual work directly to unemployment
    • Italy, Spain, Greece, Portugal: chronic current account deficits; historical failure of EU to mobilize regional convergence in investment and productivity; fixed exchange rate (€), Stability & Growth Pact; no industrial policy
    • High household debt also in Netherlands and Denmark
  • Eastern Europe: 20 years of capitalism
      • No more resilient to crisis: From transition crisis to the global crisis
      • dependent on capital flows: the decline in FDI inflows, the contraction in remittances, credit crash, portfolio investment
    • A boom-bust cycle was unavoidable: It did happen again…
    • adjustment of current account deficits & appreciated currency, housing bubble, credit boom in Hu, Baltics, Bu, Ro
    • But slower building up of the currency crisis
      • 10-30% depreciation; Fixed pegs still holding in the Baltics & Bulgaria
      • But: is depreciation wave over?
    • Reliance on mature market parent banks instead of markets? Parents cut lending
    • when & how will the recovery come? a global vs. regional crisis
      • Global credit crash!
      • Export market contraction: Depreciation has only negative effects
      • Debt-led consumption growth –household debt
    • Poland, Czech Republic, Slovenia, Slovakia (auto): contagion & recession
    • Is Euro safe? The appreciation of the € is a problem for Sl & Sk
    • Unprecented rescue efforts to weather the global economic slowdown
      • Monetary: reductions in policy rates, quantitative and/or qualitative easing;
      • Financial: guarantee of private deposits, state participation via capital injections into banks, nationalization, buying of “toxic assets” etc.
      • Fiscal: new spending on public goods and services, tax cuts and transfers
    • but „ bank lending continues to decline“ : weak government conditions
    • Fiscal measures have been relatively inadequate (ILO, Khatiwada) :
      • 32 countries (including the G20), the stimulus spending in 2009 accounts for 1.7% of GDP (< 2% recommended by the IMF.)
      • the biggest fiscal rescue packages (%of GDP: China, Saudi Arabia, US
      • Rescue packages were announced based on relatively optimistic forecasts
      • Financial measures have far outweighed fiscal measures: by a factor of 5 or more.
        • comparison is imperfect because guarantees might never be used
    • Automatic stabilizers in the EU, particularly in the northern EU, are almost 3 times the fiscal stimulus plans
      • still the US total fiscal stimulus including automatic & discretionary is above 10% , in Germany 6% . Only 4 EU countries exceed the US.
    • no EU level reaction; divergences ?; vague declarations on sovereign debt
    Policy reaction: West
  • Policy reaction: East & the New IMF?
    • Hu, Ro, La, Ukr, Belarus, Serbia, Bosnia-Herzogovina
    • Credit line to Poland -new
    • The EU connection - ECB extends support over the IMF
      • Interets of the MNE, in particular banks to avoid a devaluation
      • Instead defend irrational pegs at the cost of deflation
      • Alternative: managed devaluation, price & capital controls
    • IMF is trying to bail in the banks to maintain the level of credits in the countries that have an IMF financial program
    • Can IMF & ECB now make a difference?
    • Hungary, Romania, Latvia dramatic budget cuts
      • Latvia: public wage cut by 35%, pensions by 10%, VAT rate increased from 18% to 21
        • to get the second tranche of the IMF package
      • Estonia &Lithuania: at least 20% cut in public wages and a reduction in social benefits
      • Similarity to credit conditionality during the Asian or Turkey crisis
    • Cz, Po, Sl, 1% Fiscal stimulus/GDP (OENB 09)
    • Russia >5%
  • The existing policies are missing the reasons
    • Reason is not wrong interest rate, compare 60s & 70s vs. Post-80s
      • Deregulation=higher frequency of deeper crisis
      • Pro-capital redistribution of income & power
    • A new look at the argument of global imbalances:
      • Declining wage share in AU, Germany, Japan, export-led growth
      • Low domestic demand =current account surplus
      • Developing countries accumulating reserves after the Asian crisis, China
    • Debt-led consumption-led growth: worsening income inequality
    • Not easy to save capitalism from itself within the existing power structure
  • Alternatives
      • Employment
      • Public employment : Labor intensive public services (education, health, nursery, child care), Infrastructure, Green investments
      • Prevent firing : No firing in firms that can pay dividends and managerial wages
        • If bankrupt, reappropriation by workers supported by public credit
        • Automative industry : socialize & restructure
      • substantially shorter working hours with wage compensation
        • Low growth, ecological sustainability, free public services (education, health…)
    • Tax the responsible : inequality has been the reason behind the crisis
      • Wealth tax, heritage tax, higher corporate tax, progressive income tax, taxation of financial transactions
    • Financial system: nationalization with democratic participation
    • public ownership integrated to democratic participatory plan (in key sectors , infrastructure, energy, health, education, care…?)
      • workers, „stakeholders“ (consumers, regional represantation), transparency
    • Capital controls, cancel the debt, global redistributive tax
    • Trade & industrial policy consistent with development
  • Alternatives - EU
    • EU: Going beyond rescuing the Western banks: EU public investment programs for social cohesion & European integration
    • time to abondon SGP
    • EU level progressive tax
    • European Bank for Reconstruction & Development, European Investment Bank, Structural Funds
    • Convert foreign currency denominated debt to local currency at a reasonable exchange rate/ controlled devaluation / multiple exchange rates
    • Appendix
  • OECD September forecasts
    • “ Despite stabilization in money markets, bank lending continues to decline and concerns about the health of the banking system remain.
    • global trade appears to have reached a trough and is poised to accelerate.
    • earlier recovery, but the pace of the recovery is likely to be modest for some time to come.
      • Ample spare capacity,
      • low levels of profitability,
      • high and rising unemployment,
      • anaemic growth in labour income
      • ongoing housing market corrections
      • balance sheet adjustments in households, businesses, financial institutions and governments
    • negative or zero headline inflation in all major economies until mid-year
      • Substantial spare capacity and the collapse in commodity prices.
      • Given the recent rebound in commodity prices, the risk of sustained deflation appears to be small outside Japan.
    • the prospect for a weak recovery implies that strong policy stimulus will continue to be needed in the near term.
    • normalisation of policy interest rates from their current exceptionally low levels should in most cases wait until well into 2010 and in some cases even beyond.
    • it is important that announced stimulus measures be implemented promptly. However, the possibility of a recovery diminishes the likelihood that further fiscal stimulus will be needed.
    • need to prepare for the removal of the exceptional degree of support afforded by current monetary and fiscal policy stances. credible exit strategies and fiscal consolidation plans now”
  • Rate of profit (total economy, 1960-2009) back to or higher than late 1960s AMECO EC DG Finance, net return on net capital stock
  • Sectoral differences in profit rates do not tell a very different story
      • EU Klems
  • Financialization & the distribution of profits ‘ downsize and distribute’ instead of ‘retain and reinvest’ Onaran 09 /
  • Financialization & investment: less investments/profit US 1960-2008 Onaran 09
  • Current account deficit/GDP
  • Euroarea current account balances
  • OECD forecasts
  • ...OECD forecasts
  • ...OECD forecasts
  • Growth in GDP, (in 2000 prices) Employment (total, 1000)
  • Real wage (compensation per employee, deflator private consumption, index 2000=100) Adjusted wage share
  • Unemployment
  • Crisis, distribution, and labor
          • policy measures in line with what the wealthy want: state as an economic partner;
            • t he bank rescue package without conditions.
            • Profits were private, losses are socialized!
    • Contraction of output & unemployment
      • decline in the bargaining power of workers
        • First unskilled, temporary workers, but now also skilled
      • An extention of income inequality
      • Some firms will use the crisis to legitimize their LR strategy
      • Wage concessions to avoid job losses
      • Unions: Bargaining the terms of firings
      • Short-work arrangements: wage compensation via workers solidarity (public budget)
    • Persistence of the decline: hysteresis effect
    • Export-oriented countries‘ (e.g. Germany, Austria) curse: Export dependency & low wage strategy
        • In the short run wage share may be stabile: low inflation; declining productivity ( counter-cyclical wage share)
      • But Japan: radical restructuring in labor law and wage bargaining in the 2000s, eventually 10% decline in the wage share
    • The finance of the package : future cuts in social expenditure, education, health, childcare, elderly care, manucipal servies, infrastructure
    • East: Nominal depreciation & currency crises
      • Inflation? Lower than in previous crises?
        • is depreciation wave over?
      • As of now no real wage deterioration except for Baltics and Hungary
        • Yet!
  • Japanese Slump
    • Differences to the developing countries:
      • Deflation, not inflation
      • the duration and the size of the shock:
        • developing country crises: the recession is very deep, but often one year long
        • the Japanese slump: the initial shock to growth was moderate, however the recovery took more than a decade.
      • wages
        • developing country crises: sharp decline
        • the deflationary crisis: moderate real wage declines or even some minor increases particularly in years of deflation.
    • However, the cumulative effect is in both cases a dramatic pro-capital redistribution
  • Japan
  • FDI Myth
    • FDI is still more robust than the other capitalflows, but in Q12009: 20-80% fall in inflows, the level of 2001-2002 (WIIW)
    • Current account deficits are also falling
      • lower imports due to recession
    • But FDI is now financing a declining part of the deficits
    • FDI not only finances but also creates current account deficits
    • Average repatriation rate of profits: 70%
    • FDI inflows are either only as large as or even less than the repatriated profits in HU, SK, CZ
  • Keynesian policy?
    • Not Keynesian, Keynesian would be
      • A wide program for stimulating investments through public initiatives or incentives to the private sector
      • Regulation
      • Capital controls and fixed exchange rates
    • Not easy to save capitalism from itself within the existing power structure