More gloom

In the second edition of the book I made some remarks that turned out to be prescient about what at the time I wrote it was the nascent financial crisis. Since it is rather rare for my – or any other social scientist’s - predictions to come true I rather regretted the fact that in updating for the third edition I had to excise them. I’m now working on the fourth edition but by the time that comes out (at the end of this year) I suspect that I will have been overtaken by events and that by then we will be well into another, probably worse, crisis. So I’m going to get my prediction in now.

Of course I’m not the only person saying this. Last week a leading strategist at Societe Generale said the same thing and the Royal Bank of Scotland advised its clients to sell their equity holdings in anticipation. Stock markets across the world are in sharp decline, and the collapsing prices of oil and basic commodities are precipitating a global deflation. At the heart of all this is the slowdown in China and, in particular, the massive growth in corporate debt there, much of it due to a real estate bubble and the rise of a secondary banking sector.

Meanwhile, personal debt in most countries – from Sweden to Thailand - is also rising to higher levels than at the time of the 2008 crisis. Although in the UK and US it is not yet at the same levels as it was then, it is also rising. Once again in the UK much of this debt is related to a house price bubble and lax bank mortgage lending, but also rising is unsecured debt sometimes used simply to cover basic living costs.

If there is another financial and economic crisis the consequences will be much graver than in 2008 for two reasons. One is that the capacity, both financial and political, of nation states to bail out banks will be much more limited. So much the worse for the banks, it might be said; but it will not just be the banks that suffer. The reason why, post-Lehmann’s, the US and other governments stepped in was not because of an outbreak of Keynesianism but because they saw the political and economic consequences that would follow if the cash machines, literally, ran out of money. This time round there's every chance that that will happen.

Second, the intervening years have seen a growing precariousness of employment, symbolised but not limited to the rise of the zero hours contract, as I have written about elsewhere on this blog. At the same time there has been an erosion of welfare provision. Thus the ability of ordinary people to weather another crisis is much more limited. In many countries – Greece and Spain amongst the most obvious examples – the capacity of families to provide support for unemployed young people and pensioners has already reached breaking point. It is one thing to give such support to tide over short-term problems, quite another to do so on a more or less permanent basis.

For, as the distinguished political economist Andrew Gamble (2014) suggests in an excellent book, crisis is now likely to be permanently embedded within the global economy, in the absence of some major shifts in ideology and public policy. Of that, there seems little chance. Despite some initial impetus for reform after the 2008 crash almost nothing came of it. There was no new settlement and no new deal, and every prospect, therefore, of another crash. It looks to me as if 2016 will be the year we see it. 

Reference

Gamble, A. (2014) Crisis Without End? The Unravelling of Western Prosperity. Basingstoke, UK: Palgrave Macmillan.

Oxi and No

So Greece has voted 'Oxi'. The consequences are unclear, but the reaction so far from Germany, in particular, does not make my hope of a write-off and reconstruction very likely (I heard an interview on BBC radio this morning, that unfortunately I cannot track down to link to, in which a politician from Angela Merkel's party voiced this very forcefully). It is worth just pausing to reflect how extraordinary this is. If a major bank gets into difficulties through imprudent lending then it is deemed ‘too big to fail’ and is bailed out, as we saw several times during the financial crisis, although its sub-prime borrowers are left in debt. But when a state gets into difficulties through imprudent borrowing and its counterpart of imprudent lending, then bailout is deemed impossible. Or, to come at it from a different angle, lenders lend money on the basis that there is always a risk that it won’t be returned, and this is priced into the interest rate. So why, when a borrower cannot repay, is it deemed unacceptable for the debt to be written off? The general rule seems to be that under no circumstances can the lender lose out and under no circumstances can the borrower be let off the hook. So where's the risk, and the justification for the risk being priced in? Actually, the situation as regards Greece is even worse: not only can it not be forgiven but also it must be obliged to follow policies that will make it even less able to repay its loans.

But in this post I want to focus on the response on this end of the continent to events in Greece. They have been profoundly depressing. First, it has been seen as validating ‘austerity’* policies: 'look what happens if you don’t balance the books!'. The fact that it has been the pursuit of such policies in Greece since 2010 that has turned a crisis into a drama is completely forgotten. For that matter, the significant differences between Greece and Britain (principally, that Britain can print its own money and that its debt is completely differently structured) are never mentioned. By the way, we see today just how extreme austerity policies in the UK have now become, with it being reported that terminally ill benefits claimants are being questioned by welfare officials as to when they expect to die.

Second, and far more bizarre, is the spectacle of the anti-EU political Right lining up to cheer far-Left Syrizia, as in articles by veteran Tory Europhobe John Redwood and UKIP leader Nigel Farage, presumably on the usually dubious principle that ‘my enemy’s enemy is my friend’. What they miss (or presumably don’t care about) is that Syrizia, and the Greeks who voted 'oxi’ in yesterday’s referendum, are rejecting the rule of global financial elites and the ideology of neo-liberalism. Yet what the British Europhobes have in mind in exiting the EU is an even more intensive embrace of these.

Redwood and Farage make as their prime argument that the Greek crisis reveals the gap between democratic nation-states and an undemocratic and overbearing EU and Eurozone (EZ). What this neglects is that the lack of EU democracy (which is indeed a serious problem) is a consequence of the fact that Europhobes like them in the UK and elsewhere have always refused to countenance a democratic European polity, deriding it as a federal ‘super-state’. The consequence is precisely the lack of democracy they now bemoan and, moreover, the fact that the entire basis of the Eurozone crisis is (as both Right and Left agree) that it is a monetary union without a fiscal union. And why is there no fiscal union? Because that, too, would require the European polity to which Europhobes are implacably imposed.

I expect that the attempt to tie together the Greek crisis with the case for Brexit will intensify, especially if Greece were to end up leaving the EZ or even the EU. For some voters it will be as simple as feeling that given the turmoil in Greece, Brits should pull up the drawbridge (as if, somehow, the rest of the world would then disappear). But for political leaders to encourage that by making false connections is deplorable. There are precedents, of course, such as the way that the French vote against the EU Constitution in 2005 was hailed by British Europhobes as supporting their view when, in fact, it was in large part a vote against a more neo-liberal EU.

The present case is even more clear. The Greek ‘Oxi’ in their referendum was a rejection of neo-liberalism and a vote for a more fraternal, collective EU project. A British ‘No’ in the forthcoming referendum would be a rejection of a fraternal, collective EU project for a more intensive neo-liberalism. 'Oxi' and 'No' do not mean the same thing.


A minor footnote. Yanis Varoufakis, who resigned today as Greece’s Finance Minister, is, so far as I know, the only politician of any note to have an academic publication in the organization studies literature:

Varoufakis, Y. (2008), ‘Game Theory: Can it Unify the Social Sciences?’, Organization Studies 29, (8-9): 1255-1277.

For an analysis of the role that Varoufakis’ knowledge of game theory may have played in the negotiations, see this article by the always interesting journalist and blogger Neil Clark. The answer, by the way, to the question in the title of Varoufakis' article is both 'oxi' and 'no' (and 'nein' and 'non') - but that is another story.

* I put 'austerity' in scare quotes because it is not just a euphemism but an objectionable one, invoking as it does the collective sacrifices of the post-war austerity that laid the basis for the NHS and the welfare state in support of a drive to erase the last vestiges of the post-war collective project.