niamh

I’ve been thinking about the size of the gap that has opened up between human suffering and politics as usual, which I think makes this crisis unlike anything we’ve had for quite a long time.

Albert Hirschman, in his classic 1970 book, suggested that there are three responses to failure in states, firms, and other organizations: exit, voice, and loyalty. If you are alienated enough, you leave (if you can). You can protest. Or you can stay and put up with it. But these are not mutually exclusive options. You might, for example, use the possibility of exit to amplify the power of protest (he thinks this applies to marriages as well as to states – nothing if not theoretically ambitious). Similarly, you might increase the effectiveness of protest, and delay the need for the exit option, by professions of loyalty.

I’m looking around me at the damage to the Irish social fabric caused by austerity measures to date, and wondering how to think about it, using these categories. Ireland is still a developed economy. But unemployment is now over 14 per cent, half of it is long-term, and it’s worst for young people. The domestic economy is below water, and emigration rates have surged. There are many forms of personal misery – the special needs children who can’t keep up at school because the budget for their personal assistants has been axed, the mental hospital patients who are to be moved into a locked ward for five weeks over Christmas because of staffing shortages, the formerly comfortably-off families seeking help from charities to keep afloat. We can see all the signs that economic activity is faltering – the rash of ‘To Let’ signs on office space, the closing-down sales on high streets and in shopping centres. We listen to the myriad stories told by family and friends of families trapped by unrepayable mortgages; of desperate small businesses running at a loss, hoping their accumulated reserves will buffer them until there is a recovery. We witness the increase in suicide rates, devastating for all affected.

People can put up with austerity for quite some time, if they believe it is necessary and unavoidable, and if they think that there will eventually be some improvement. But it’s becoming clearer that things are more complicated this time round.

We need the loans the Troika disburses, so our government has no choice about the size and scale of the austerity. More fiscal oversight is now on the cards, and it may well be a good idea in its own right. But the ECB is wrongly treating a gathering financial crisis as if were solely due to fiscal imbalances – treating consequence as cause. And our government is chained to the enormous rock of failed bank debt, which the ECB insisted needs to be repaid in full ‘to save the Euro’. Well, we’re sinking fast and it still hasn’t saved the Euro.

So what can we say about Hirschman’s threefold response options?

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Singapore is evidently a great place for shopping, as this photo from a friend shows:

But it is surely a sign of deep recession that gives us bargains like this in Dublin:

The Irish government must be disappointed that the Presidential election, held on 27 October, is now over, with the election of the Labour Party’s candidate Michael D Higgins as the country’s ninth President. We will now start to notice once again that unemployment is over 14%, we are still in the grip of austerity, and a new and even nastier budget is on the way. But for weeks on end, news coverage was dominated by the race for this almost entirely ceremonial office, while the government’s standing in the polls stayed quite high.

Long ago we could depend on having a pretty boring Presidential election contest involving a largely tribal, party-political choice between two elderly men. But the last two Presidents, both women, both lawyers, both academics from Trinity College Dublin (TCD) and both strangely enough called Mary, transformed the office. Mary Robinson and Mary MacAleese adopted big, symbolic, non-party-political themes for their campaigns –women’s empowerment (‘Mná na hÉireann’), outreach to the diaspora, overcoming communal divisions, encouraging civil society organizations.

This year, the election attracted an unprecedented seven candidates. This colourful group included a prominent gay rights activist, a former Eurovision song contest winner, an ex-IRA leader, a poet-politician given to wearing floral ties, and a businessman best known for his role in the Irish version of the reality-TV programme Dragons’ Den (or Shark Tank in the USA).

What’s been especially striking is that several of the leading candidates embodied some issue that has been difficult or traumatic in recent Irish public life. And one after the other, what they had hoped to use as their main selling-point turned out to be their downfall. What follows is probably mostly for Irish political junkies, so I will put the rest below the fold…

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I was just planning to write about Greek prime minister George Papandreou’s announcement today that he plans to hold a referendum on the most recent EU bail-out agreement, when I read Henry’s post. If the referendum were to go ahead (and we can assume Merkel and Sarkozy will try to talk him out of it at the G20 dinner), it would probably be held in January, and who knows what the state of debate might be by then. As Henry notes, this is frightening the markets, as one would have predicted, and France and Germany will want to put this fire out as fast as they can.

But in the meantime, I am particularly struck by Papandreou’s explanation of his decision:

‘We have faith in our citizens, we believe in their judgment and therefore in their decision,’ Mr Papandreou said after rejecting a call for early elections by some socialist politicians. ‘All the country’s political forces should support the [bail-out] agreement. The citizens will do the same once they are fully informed.’

Papandreou has clearly had a pretty awful time of it recently, dealing with Greece’s EU-IMF paymasters against the backdrop of constant strikes and protests. Indeed, while the review group was inspecting the books inside the Finance Ministry recently, the Ministry’s own officials held a noisy protest outside. Papandreou’s parliamentary majority shrank from ten to three in recent months. He faces a leadership challenge from his own party. He clearly hopes to strengthen his own authority by forcing the protesters to back down. But will it work? And if it does, what does it tell us about democracy now?

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Denmark goes to the polls tomorrow, Thursday 14th. For those who incline to the view that elections don’t matter, this one may be particularly interesting, since the centre-left group of parties looks very likely to win. This will not only put the current right-wing government out of power, but will marginalize the far-right Danish People’s Party. The DPP has pulled the framework of debate well to the right in recent years on immigration, rights, welfare, because it’s been pivotal to government-making initiatives since the early 2000s. This time, the Social Democrats have managed to focus debate on economic issues:

Thorning-Schmidt has promised a new era of public investment in welfare, education and infrastructure. The government is preaching austerity and public spending cuts, the general trend across a Europe dominated by the centre-right.

Discourse really matters!

On a completely irrelevant note, but one that I find mildly interesting nonetheless, SD leader Helle Thorning-Schmidt, who’s been SD leader since 2005, is married to a son of Neil Kinnock.

I’ve been wondering when best to air some thoughts about the ongoing public protests in Spain and Greece. The moment never seems right, because there’s always some bigger crisis about to break in European politics. The markets have turned on Italy;  Ireland joins Portugal in the junk box, despite meeting all its targets; European leaders remain divided on what should happen; they may or may not hold yet another summit this week.

But as long as the countries that have been worst hit by crisis are required to impose continuous austerity policies in the present climate, something deeper may be happening to public opinion, to civil society, and to the framework of consent to be ruled in a particular way.

These are not fixed things of course. They shift and evolve in response to the balance of power, the dominant ideas, the credibility of pain- and gain-sharing plans, the institutionalization of compromises through particular policy commitments.

I was in Barcelona recently and saw some of the mass protests in the Plaça de Catalunya, which have been replicated this summer in cities across Spain. Not much was going on around the camp in the daytime, but the place came alive by night, with speeches, singing, dancing, lectures, films, and at the weekends, larger protests against the government’s policies.

 

 

 

This is not a trade union protest; these are not public sector employees. So who are the protesters, the ‘indignatos’ who have been occupying Spanish public spaces? The numbers out on the squares are going down a bit now, but their social networking links are expanding enormously. And in Greece, who are the people taking part in street protests, which now seem to take on an almost ritualized form, parallel to but not the same as public sector strikes? What does it all mean for our understanding of democracy in hard times?

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Portugal’s debt has just been downgraded to junk bond status. Ireland’s efforts to boost investor confidence are under threat; Italy is starting to look wobbly.

European politicians are openly expressing their anger at the three main ratings agencies’ oligopoly, accusing them of attempting to exercise improper influence over policy-making – the timing of their downgrades is ‘not a coincidence’, and they are ‘playing politics, not economics’.

Evidence from Ireland bears this out – there seems to be no consistency in the way the ratings agencies evaluate the decisions of governments in the Eurozone periphery. Governments are put under pressure to engage in ‘orthodox’ fiscal retrenchment, in line with the EU’s excessive deficit procedures, and as required of Greece, Ireland and Portugal in line with their IMF-EU loan programmes. But as soon as they take relevant action, they find their ratings downgraded on the ‘heterodox’ grounds that taking money out of the economy will damage growth potential. Two bodies of economic theory seem to be at work here: ‘expansionary fiscal contraction’ when the aim is to enforce cuts, Keynesian counter-cyclical policy when the objective is to punish excessive contraction. Damned if you do and damned if you don’t.

Take a look at this graph, from the IMF’s May report on Ireland.

Each of the vertical red lines I’ve added represents an ‘orthodox’ fiscal adjustment on the part of the Irish government between February 2009 and December 2010. The balance was about 65% spending cuts and 35% tax increases, entirely consistent with conventional thinking. The profile looks like this:

The overall adjustment between 2008 and2014 is €29.6bn. This would be equivalent to about 19% GDP and 22% GNP in 2010. Yet Ireland’s ratings have been consistently cut.

Very odd.

 

The recent British royal wedding left me wondering what it was all about. One million people were said to have gathered on the streets of London for the occasion, and media coverage is estimated to have reached some two billion worldwide. Normally I’d be happy with a bemused shrug: ‘has the whole world gone mad?’ (Especially when I realized the staff in my local optician’s in Dublin had come to work dressed as if going to a wedding, to watch the proceedings live online). But massive state-sponsored pageantry can’t be brushed aside so easily, and the impending state visit by Queen Elizabeth to Ireland prompts me to pay it some attention.

It seems to me that we might take four possible views, not all of which are entirely independent of one another. The monarchy and all it entails could be seen as a matter of abstract constitutionalism; as an offshoot of modern celebrity culture; as a focus of political legitimation within Britain; as an immediately recognizable global brand.

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Following on from Henry and John’s piece on ‘hard Keynesianism’, here is another angle on the politics of the EU. Economic historian Kevin O’Rourke has an excellent paper setting out a very nice framework for thinking about the Eurozone. It was presented at a conference of the Institute for New Economic Thinking held recently in Bretton Woods (yes, surely a good venue for such an event). There is also a short summary here.

Kevin’s creative insight is to combine the impossibility theorems from two bodies of literature – Mundell-Fleming on monetary policy, and Dani Rodrik on global governance – and to show that the Eurozone occupies an uneasy half-way house in both economic and political governance. The particular merit of setting out the issues like this is that it demonstrates why there are no optimal policy solutions, only difficult trade-offs, with different potential losers in each case. It is an innovative and stimulating exercise in political economy that deserves to gain a wide readership.

Mundell and Fleming’s economic trilemma posits that you can only achieve two of three objectives in monetary policy: that is, open capital markets, domestic control over monetary policy, and fixed as opposed to floating exchange rates. ‘European Monetary Union has thus solved the economic trilemma in a particularly radical way: capital mobility combined with the complete abandonment of national monetary sovereignty’.

The political trilemma, drawing on Dani Rodrik’s work, says that if you go for increasing globalization, you cannot simultaneously have both nation-state politics and democratic accountability. If you want the latter two (as in the ‘Golden Age’ of postwar capitalism), you need restrictions on capital mobility. If you go for closer economic integration, you could do it by imposing all the adjustment costs onto your own citizens, as in the era of the Gold Standard. But as Polanyi and others have pointed out, this is hard to sustain without massive repression, and pretty well impossible in the long run with universal enfranchisement. So the alternative is to construct a collective decision-making capacity at the transnational level. As O’Rourke notes:

What makes European Monetary Union such a radical solution to the political trilemma is that it not only abandons national monetary policy-making, but delegates it to a technocratic Central Bank… Moreover, this has occurred without common Eurozone policies in complementary areas, notably financial and banking regulation; and it has occurred without a move towards a common fiscal policy, which most economists also regard as a desirable complement to a common monetary policy.

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The most recent data from Eurostat bring out starkly the implications of the current policy mix in the Eurozone. The peripheral economies continue to be spun around by an inflexible centre, and whether they fly off in a crisis remains anyone’s guess.

On the face of it, as the following graph suggests, some economies are easily diagnosed as having fiscal deficit problems. It is not hard to see how German public opinion can be persuaded that fiscal profligacy is the problem and that a dose of austerity will bring them back into line with German fiscal virtue.

Italy and Belgium actually have larger accumulated debts than Portugal or Spain, but they have no immediate problems keeping their debts rolling over. Britain falls into the same cluster with its combined debt and deficit problems, but no-one is seriously worried about its policy options.

The peripheral economies have problems that are different in kind, different from Germany and also from each other.

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‘Fiction is a route to political truth’, says Gideon Rachman in the FT recently, noting in particular Hisham Matar’s moving novel In the Country of Men, set in Libya in the early years of Gaddafi’s rule, and The Yacoubian Building by Alaa Al Aswany, through which we may get some feeling for life in modern Cairo. Reflecting on the great Russian novels, Rachman says that literary fiction in Russia seems to have given way to crime fiction in recent times. Which makes me wonder what novels I might recommend to someone interested in gaining insight into contemporary Ireland.

In Ireland as in Russia, for whatever reason, the genre of crime thriller is flourishing. Journalists and dramatists such as Gene Kerrigan and Declan Hughes set their novels in the Dublin criminal underworld. John Banville adopts an alter ego, Benjamin Black, for his detective fiction evoking an unfamiliarly noirish 1950s Ireland. The Twelve, by Stuart Neville, is about unfinished business in the aftermath of the Northern Troubles. Alan Glynn’s fast-paced thriller Winterland dramatizes the world of politically well-connected Dublin builders and businessmen at the height of the construction frenzy of the mid-2000s.

But the Irish literary imagination doesn’t seem to engage very readily with grand socio-political issues or state-of-the-nation fiction. It is perhaps too soon to have a literary meditation on the calamitous economic crash. But even so, there has been relatively little serious fictional treatment of the rapid shifts in Irish society during the 1990s and 2000s. Why might this be?

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I posted recently on The paradoxical politics of credible commitment, noting the excellent analysis of Gordon Brown’s politics by Sebastian Dellepiane.  He argues that the Labour government did not make the Bank of England independent simply in order to defuse City suspicions of them. This self-binding policy was also in fact enabling, because it made it possible for Brown to adopt a classic Keynesian economic strategy by about 2000.

The Euro started out as a self-binding credibility-gaining mechanism for Eurozone member states. But the Euro also turned to have an ‘enabling’ side to it. It contributed to new kinds of instability by facilitating the extension of cheap credit and by permitting increasingly risky lending practices to spread throughout the European financial system, in Germany and France as well as in the weaker peripheral economies.

This has led me to think some more about the relevance of the logic of credibility gains in the current European crisis.

The self-binding austerity politics now under way in the Eurozone also has some paradoxical features. The crisis has produced an explosion of fiscal deficits and an accumulation of sovereign debt. The ECB favours fiscal austerity to restore stability, and so does German public opinion. This means that every other member state must adjust to low demand conditions and domestic deflation. But while Gordon Brown’s self-binding monetary policy proved to be enabling, Eurozone governments’ self-binding fiscal policy might be seen as self-disabling, because it involves commitment to a strategy that may prove self-defeating. There are two reasons for this.

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Some observers have wondered why Ireland’s dramatic economic crash has not produced more visible anger. Where are the street riots, they ask. The Greeks, they say, do this sort of thing better, the Icelanders managed to rise up as one – what is wrong with us? The Irish banks are a vast financial black hole and taxpayers are looking at crushing liabilities stretching into the future. Unemployment is over 13%. For those in work, pay packets have shrunk yet again as new taxes and charges kick in. Many households carry huge debt. Emigration is making a return. The terms of the EU-IMF loan constrain the terms of economic debate: we are not a sovereign economic state. Yet everyday life looks like business as usual.

The election campaign is slightly surreal for this reason. Last night saw a US-style TV discussion involving the five main party leaders, all men and all wearing identikit business suits. The studio audience, picked by a PR company to represent undecided voters, was pained yet polite.

But these are surface impressions. Out there, as the parties well know, all the evidence indicates that the voters are merely biding their time, ‘waiting in the long grass’. This could be a realigning election, a shape-shifter for the Irish political system.

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We won’t know for some time yet whether we are living through a game-changing period in which a dominant economic paradigm is replaced by something else. We don’t yet know what the catchy label will be for it.

Yet some of our conventional notions about how states manage market expectations have already been upended in recent times. One of these concerns the politics of credible commitment, which doesn’t always work the way we think it should.

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