Rado's Blog

At the end of this month, the European Commission will present its winter economic forecasts. We could expect that they will continue with its cautiously optimistic tone from the last autumn: “Eurozone is slowly stabilising, economic recovery is on the way, all we need is to continue the “sound economic and fiscal policies” and “necessary structural reforms”, seasoned with some allegedly pro-growth measures.

Whatever we might think about the EC´s predictions and its ability to anticipate future economic crises and their roots, it will be an important exercise. It is a part of the coordinating mechanism for fiscal, but increasingly more also economic and social policies. President Holland, or somebody else, might again get angry and ask, how the European Commission could express its opinion on country´s pension system, or similarly sensitive issue. Well, it could. Welcome to the Europe of the macroeconomic co-ordination.

Therefore it will be interesting to observe, how the forecasts would reflect the recovered European enthusiasm for the “social dimension of the European integration”. Judging from our previous experiences, not too much. Or to put it more precisely, EC´s forecasts will keep on the well-used schizoid scheme: On proper places they will express horror over stubbornly high unemployment, especially youth unemployment. It will reiterate the determination to solve this problem with usual mixture of economic growth and further liberalisation of labour markets. Additionally, it might recognize rising inequality and poverty (it could be hardly avoided, since this highly suspicions concept made its way into the Europe 2020 strategy). And the rest of the document will happily prescribe exactly those fiscal and economic policies that contribute to rising social inequalities and misery.

Growing social crisis in Europe has its moral side. However, stories of one third of Spanish children at risk of poverty (while it has been “only” one fourth three years ago), millions of Greeks, who could not afford medical treatment, etc. could not dent a determination of believers in “necessary, even if painful, structural reforms” that have to repay our previous “life above our means”. The political consequences are perceived little bit more serious by the establishment parties, as the crisis feds popularity of political extremists. But it is a reciprocal nexus between the social and economic crisis, which should be observed more carefully, and which was not yet grasped by the mainstream. Sound voices (see for example the article by Jon D. Wisnam in Cambridge Journal of Economics, or a useful summary in SEJ) have argued that the current economic crisis is itself the product of inequalities, rising in the Western world at least since late 1970s.

To summarise the argument: increasing income inequalities depressed effective demand and limited investment opportunities in real economy. Those who could afford it redirected their elsewhere, searching for profitable investments in stock markets and financial speculation, inflating financial bubbles (dot.com, commodities, real estate). As for the less-fortunate rest, they could pay for their consumption – of private houses, as public housing became less and less available; schooling, as quality education ceased to be for free; but even for status consumption, as poverty became stigmatised as a sign of personal failure – only from increasing household debts. And last but not least, concentration of wealth in upper social echelons helped to increase their influence in media, public discourse, and of course, in politics. Re-distribution, social solidarity and equality were dropping of public usage and political programs.

This leads us to a conclusion: it was not the current crisis that brought rising social inequalities into Europe. This trend is rooted in deeper structural changes of capitalism, which are unrevealing in the Western societies since 1970s and ended in the economic crisis of 2007-2009 (to which the EU added its own specific Euro-related problems). However, the reaction of the EU (meaning its institutions and member countries) to the crisis helped to deepen and accentuate social inequalities even further. First, the so called “program countries” were affected. Then an ever more extensive arsenal of fiscal and macroeconomic coordination tools has been used to enforce these policies in other countries as well. Fiscal spending cuts have weekend mechanisms that were softening inequalities and enabling more equitable growth. Now, so called structural reforms put pressure on social rights and titles, undermine mechanisms of collective bargaining and push down real wages.

Let’s get back the European Commission and its forecasts. It will probably argue (with open or silent approval of the majority of member states) that we need to further reform (read – weaken) our social systems to overcome the economic crisis, and rising inequalities are only an unavoidable and temporary price we have to pay on our road to redemption. It we hold on, all will get well.

It will be in error. A threefold error.

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