We Have Lift-off

At least that was the hope for yesterday’s speech by Ed Miliband, the head of the British Labour Party.  It was hyped for days as his re-launch by the media, who see his poor standing in the polls and rumors in the party as evidence that his days as leader are numbered.

Many of the post-mortems on the speech are obsessing about whether it was a strong enough performance to get his leadership back on track.  For what it’s worth, the consensus in the press is no, not really. That seems, though, at this point – 16 months into his leadership and three years before the next election- to somewhat miss the point: Labour is marginally ahead of the Conservatives even if Miliband’s own popularity is currently low and they should be doing better, the party does not jettison its leaders easily and it’s not clear who else in the party would gain enough support to replace him.

More to the point, this was an attempt to re-launch the Labour Party and more boldly, the politics of the Left in general.  The speech buries New Labour. By focusing on the fact that the days of Labour victories during boom times are over, Miliband laid out a program (admittedly shorter on specifics than one might hope) for a new progressive politics in harsh times.  He acknowledged that a Labour government in 2015 would need to make cuts but his is a rejection of the austerity sweeping Europe. He argues that the deep cuts that the Chancellor has imposed to lower the deficit (and that most of the other European countries with debt crises are doing) have not grown the economy but simply made the problem worse.

Miliband’s argued for a fairer distribution of economic rewards and a combination of higher taxes at the top as well as cuts. Some of his main points; “First, reforming our economy so we have long-term wealth creation with rewards fairly shared. Second, acting against vested interests that squeeze the living standards of families. And third, making choices that favour the hard-working majority.”

Will it work? Hard to say.  Many of the points in the speech such as the emphasis on the famous ‘squeezed middle’ or attacks on crony capitalism are ones that he’s been pushing for some time but his thunder on them has been stolen as the coalition has embraced them as their own.  It’s unclear whether the still strong Blair wing of the party will support what they see as attacks on business. He still needs to provide some specifics of actual policies that will lead to the job creation he envisions or how you encourage companies to ignore the short term interests of their shareholders.  In this respect, it was not nearly as strong a speech as the one recently delivered by Obama in Kansas. And who wins the British election in three years time will have more to do with whether the economy is recovering at that point.  But, it is the beginning of a conversation in Europe about both the limits of austerity and the old politics of the Left.  For that reason, it’s worth listening to.

Is Social Democracy Dead?

Although the financial crisis has caused a fair number of casualties for incumbent governments, with voters holding governing parties of whatever political stripe responsible for the crisis, these are especially hard times for social democracy.  Since Lehman declared bankruptcy in 2008, social democrats have lost 19 of 24 elections in Europe, prompting a lot of speculation about whether social democracy is dead.

Reports of its death are certainly premature and some feel on the left that publics will inevitably tire of austerity and may bring them back to power in those countries experiencing tax hikes and stark cuts in services and entitlements. But there is no denying the sense of malaise with respect to the social democratic project and its identity. Where social democratic parties are blamed for the crisis and have been voted out, they’ve lost credibility as stewards of the economy, making it essential that they regain the confidence of voters by offering a convincing argument that the can indeed be trusted again with the keys to the Treasury.

But how? This clearly takes time, the articulation of a viable alternative and possibly an admission to the public that some of their policies while in power were flawed. All of these can exacerbate internal party tensions.  These dynamics are playing out in several countries.

In the UK, Labour Party leader Ed Miliband is struggling both with growing internal criticism of his leadership and getting his vision for a radical rethinking of Labour politics across to the public.  Yesterday, Lord Glasman, one of the leaders of Blue Labour and ally and close supporter of Miliband, published a piece in New Statesman that ignited the Twittersphere and sent conservative-leaning media into a frenzy.  Glasman’s claim that Miliband, who already trails Cameron in polls, has “no strategy, no narrative and little energy” comes on top of weeks of relentless pounding by the press that the party leader is not up to the task and whispers of discontent within the party.

But in many ways, when read in context, Glasman's piece is not the act of treachery many are making it out to be, even if this loose cannon academic ought to have known how it would be portrayed. Marc Stears, also aligned with Miliband, defends Labour’s leader as having to navigate what is essentially new territory for the Left: coming up with a program in an age of austerity when the traditional toolbox of the Left is empty.

It is true that Miliband has been slow to articulate his vision for reconfiguring Britain and addressing the ‘squeezed middle’ and he may have waited too long to dispel the view that he is unelectable.  And aside from any missteps by the leader, Labour may simply have to wait it out until they are no longer blamed for the crisis in Britain by voters, something that would be true no matter whom the party had selected as head. 

But the next few weeks will be interesting as Miliband does try to connect with voters with his vision for a non-Blairite, non-Brownite Labour program. There are hints of that vision in various recent speeches: his focus on responsible rather than predatory capitalism­­, addressing the anger and hopelessness of many in the middle, but so far there have been few concrete policy formulations around these.  If he is able to articulate some, he may set a tone and agenda for the European left, and in the process perhaps even save his job.

Next post, I’ll look at some of the internal leadership struggles in Spain as the Socialists there grapple with electoral defeat and a crushing economic situation.

The Pain in Spain

Today Mariano Rajoy, Spain’s newly elected President, gave his first speech in his new role before Parliament and laid out his plans to deal with the crisis. Like Monti, his counterpart in Italy, Rajoy’s proposed cuts fall at the lower end of estimates these countries were assumed to need. In the case of Spain, that amounted to a deficit reduction of somewhere between €15 and €30 billion in cuts and taxes. There is extensive coverage in El País of Rajoy’s plan, which offers €16.5 billion in cuts to the Administration and other measures.

Some of the highlights of Rajoy’s plan include:

·         Linking pensions to the consumer price index, the only increase in the proposal

·         Freezing public sector employment except for the armed and security forces and basic public services

·         Reform of regulatory bodies

·         Eliminate early retirements to bring the real age of retirement into line with the official age and not repeal the law raising the retirement age to 67 (that the PP had opposed while in opposition)

·         Shifting public holidays to the nearest Monday to avoid the ‘bridge’ holidays where any holiday now typically turns into stretch of days off to the closest weekend

But the biggest change is the Administrative cuts that he views as a fundamental restructuring of the State. Without elaborating the mechanics or specifics of cuts, this reform promises what all current plans in Europe intend to do to deal with the crisis, whether they come from parties in power or the opposition.

There is a focus on eliminating waste, reducing costs and improving services but without real proposals, that is the sort of meaningless rhetoric that often characterizes these debates and that the markets punish because they mask the lack of resolve. The devil is in the details and presumably over the next few months, the specifics will become clearer but there is little evidence that efficiency gains will be sufficient to tackle the deficit. There are fewer proposed tax increases than the new Italian Prime Minister offered in his budget that is to be voted on in Rome later this week. Rajoy has proposed however, similar to the Italian plan, a tax cut for firms that hire young workers and women in order to tackle the high unemployment among those groups.

For its part, the main opposition party the PSOE has been relatively supportive while at the same time underscoring both doubts and concern for the concretization of the plan. The lack of new taxes raises questions for the Socialists about where the money to pay for this plan will come from and they are insistent that the welfare state in Spain must be defended and not dismantled.

For everyone, the lack of specificity ought to make us wonder whether, when the details finally do become clear, the pain in Spain will be considerably higher than this first speech suggests.

Winter of Discontent

One of the constant background murmurs in the Eurocrisis discussions has been the issue of how long countries subjected to austerity measures would actually be able to stick with a regime of cuts and other deeply unpopular policies.  That uncertainty is part of the argument of the Germans and the ECB against the latter buying the debt of countries like Spain and Italy. The fear is that governments will lose their resolve to institute reforms in the face of domestic public opinion, if they know the ECB will buy their debt instead of going to the market where rates could be punishing and unsustainable.

There are two problems with this argument.  The first is it’s not working: the markets are not responding as hoped for to austerity plans.  In Italy, despite Monti’s proposed  €30 billion in cuts and taxes, rates at Wednesday’s auction of Italian 5 year bonds hit a new high of 6.47% which is closing in on unsustainable. And the secondary market for 10 year bonds exceeded the magic 7% figure, that which triggered bailouts for Greece and Ireland.

Second, and not unrelated, popular pressure against austerity is starting. In Italy, the leader of the largest trade union warned of a ‘social explosion’ as a week of protests and strikes begins while the rightwing Northern League disrupted Parliament in a show of obstructionism.  On Tuesday, French trade unions led some (small) protests across the country in reaction to the government’s austerity package.  The courts are also being used to halt some austerity measures.  The Guardian reports that the regional government of Catalonia is suing the newly elected Rajoy government for the return of ¾ of a billion euros in tax refunds that Madrid is withholding as part of its austerity plan.

Right now, there continues to be public support for the newly elected or installed governments to institute the austerity packages that are viewed as the only means of averting financial disaster. However, as the impact of the cuts is felt and if the hoped-for reduction in borrowing costs does not materialize making it harder for growth to resume, Europe, or at least parts of it, may be headed for a winter of discontent.

The Berlin Consensus

The finger-wagging Washington Consensus of the 1990s that prescribed market based reforms for crisis-ridden developing countries has been replaced in Europe by what we might call the Berlin Consensus that calls for austerity in the Eurozone countries in crisis. Regardless of the outcome of the Brussels Summit taking place today and tomorrow for the fate of the Euro (and you can vote on what you think the likelihood of the breakup of the currency is at CES’s Facebook page), austerity measures will be the order of the day.

Governments in Ireland, Greece, Spain and Italy are slashing budgets, subsidies and social programs  in order to try to bring deficits in line. The pain this will cause in terms of lower wages, higher unemployment and disrupted lives was made remarkably human by the Italian Welfare Minister, Elsa Fornero, who broke down in tears while announcing the austerity plans.

Yet in the slash and burn environment as countries race against the clock to assure markets that they are serious about getting spending under control, there is the danger that too little in these measure will focus on getting the country growing again or that untargeted cuts will destroy existing foundations for future growth. The Guardian’s analysis of  Monti’s budget in Italy, which cuts €30 billion, suggests that there is little that will stimulate growth.  Broadbrush cuts to higher education in Ireland, especially in science, threaten to undermine the high-tech infrastructure that has been crucial in attracting investment and skilled talent to the country for the past two decades, reports the Irish Times.

The human costs for long-term stagnation are also staggering.  El Pais reported today that Spain, at 31% has the highest percentage of overqualified labor in the EU, that is, people with university degrees who are employed in jobs that don’t require one. Ireland is second with 29%.  This inevitably leads to brain drain – indeed, highly skilled workers in the Iberian peninsula have been fleeing to emerging markets in their former colonies in Latin America and Africa where salaries and prospects are better. With youth unemployment rates near 50% in Spain and Greece and over 30% in Ireland, Italy and Portugal, the likelihood that these countries lose their best talent pool or that a lost generation is never really able to make up for the lost wages and experience (see the NBER paper on the long-term effects of graduating in a recession) is high. 
 

Without a better consensus on what kinds of austerity measures are necessary and what kinds of policies will set the stage for increased productivity and employment in the countries currently in crisis the Euro project is not viable.  All kinds of austerity plans will inevitably be painful but the point is not pain in and of itself; they need to be ones that decrease the imbalances in competitiveness of the northern and southern economies.  Otherwise, the Berlin Consensus, like the Washington Consensus that came before it, is doomed to fail.