The three dimensions of the crisis

The current economic and financial crisis has three dimensions which – as I would like to show – must be thought together.

The first dimension is related to the macroeconomic puzzle of how to reorganize an economic world system which was until late dominated by a predominantly Anglosaxon West and which now includes Asia, South America and Russia which have other traditions, but which nowadays are the motors of worldwide economic growth. In practice, this means avoiding a world awash in liquidity which implies the necessity to construct something like a new Bretton Woods system in which monetary beggar-thy-neighbor strategies, such as strategic devaluation and accumulation of dollar reserves at the one hand as well as financing one one debt with foreign money, are no longer possible.

Arguably this first task is difficult enough. But even if we would construct a monetary system which would take away power from today’s financial centers and end the succession of speculative bubbles we would be left with the problem of how to distribute growth and natural resources among the rivaling nations. This problem is not only immense because the resources of this planet are limited. Unfortunately, even the countries with the most sustainable long-term strategies such as Germany or the Scandinavian countries are afflicted by contradictions of 21st century capitalism. In every Western country there is evidence of a shrinking middle class and a deterioration of the situation of the workforce. Therefore 21st century society is increasingly divided between those who possess and those who are clever and strong enough to work for the latter and those which are no longer needed and struggle to make a living.

After all, such a development is not surprising, given the rationalisation of work which is a natural outcome of technological progress. The last two centuries have seen a transformation of an largely agricultural world into first an industrialized world and then a domination of the production of services. Less then 10% of the the US workforce and less then 20% of the German workforce are industrial workers. This is also the reason why social mobility is lower in the US then in Germany and why, despite all the invocations and manipulations of the last decade, the American Dream is losing credibility.

We, therefore, do not only have a problem of political coordination of interests which stands in the way of the construction of a sustainable monetary order or a problem of how to allocate and economize natural resources to allow balanced growth for all countries in this world, but there remains a problem with the social outcome of current capitalism even if we would solve these two enormous problems. This third problem is related to our inability to rethink our social mechanisms, probably because they are to strongly rooted in the Western thought and behavior of the last 500 years.

Unfortunately, western thinking is predominantly competitive and not very cooperative. To cut a very long history very short, it can be argued that the split between protestantism and catholicism led to a predominance of materialism which later led to the deification of the market mechanism by Adam Smith, not by chance an English thinker. Good protestant christians are those who demonstrate to God that they are worthy by achieving worldly (and thus often material) success.  Original catholicism was much more balanced between the spiritual and material world. The good catholic helps to create a world which resembles Gods world, and this thinking led generations of catholic priests to think and act for a better order. Cooperation and solidarity, therefore is something which is not inbuilt in the existing order. Rather, every christian has to open up and develop his heart, following the steps of Jesus Christ.

The future will be largely characterized by the path we choose to follow today. Exaggerated competition will lead to an Apartheid like system in which the rich compete against the poor, the powerful against the weak and in which one part of the population will live – protected by a police state – in eaver greater comforts, whereas the other part will struggle to survive. Social trust will be very low. A path with more cooperation would not throw away the achievements of the market economy, but it would blend it with mechansims of solidarity, such as insurances against social risks as well as cooperative forms of work organisation, which goals are a high work participation and an inclusion of as many as possible citizens into an active life.

 

The risks of the low qualification strategy

Some commentors claim that the western world is in crisis for over almost 30 years now. Instead of thinking about the future of the work society in a cooperative manner within a national framework, western governments have tried different paths to face the fact that we need increasingly less people to satisfy our economic needs (Several scholars including Ralf Dahrendorf have published on the future of the work society in the early 1980s, but the topic became unfashionable). Arguably, the societies with a rather mixed or divided population like the USA or the United Kingdom have used the less cooperative policies to resolve social conflict, embracing the double strategy of globalization of production facilities and of increasing the importance of the financial sector.

However, this once hailed strategy includes remarkable problems. First, it increases the inequality of the population with an elite that profits from globalization and a local population which does not. (According to Artus/Pastre (2009) “Sorties de crise: Ce qu’on ne nous dit pas, ce qui nous attend” a quarter of US-American GDP is now produced abroad compared to 10% in 1995). Second, deindustrialization and outsourcing have led to stark reduction of labor in sophisticated sectors to only 4% of total jobs. Manufacturing jobs have dropped from 20% to 9% over the same period. As a consequence, people are increasingly unable to judge the necessities and problems of a modern economy.

So what are the risks of this strategy? Without being pathetic, it can be argued that the political culture in the USA and the UK has deteriorated up to the point that cultural and economic decline seems unavoidable. Instead of realizing that the policy of the Great Moderation (i.e. the policy of cheap central bank money which illuded the American middle class that upward social mobility was the same as 30 years ago, even if their consumption was increasingly credit financed) was simply unsustainable and should be ended, unsustainable policies abound. Instead of leaving the path, path-dependency seems to be stronger.

What began as a strategy to break union power and seemed to be victorious over declining and increasingly self-contradictory Eastern communism now risks to lead to another form of decline in the form of a narrow minded police state whose actors indulges in counterfactual and ideological thinking and increasingly bizarre social practices. But as the emerging BRIC-states and the European capitalisms demonstrate, it is simply not true that “There Is No Alternative”. Capitalism can be more coordinated, cooperative and long-term oriented than its US-American variety. Hopefully, the costs of rethinking will not be too high for the people living on this planet.