EUROPE AND THE POWER OF CAPITAL

On the SPD chairperson’s criticism of the modern economy

By Gisbert Otto

[This article published in: Zeit-Fragen, 5/17/ 2005 is translated from the German on the World Wide Web, www.zeit-fragen.ch/.]


The criticism of SPD chairperson Franz Muntefering on the development of capitalism in an April 13, 2005 address on the future SPD program has caused quite a stir. Muntefering said people must react politically to the development he criticized. The European Union can act effectively where the nation state reaches its limit. The EU must decide whether it wants boundless competition – whose social costs have to be borne by the state – or a democratic and social union together with the nation states. “We do our utmost for the second option,” Muntefering says.
In the following article, the background of the dominant economic form of neoliberalism will be analyzed. This exact analysis is necessary since Franz Muntefering is usually dismissed as class struggle rhetoric. Economic connections are shown to emphasize that neoliberalism is not unalterable but can and must be overcome. Otherwise Europe will face times that we thought were long overcome.

Muntefering’s capitalism criticism provoked polemical reactions and comments in the last weeks. The political opposition and German employers’ associations reacted very negatively. Friedrich Metz (CDU) said: “In the past years, such a massive fundamental criticism of our economic order only occurred in circles of leftist ultras.” “The SPD cannot create any jobs this way,” the CDU-leader Angela Merkel seconded. “Such an insult of investors is harmful for our country,” FDP-leader Guido Westerwelle chimed in. CSI-spokesperson Michael Glos called Muntefering’s criticism “another blow against investments and Germany’s economic position.” The harsh words are “nothing but a discordant relapse to the class struggle rhetoric” of the SPD.

Employers reproach the SPD-chairperson Muntefering for damaging Germany’s position with his criticism of capitalism. Employer president Dieter Hundt demanded a clarification by the German government or the SPD leadership. He called Muntefering’s statement unjustified and out of touch with reality.

CRITICISM DIDN’T APPEAR OUT OF THE BLUE

Muntefering’s criticism did not come completely out of the blue. At the beginning of March, chancellor Gerhard Schroeder gave a very critical answer to the one-sided economic liberal address of Horst Koehler, president of Germany. Horst Koehler understands “priority for labor” as low wage costs, less protection against unlawful termination in a so-called flexible labor market, lower taxes for businesses and less bureaucracy. Zeit-Fragen reported on this address on March 21, 2005.

Muntefering’s speech could be an intensification of the debate triggered by Horst Koehler to offer a new conceptual focus for the SPD that often seems so aimless. A kind of anti-Koehler is presented, a contradiction to the seemingly inevitable neoliberalism. If democracy should not suffer damage, democracy needs a new confession – as Europe-wide as possible – to the social peace that puts in question the worldwide claim of the “progress model” of the US.

THE TINA-SYNDROME

The polemical opinions correspond to the concept of neoliberalism. Again and again it is claimed there is no alternative to neoliberalism. The so-called TINA-syndrome (There is no alternative) should remain effective with all power although the main criteria of neoliberalism or the “free market” – globalization, liberalization and privatization – do not lead to general equality as propagated but bring about the opposite. To dismiss capitalism criticism as class warfare rhetoric of past years is also characteristic for the veiling of facts.

THE WORKING CLASS QUESTION AND THE GLOBALIZATION QUESTION

The globalization question for global corporations at the turn to the 21st century is what the working class question was for the working class movement of the 19th and the first half of the 20th century. The one important distinction is that labor acted as a counter-force in the second case and global corporations act without counter-force in the first case. This can be explained as a real paradigm change. Labor power is no longer indispensable through technical progress and higher productivity. In addition, the great wage differences in industrial countries are exploited by the “global players” through the production of the “free market.” The situation has drastically changed downwards through this unequal conflict.

The western industrial countries in which the gulf between poor and rich becomes ever greater are also affected today by the ruthless economic form of neoliberalism, not only the developing countries. Up to now these facts were described as unalterable. Therefore the venture of Franz Muntefering is very important. The strong dominate in the so-called “free market.” The strong determines what is right and when necessary abolishes the “free market” as the US does for example in supporting its own steel production through import tariffs. To pressure developing countries, the US appeals to international mechanisms, for example the WTO.

We must oppose this one-sided way of acting. If only the striving for economic and political power is important, international law and the sovereignty of states are put in question more and more and violence prevails.

In the following analysis, several economic connections will be shown that put in question the TINA-syndrome or neoliberalism. The concept of a European domestic market will be presented as an effective alternative for Europe. First of all, several quotations from Wilhelm Ropke should be considered. Contemporary neoliberalizers appeal – very wrongly – to him.

DECENTRALIZED AND INDEPENDENT ECONOMIES

Wilhelm Ropke was an important economist and freedom theoretician of the 20th century. He was a defender of a decentralized, national society, a friend of the “small circle” – against the tendency to “anonymity” and “stable feeding times” by the welfare state.

“(…) the things beyond supply and demand on which meaning, dignity and inner abundance of existence depend, the goals and values belonging to the kingdom of morality, are crucial.” (1979)

“Is there a more certain way of drying up the souls of people than the custom promoted by our economic system of letting our thoughts circle constantly around money and cash value? Is there a sharper poison for genuine culture than a commercialization that penetrates all things?” (1956)

“We understand war as a drug of mass men suffering in inadequate integration and meaning in life. The return of people to a proper form of existence effectively combats the modern war mentality.” (1979)

ON THE THEORY OF NEOLIBERALISM

Neoliberalism is explained theoretically as a supply-oriented economic policy. Businesses make investments when they can realize the highest possible profits. Therefore attractive conditions must be created like worldwide free trade, low taxes, low interests and trifling social spending. Those are the foundations of globalization or neoliberalism. This policy is based on the idea that everyone ultimately profits from economic growth. When the rich become richer, something will drop off for the poor some time or other. However this so-called “trickle down economics” has led to the exact opposite since the poor become poorer and poorer.

THE FUNCTIONING OF NEOLIBERALISM

The determining element in the economy is price. Businesses can hold their ground in the market when they can produce and sell good products as cheaply as possible. Through this competition, businesses are forced to raise their productivity, for example through the use of automated processes. The resulting productivity gains positively affected wage development in the economic region of the EU up to the middle of the 1970s.

With the forced globalization that is nothing but an international expansion of the economy, an intensification of competition occurred and wage costs – conditioned by the great international wage disparities – fell under pressure. The lower incomes had negative effects on the total economic demand. Because of inadequate demand, the domestic market could not take in the profits of businesses so products had to be exported. However the profits did not benefit either the export country or the domestic market. They were reinvested in the financial markets since higher profit margins could be realized there. This led to the following development in the EU during the years 1975-2000: The wage rate declined 11% while the total economic profit rate rose 60% (including profits from the financial sector). Thus apart from the millions of unemployed who were victims of this development, a massive redistribution depressing wages and salaries has occurred since the middle of the 1970s.

MAIN CAUSES OF UNEMPLOYMENT

A change of this development is not in sight. Substantial growth in the classical economic branches cannot be expected because it is unreasonable for businesses to invest the higher profits in new production capacities when the private and public demand are not growing and the goods produced with greater production investments could not be sold profitably. Instead the profits are invested in the financial markets. This is one of the main causes for the rise of unemployment. Work for people with normal wage demands will only become scarcer because a gigantic low-wage competition exists worldwide with the help of globalization. Medium-sized businesses are also under intense pressure and lose jobs as the EU statistics confirm. The number of bankruptcies rose 10.3% in 2003 to 269,762 cases (99,000 cases in Germany, 5 times as many as 24 years ago). Low wages in Eastern Europe and Asia is the main cause.

INTERNATIONAL COMPETITION AS A POLITICAL PROCESS

The market shares on the international markets are hard-fought through the intensified competition… The state now intervenes in the economic process in favor of businesses. Capital is given a competitive advantage through lower worldwide economic wages or lower tax rates. The discovery that globalization is a political process helps put in question subordination under a practical economic necessity.

Earlier phases of development of the economy when slackened growth led to lower prices will not be repeated today for the powerful actors. These actors can greatly increase their profits through tax cuts, lower wage costs and relaxed investment-impeding regulations in environmental-, labor and termination protection. At the same time they encourage intensification of competition. This works for powerful actors because of their enormous financial resources and influence on the institutions of world trade (WTO, IMF and the World Bank). This competition affects the whole world economy.

TAKEOVERS INSTEAD OF NEW PRODUCTION SITES

The global concentration- and centralization process of capital accelerates through intensified world market competition. On account of inadequate demand, the growing foreign direct investment usually aims at taking over existing production sites instead of establishing new sites. This has a negative effect on employment. In the five years 1992 to 1998, the total volume of registered mergers and takeovers worldwide rose almost tenfold from $250 billion to $2.4 trillion.

AGREEMENTS OF POWERFUL ACTORS

The agreements of powerful actors also confirm that the economic form of neoliberalism is based on political decisions, not practical economic necessities. A conference with 500 participants from all continents (“Global Brain trust”) occurred on September 27, 1995 in San Francisco. The way into the 21st century was outlined: 20% of persons able to work will be enough to keep the world trade going. The 20:80 society is described as a goal of this “global world.” 20% should control the power and wealth while the remaining 80% should be content with “tittytainment” – a mixture of intoxicating entertainment and adequate nourishment (tits).

OUR PROSPERITY IS MORE ENDANGERED THAN WE THINK

Almost nothing of Ludwig Erhard’s economic policy that led to a “prosperity for all” is left today. In his book “Prosperity for No One,” Horst Ahlfeldt rightly pointed out that Germany is approaching the assets-distribution in developing countries through the growing polarization of incomes between poor and rich. The point hasn’t been reached – as in many developing countries – of living from the proverbial bowl of rice. We still live in a comparative mass prosperity secured by our income support rules. However these conditions are extremely endangered by neoliberalism or globalization. This is true for the wage-level that must adjust to the Asian low-wage level with further globalization and for the “social net” that may be very full of holes since state revenues are lacking. The middle class is also affected by this development. Only the truly rich who have scattered their assets internationally in many investments can expect that some of their assets will still survive when “everything collapses.”

THE INTERNATIONAL SPREAD OF POVERTY

Building areas of regional stability becomes ever more impossible through the stronger international connections. The result is that all participants depend on one another and are dragged to the abyss of an economic crisis as soon as enough weaker members collapse economically. The advantage of independent economic regions toward globalization is manifest. Europe could be an economic space large enough for an independent region.

THE HEGEMONY OF THE ECONOMY

Our economic world intent on the hegemony of the economic over the political will probably not give up quickly. Nevertheless the political will not disappear from the world through the “global players.” Those people not willing or able to resist the dictates of globalization will be threatened and could disappear.
The presupposition for this resistance is a functioning nation state. Humanist and religious convictions alone are not enough to influence broad sections of the population. The nation state that creates uniting bonds out of humanity’s history of evolution is necessary for this resistance. Only the democratic nation state has the authority to show the economy its place entitling it to exist for people and not vice versa. The separation of powers in democracy has proven to be the strongest means against abuse of power in historical development up to now.

THE NATION STATE AS THE PRE-REQUISITE FOR THE SOCIAL STATE

The financial willingness to make sacrifices for a proper social policy is only found in the nation state. For example, who even believes that a uniform social policy can be produced today in the framework of the EU by means of community treasuries will meet massive resistance of the net payers inevitably disadvantaged. That the EU one day could develop into such a community like the modern nation state is desirable but very far away today. Nevertheless the model of a European economic region proposed at the end of this article could contribute substantially.

Globalization and mass migration dissolve the tested structures of the nation state. The social bonds to fellow-citizens no longer corresponds to the idea of a community implicit in the nation state that ultimately represents the abstraction of a large family. Rather the feeling of indifference grows. The nation state has stood the test because it best guarantees that satisfactory and obliging bonds to fellow-citizens can be made. All the powerful from politics, the economy and the media should remember this when they think of dismantling the nation state in the impetus of globalization. People could live together in the future in conditions worthy of a civilized nation. A feeling of unity is possible within a concrete political community with which the citizens can identify. If this community is dissolved, this does not lead to a feeling of global community but back to the Stone Age, the little unity of the tribe and those ruled by small-group egoisms.

These ideas about the nation state and its effects on the social conduct of citizens may have no place in the worldview of managers of the American east coast. Still they are very intent on giving their citizens a national feeling. The national flag does not hang in every schoolroom in the US for no good reason.

Europe’s nation states should unite to successfully safeguard their interests. However the necessity of nation states remains. A union like the EU must have the model of a “Europe of the Fatherland” as its foundation.

EUROPE AS A SPACIOUS ECONOMIC REGION
Europe with its 450 million inhabitants is a power that can maintain relative independence on the basis of its size. Strengthening the domestic markets should have a priority. This is possible if part of the massive redistribution in favor of the rich during the last 25 years were cancelled.

The population would have their consumer power again. The domestic demand could be strengthened. This regionalization model – a European economic region – can only be realized with protective tariffs. However tariffs are very taboo in our understanding. Why is this? Relatively high tariffs were common in the “golden years” of the post-war era. Many do not know this. The proposed regionalization model does not involve screening but the merger of states with similar structures (high-wage countries) to resist the global low-wage competition by means of common foreign tariffs.

Protective tariffs must be used moderately since too much protection would be harmful for the technical development of the economy. Countries of the third world would be helped much more with a debt cancellation and local assistance that benefits people without filling the pockets of investors. As a rule, the goal of tariff policy is reached as soon as supply and demand on the labor market are in a balanced relation.

The details of a regionalization model cannot be discussed further in this article. Nevertheless the model reflects the ideas of Franz Muntefering who pleads for a democratic and social union that is developed together with the nation states.