Since the outbreak of the crisis, false choices have been imposed on us. First, we were led to believe that we must bail out large, troubled financial institutions using public resources or let the world collapse, such as happened in 1930. Then, when the crisis spread throughout Europe, the decision was to deal with fiscal deficits and sovereign over-indebtedness by imposing brutal adjustments that affected large majorities; otherwise, the collapse would sweep the European Union and the euro. Nowadays, when it is no longer possible to keep that pace, the current choices are between “the” austerity and “the” growth, as if there would be only one kind of growth and austerity. In which of these options the need to transform the way of functioning responsible for the crisis is taken into account? A way of functioning that generates systemic instability, social inequalities, environmental destruction, irresponsible consumerism, and threatens the social cohesion and the democratic governance.
At the recent G20 Summit, the clash between different interests and perspectives focused on this new dichotomy. But, be careful! The G20 calls to act urgently, because the chaos is once again around the corner. The debate overlooks two critical issues that the group did not address: what kind of austerity has actually been imposed on us? And, what kind of growth is being proposed?
It is clear that there is a need to take firm and urgent actions; however, what is at stake is not to accelerate the restoration of the dynamics that dominated the pre-crisis order but, rather, the adoption of rapid and sound measures to start transforming the unbridled, unregulated financial system concentrated power and resources in ways that led to the crisis.
The austerity that has been imposed on us
In view of the consequences of the austerity policies that have been implemented, most of the G20 countries now prefer growth strategies. Even Germany and the Netherlands have been forced to make their positions on austerity more flexible. What the G20 has not made explicit is that the imposed austerity corresponds to a particular type of austerity that harms majorities while protecting the interests of greedy minorities. It is impossible to ignore how harmful the contemporary financial chaos is but, there are ways to balance public accounts and reduce over-indebtedness without affecting the standard of living of our people. A fair policy choice would entail expanding revenues by taxing financial capital (assets, incomes and transactions) while, at the same time, increasing the social and economic effectiveness of public spending.
The suggested growth path
The G20 should be explicit about whether it is recommending a type of growth aimed at restoring or transforming the pre-crisis financial and economic patterns. If we restore without transforming those mechanisms that led us to the crisis, we will again generate imbalances, inequity and systemic instability. Development is needed, but it is not achievable under any type of growth.
The main struggle is, obviously, political and the main decision relates to determining who really drives the country and the economy – is it “markets” or citizens. This choice drives the financial dynamics and determines which interests should prevail.
The hard core of “the markets” is made up of investment funds that manage EUR 18 billions, pension funds that manage around EUR 14 billions, sovereign funds of EUR 2.5 billions and hedge funds that manage EUR 1.5 billions but also use debt leverage and derivatives which amplify their impacts many-fold. The volume of resources controlled by this handful of actors is as amazing as the way they manage them is dreadful, generating systemic instability. Since they are driven by profit motives without weighting the collateral effects of their investment decisions, the world is left at the mercy of a bureaucracy trained and encouraged to speculate.
Of course, those who benefits from concentrated power are not likely to give up their privileges. Today, they decisively influence the G20 strategic decisions and retain the power of subordinating other actors, such as officials, regulatory bodies, media, risks rating agencies, and main think tanks.
Then, it is hardly surprising that the issues falling outside of the G20 consideration and political suggestions are critical aspects to set up a new direction and a new operating way. We are right to reject the kind of austerity imposed on us, but we are wrong if we leave that field failing to demand those which generated the crisis pay for the disaster caused by its unbridled profit-seeking. On top of that, we now move to embrace “the” growth that those same forces will know how to shape to their own interests.
It would be necessary that the G20, at its next Summit in Russia, clarify the type of growth is promoting –hopefully a not concentrated one- and that, in doing so, it is explicit about who will benefit and who will be harmed. Representatives from the emerging countries will have a major responsibility, since the G7 still thinks about the “old” pattern of growth, as if the crisis had been just the result of bad financial management, not the natural consequence of a particular type of growth.
Austerity and growth appear to be strongly antagonistic policy options. However, if austerity was covered by financial surpluses currently concentrated in few hands, and growth was a path to sustainable development, then (how surprising!), both policies would be complementary. Indeed, is it not truth that a fair and sustainable development should also be austere?
Published by [Triple Crisis->www.triplecrisis.com]