Not An Abdication By The Left

Stuart Holland

James Downes and Edward Chan (Social Europe, 29 June) have written of the debacle of the social democratic Left in Europe and echoed others such as Sheri Berman who has claimed that this is because it has run out of ideas (see here) while Dani Rodrik of Harvard, even more sweepingly, has claimed that, since the early 1980s, there has been an intellectual abdication by the Left.

Yet this is entirely wrong. Thus, in his article Rodrik asserts that: “The enthroning of free capital mobility … was spearheaded in the late 1980s and early 1990s not by free-market ideologues, but by French technocrats such as Jacques Delors at the European Commission”.

Compounding this, he then claims:

France’s Socialist technocrats appear to have concluded from the failed Mitterrand experiment with Keynesianism in the early 1980s that domestic economic management was no longer possible, and that there was no real alternative to financial globalization. The best that could be done was to enact Europe-wide and global rules, instead of allowing powerful countries like Germany or the US to impose their own

This is an utterly uninformed misrepresentation of Delors. He was not a technocrat, as Rodrik peremptorily dismisses him. Throughout his professional life he sought to countervail technocracy. When he was social affairs adviser to the (centre-right) French Prime Minister Jacques Chaban-Delmas after May 1968, he resigned because Chaban would not implement an extensive social programme. Instead of joining a bank as a technocrat might well have done, he decided to become a temporary lecturer at the University of Paris Dauphine.

Rodrik also errs in his claim that Delors opted for ‘Europe-wide and global rules’. When President of the European Commission, and chairing the committee for a single currency in 1989, including the governors of central banks, the Bundesbank wanted this to be founded on rules-based Ordoliberalismus. By contrast Delors gained the condition that “the process of achieving monetary union is only conceivable if a high degree of economic convergence is attained” as well as recognition that “monetary union without a sufficient degree of convergence of economic policies is unlikely to be durable and could be damaging to the Community”. (Delors Report, 1989, para 21 and see here).

As we shall see, what Rodrik and Berman claim traduces the record not only of Delors, but also of François Mitterrand, Andreas Papandreou, Willy Brandt, Bruno Kreisky, and Antonio Guterres. Moreover, in the 1990s, Delors’ proposals for a New Bretton Woods directly influenced Bill Clinton in calling for one at his first G7 in Naples.

Dismissing history

Rodrik’s alleged ‘intellectual abdication’ leaves out how Papandreou and Mitterrand managed to gain the first revision of the EEC’s neoliberal Rome Treaty with a commitment in the Single European Act of 1986 to economic and social cohesion as a twin pillar of the post-war European project. Second: How Delors managed to get agreement from EU heads of state and government in the early 1990s for EU bonds or ‘Eurobonds’ to offset the deflationary debt and deficit conditions of the Treaty of Maastricht – instruments which have been strongly opposed by Angela Merkel but equally strongly supported by Emmanuel Macron. Moreover: How Guterres gained agreement in 1997 that the European Investment Bank should adopt an environmental and social cohesion remit that enabled it to quadruple its investments and outstrip the World Bank.

Rodrik also asserts that from Greece’s Syriza to Brazil’s Workers’ Party, “the Left has failed to come up with ideas that are economically sound and politically popular, beyond ameliorative policies such as income transfers”.

Again, this is entirely wrong. His errors with regard to Syriza are evidenced below. But to claim that the Latin American Left had no strategy in the face of globalisation ignores the role of every party of the Left in the region and in the Caribbean and Central America in supporting policy initiatives to counter neoliberal globalisation from the Socialist International from the early 1980s.

Inspired initially by Willy Brandt and Bruno Kreisky, this led to a Global Challenge report which attracted invitations from China and India to discuss it in Beijing and New Delhi followed by both countries sending delegations to its launch at Lima in 1986. Following further workshops chaired by Guterres, a second major conference took place at the UN in New York in 1996 where Spanish socialist (PSOE) leader Felipe Gonzalez denounced its agenda of restructuring the emerging imbalance between private and public power and making redistribution the basis of a global recovery while he claimed that the only fight for the working class was the fight against inflation. This prompted Leonel Brizola of the Brazilian Workers’ Party to storm to the podium and pronounce that if all that PSOE could offer in government was 20% unemployment it was not a model for Brazil and PSOE did not deserve to regain power in Spain.

Eurobonds

Meanwhile, the Bundesbank had defeated Delors’ proposal that a single currency should be introduced only when financial instruments for cohesion and convergence were in place and seen to be working. But, in response to the deflationary debt and deficit conditions enshrined in Maastricht, Delors had managed, with the support of Helmut Kohl, to gain agreement in 1993 that a European Investment Fund should countervail these by issuing bonds to finance economic, social and environmental investments.

This ‘Eurobonds’ proposal was inspired by the Roosevelt New Deal and has become the basis of the case – from the Left and from the Greens – for a New Deal for Europe. A key to it had been recognising that EIB bonds did not count on the debt of ten of the then 12 EU member states nor need do so for the others.

But this came with two limitations in that the EIB was reluctant to finance more than half of an individual investment without a national or other partner, while such co-finance was constrained in the case of national governments by Maastricht constraints. The EIB’s operational psychology was, what’s more, micro-project-based while what was needed was a macro instrument to recycle the global surpluses which had no financial outlet other than US Treasuries.

This was why it was proposed to Delors that there should be a European Investment Fund whose bonds could help absorb such surpluses and also thereby match EIB bonds for project financing (Holland, 1993). Delors managed to get this supported by the European Council in December 1993 and the Fund was set up within months. What blocked it operating on a significant scale and supporting an EU venture capital fund for small and medium firms, was its inadequate subscribed capital, which Macron when he was economy minister nonetheless sought to increase.

Wrong on Syriza

Rodrik’s sweeping assertion that Syriza was unprepared for government was published in July 2016. Presumably he might by then have heard of Yanis Varoufakis who had been finance minister of Greece for the first half of the previous year and whose confrontation with members of the Eurogroup governing the Eurozone had hit headlines. Yet, had he delved deeper, he could have read at least one of the several versions of the Modest Proposal by Yanis and myself, or another with James Galbraith which also was widely known.

A key claim of the Modest Proposal has been the case endorsed by Delors that a Eurobond-funded recovery in the EU on the model of the US New Deal is feasible without Treaty revisions, without fiscal transfers between member states and therefore also without ‘ever closer union’. It stressed that Greece, like other peripheral Eurozone economies, could not achieve a sustained recovery without one in the rest of Europe and that there should be a moratorium on repayment of the debt that most member states had incurred in salvaging banks from their folly in speculating in toxic financial derivatives.

A share of the national debt of all member states over the 60% Maastricht limit could be mutualised in the sense of a Eurozone equivalent of a deposit account, which could be serviced by the member states but not drawn on for credit, and therefore would not be liable to downgrading by credit agencies. Mutualisation paralleled a key principle of the 1995 German Debt Redemption Fund through which the Federal Republic, post-reunification, finally dealt with the debt of the former DDR (East Germany). (see also here)

This was hardly corroboration of Rodrik’s comment that Syriza “failed to come up with ideas that are economically sound and politically popular, beyond ameliorative policies such as income transfers”. Besides which, when Varoufakis promoted such ideas in those parts of the Greek media that allowed him to do so, they gained wide appeal. So, when there was a referendum in July 2015 on whether to accept the alternative austerity programme insisted on by the Troika of the European Commission, the ECB and the IMF, those who voted rejected it by over 60%. How could Rodrik have missed not only this outcome but also the fact that Greeks found such alternatives to austerity – and neoliberalism – credible?

What vacuum?

In ending his claims of an alleged intellectual abdication of the Left, Rodrik then asserted that:

The good news is that the intellectual vacuum on the left is being filled… Anat Admati and Simon Johnson have advocated radical banking reforms; Thomas Piketty and Tony Atkinson have proposed a rich menu of policies to deal with inequality at the national level; Mariana Mazzucato and Ha-Joon Chang have written insightfully on how to deploy the public sector to foster inclusive innovation; Joseph Stiglitz and José Antonio Ocampo have proposed global reforms; Brad DeLong and Jeffrey Sachs and Lawrence Summers have argued for long-term public investment in infrastructure and the green economy. There are enough elements here for building a programmatic economic response from the left

This is not only presumptuous but also, again, ignorant. All of his recommendations in the paragraph above were proposed by the European Left, from as early as the 1970s through to the Modest Proposal and some also thereafter.

If so, nonetheless, why the political failure of social democratic governments? Essentially because their leadership not only displaced or denied alternatives to neoliberalism rather than were seduced by that ideology but also, in the case of Gonzalez, Gerhard Schröder, Tony Blair and Gordon Brown, denied internal party democracy. Gonzalez even displaced the socialist alternatives argued by his deputy prime minister Alfonso Guerra from 1982 through his Javea Group to which both Oskar Lafontaine and I had contributed. Schröder instituted little less than a Parteimachtergreifung, prompting Lafontaine to resign as SPD finance minister and found Die Linke, while also introducing the Hartz laws which were strongly opposed, then and after, by what should have been the continuing trades union base of the SPD – rather than watching many trades unionists since voting for the AfD.

Blair and Brown repealed Clause IV of the Labour Party constitution which was symbolic but less important than also gelding the party at its constituency and trades union base. What had been resolutions for its annual conferences, and electoral commitments for government, were rejected in favour of ‘consultative soundings’ which could readily be ignored. As a ‘pro-business’ finance minister, Brown brought in ‘light touch’ regulation of banks with the disastrous results we saw ten years ago.

But the burial of social democracy took place in Greece where Jeroen Djisselbloem, Eurogroup president, Dutch finance minister from the Dutch Labour Party, the PVDA, implied to Varoufakis within days of the January 2015 election that unless he accepted continued austerity banks would close.

The actual outcome was not only a crisis for social democracy in government but also for democracy in Europe. This was, notably, less the European Germany that had been the aspiration of Chancellors Adenauer, Brandt, Schmidt and Kohl, than a German ideological and political hegemony. Former German foreign minister Joschka Fischer echoed this after the rejection by Wolfgang Schäuble of the ‘No vote’ in the Greek referendum in July 2015. As he put it:

The path that Germany will pursue in the twenty-first century – toward a ‘European Germany’ or a ‘German Europe’ – has been the fundamental historical question at the heart of German foreign policy for two centuries. And it was answered during the long night of negotiations over Greece on July 12th-13th with a German Europe prevailing over a European Germany (see also here).

As cited in Social Europe, this has been challenged by Macron, who has sought to regain the commitment to a European New Deal through joint EIB-EIF bond finance. And it is possible that with an SPD finance minister in Germany, Olaf Scholz, this might perhaps succeed. But if so, it would again refute the claims of Rodrik and Berman in that this idea came from Delors, Guterres and a Left that was far from foundering in its alleged intellectual abdication.