Monday, April 18, 2011

What transition? Part 2: Today's flawed responses

Mainstream decision-makers as well as governments, for instance within the G20, have attempted to put into place responses to the current crisis. They had no choice, given the landslide effects and catastrophic impacts of the financial meltdown of 2008. Every intergovernmental meeting and every business convention is abuzz with calls for "reform," "change," "thinking outside the box," and so on.

However, and for quite understandable reasons, the responses have been following the line of the incumbent logic. This seems inevitable given the very structure of our democracies, whose decision agendas are (a) ridden with more or less short-term electoral deadlines and (b) deeply affected by the interpenetration between the political and the economic worlds. In other words, our political officials don't have particularly much time before them, and they aren't particularly independent of pressures coming from the mainstream economic world -- meaning both employers and trade unions who, with governments, have long formed the backbone of our social-democratic reform models.

I want to argue here that the responses to the crisis which have been introduced seem to me to be grossly insufficient. They rely on, and presuppose the continuation of, the same logic as the one which brought about that crisis. Let me emphasize that while this is a strongly critical assessment, it is not necessarily a personal indictment of anyone. There isn't so much a conspiracy at work (although some segments of the economic world are clearly pushing intentionally for measures which are designed to prevent deeper questioning and/or change) as there is a lack of vision. Not being on the front line of political decision-making, I understand that my criticism might be perceived as facile by some key actors. I do not believe it is facile, but I can understand that building up and implementing an alternative vision is harder when one is managing the current system than when one is observing it from the outside, as it were, while benefiting from its resources -- which is the case of us academics.

Let me also emphasize that what I will say here will be mainly about the so-called "developed" world and in most cases, more precisely, about Europe. Much more of a collective effort would be needed to formulate the equivalent observations for other parts of the globe.


1. "Reforming" the financial system

The big chunk here is, of course, the fact that States were forced to invest or at least commit astronomical sums to bail out their commercial banking sector, just as they were emerging from a period of deficit reduction within the framework of the European convergence criteria. Rarely had such a massive transfer of public wealth into private hands -- and into the very hands which had initially caused the collapse -- taken place in such a short time.

Various so-called prudential measures were introduced, in particular in the Basel III agreements -- during whose negotiation, however, the banking lobbies were seen to invest considerable sums and energy to oppose, a.o., any but a trivial increase in obligatory reserve rates and in risk management standards. The Monetarist focus on inflation and on the immediate reduction of public deficits has remain intact, in particular in Europe (ECB and European Commission), especially under the pressure of Germany. There seems to be no deep mutation of the banking sector on the horizon and within the mainstream circles making up the "transnational capitalist class," there is certainly no serious reflection on alternative modes of financing economic (including public) activities and/or on alternative ways of issuing money. This is especially troublesome given that, like the U.S. dollar, the euro is a privately issued debt-money whose sole mode of circulation is through the creation of credit liabilities by commercial banks. The subprime crisis was caused in large part by the Federal Reserve's losing bet that pumping up the U.S. housing market through cheap and even junk credit would get the economy back on a growth path which the excess of public and consumer debt was threatening to derail. Using the private banking sector as the main tool to irrigate the economy with means of payment is a risky business and has led to numerous currency and banking crises in the recent past. But the political economy of how the financial sector and the political elite link up in terms of networks can go a very long way in explaining just why so little -- to say the least -- is being done to dismantle and scrap a constantly failing money creation and circulation engine.

On this response to the current crisis (financial pseudo-reform) as well as the two next ones (fiscal pseudo-discipline and targeting labor to counteract adverse financial effects), I strongly suggest that the interested reader consult the remarkable blog of my Greek colleague from Athens University, Yanis Varoufakis:

2. "Cleaning up" public finances

In line with this monetary and fiscal orthodoxy, the attacks of deregulated financial markets against the States which had deregulated them in the first place have been interpreted as "warnings" addressed to over-indebted governments. Instead of viewing public-debt papers as representative of long-term collective projects (and without thereby condoning gross public mismanagement such as may have occurred in several EU and non-EU countries, among which the Greece of Kostas Karamanlis but also the U.S.A. of George Bush, Jr.), the dominant actors continue to consider a country's debt as assets that are substitutable to all and any other forms of "paper," wit the aim of generating private gains and revenue flows. The straightforward and utterly predictable result has been an ever stronger pressure towards budgetary cleanliness, regardless of the cost to territories and populations -- a pressure sustained and legitimated by private rating agencies which, by the way in which they are financed, are clearly prone to obeying perverse incentives.

This logic is almost exactly the one that already presided over most third-world debt crises in the past, and it has not changed one iota because the underlying interests (for instance, German private banks playing casino with Greek treasury bonds and then demanding that the Merkel government crack down on Greece within the EU procedures) have remained structurally the same. The deeper-lying bio-environmental externalities and anthropo-environmental internalities (as defined in Part 1) get completely forgotten in the short-term agitation to "save" private banks and to "shore up" debtor countries so as to avoid further banking and/or currency crises which would hurt capital owner and movers as well as sending more families and communities to the floor. My colleague Bernard Lietaer, a world-renowned specialist on alternative currencies (see his homepage in the sidebar), has referred me to the March 26, 2011 issue of The Economist (page 75), where the behavior of large financial actors in today's system is compared to the "protection racket" in The Godfather. It's as if the large banks that took immoderate risks (being Too Big To Fail anyway) and are now demanding crackdowns on countries were periodically whispering to us, in a hoarse voice designed to send shivers down our spines, "Nice economic system you got there -- jobs, social security, nice goods -- such a shame if something were to happen to it..."

3. "Flexibilizing" the labor market and giving priority to international competitiveness

In order to counteract the deleterious effects of the financial collapse and of the sovereign debt crisis, States and territories have been led (by a resurgence of good old Monetarist reflexes as well as by market-driven threats of a degraded credit rating) to deconstruct various protection mechanisms shielding the weaker members of their societies (see, e.g., the rapid and ill-received scaling down of public services in the UK and Ireland). In particular, most people who lost their job were able to find a new one -- if at all -- only by accepting degraded working conditions or well-intentioned but often stigmatizing retraining and re-conversion trajectories, the underlying idea being that, in an economy completely geared to private profits and the growth imperative, worsening macroeconomic conditions require a more "responsible" and "flexible" labor force. In Belgium, the principle of automatic wage indexation came under considerable pressure at the hands of OECD experts.

The downward pressure on wages in the name of cost competitiveness (see the remarkable work of Frédéric Lordon in France, in particular his recent books Jusqu'à quand? and La Crise de trop) has tilted the balance of power towards the side of capital owners and movers, and the firms they finance are once again (as they have relentlessly since the late 1970s) singing a well-established refrain: without competitiveness (at the international level, of course), there will be no growth, hence no private or third-sector employment and no financing of public services. This equation has been invalidated repeatedly in the past (since, in particular, growth tends to generate less and less net employment increases) but it has not been dislodged from most minds -- on the contrary, its intellectual and political reach has, if anything, increased. And trade unions are also going along with it, albeit reluctantly, because they see no other possibility in a world where -- Paul Krugman's very valid arguments about the centrality of technological progress notwithstanding -- worldwide wage competition is fierce and creates additional incentives for internationally active firms to combine labor-saving technological progress (as well as relocation to low-wage countries) with cost-saving dismantling of domestic protection structures. Unions are caught between a rock and a hard place. Environmental as well as alienation-related issues get shoved into the background when fighting for jobs becomes guerilla warfare -- one job at a time, as it were.

4. Intensifying the exploitation of, and search for, fossil reserves

To avoid that productivity and competitiveness hikes get countervailed by rising energy prices, but also to exploit the price rises in the short run to generate more profits, the world economy has been made more, rather than less, dependent on oil and coal. This has been so despite numerous calls (not only by staunch environmentalists) to diversify energy sources while staying clear of nuclear energy, i.e., to focus heavily on renewable sources.

The logic of industrial and financial capitalism is, however, structurally incompatible with a wholesale overhaul towards renewable energy. (This has been argued persuasively, a.o., by Ted Trainer in his book entitled: Renewable Energy Cannot Sustain a Consumer Society.) The rates of return which are being demanded on the markets, hence the growth rates that ave become mandatory at the macroeconomic level if the system is to go on churning out more goods with higher productivity, hence the extent of the required mobility of goods and persons, are simply too large for a renewable-energy economy. Oil has a historically unique combustion-to-efficiency ratio, one which is not likely to be mimicked anytime soon by other sources. And we know the vicious circle of short-term over-exploitation: The more expensive fossil fuels become, the more profitable it becomes for the private actors in the sector to exploit even deep-lying and/or mediocre reserves (such as the tar sands of Alberta), whose net energy is virtually zero if not negative in the medium run. Given the current "run for your life" atmosphere, there is no alternative in sight and no political will to start looking for one -- except in certain local micro-contexts such as the small rural town of Beckerich in Luxemburg (see


When combined, these flawed responses boil down to what can be called business as usual, or B.A.U. It can be viewed as a minimal transition, but the word then loses almost all its meaning. Alternatively, one could call it "crisis capitalism," with the idea that many of the key private and public actors in the system are attempting to jump-start the same old engine after having replaced some defective parts with newer, almost identically-shaped ones. And this has impacts on all of us, since it is clearly quite difficult nowadays to get a debate on a non-B.A.U. transition going among citizens. As consumers, travelers, or investors, most of us are not really prepared to take one or two steps back. This is so despite the fact that the indicators of a state of economic and environmental crisis and of human exhaustion are on the rise, making critical reassessments inevitable -- all the more so if we want to make the threat of a generalized collapse into a resource for active change.

Basically, while it is indisputable that the threefold dynamic described in Part 1 (see previous post) has significantly improved many lives over a century and a half, it is also evident that today, these processes can no longer go on in a blind fashion. It is time for a conscious, deliberate, concerted endeavor the likes of which humanity has never seen before. Which, I hasten to add, means neither a quest for perfection (as if we had all the answers and were just waiting to combine them into the ideal economy) nor a one-size-fits-all project where everyone would have to live in the same way. Transition is very much about what Warren A. Johnson has called "muddling towards frugality" -- muddling through, seeking compromises, trying out what John Michael Greer calls "ecotechnic" solutions but also attempting to safeguard our living standard through what Juliet B. Schor calls "plenitude." But for all this to be possible, we need a new vision as well as new framework conditions. This is what the next posts will be about.

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This post from the "Eco-Transitions" blog by Christian Arnsperger is licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Unported License.

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