The Fourteenth Banker Blog

May 26, 2010

From UK, Europe Dead Unless New Basis For Governance Found

Filed under: Running Commentary — thefourteenthbanker @ 8:55 AM

Thanks to Edward Harrison at Credit Writedowns for finding this link. I will provide a few choice quotes and comments. This article is from the UK Guardian and is about Europe. But the back story applies to all the West. What can fracture in Europe can fracture in the U.S. The problems are not as different as American’s might hope. If world economic power shifts to developing nations, we should hope they don’t treat us the way we have historically treated them.

In its current form, under the influence of the dominant social forces, the European construction may have produced some degree of institutional harmonisation, and generalised some fundamental rights, which is not negligible, but, contrary to the stated goals, it has not produced a convergent evolution of national economies, a zone of shared prosperity. Some countries are dominant, others are dominated. The peoples of Europe may not have antagonistic interests, but the nations increasingly do.

Wow. That sums it up pretty well. There is a “big tent” which has had some benefits for those loosely confederated under it. However, at its core there are deep differences among the inhabitants of the tent and those exist for many reasons, inclusive of the desire of those of power and wealth to hold it. Like a “big tent” political party, it can quickly turn into a big empty tent. Anyone remember the name of Ross Perot’s party?

We are witnessing a transition from one form of international competition to another: no longer (mainly) a competition among productive capitals, but a competition among national territories, which use tax exemptions and pressure on the wages of labour to attract more floating capital than their neighbours.

As Simon Johnson has pointed out, institutions that transcend borders can move capital, activities, and profits around the globe with little consequence. While this may not have seemed problematic to those who have benefitted from it historically, mainly in the West, it is increasingly problematic as these institutions can run away from consequences of their actions.

But there is a second tendency: a transformation of the international division of labour, which radically destabilizes the distribution of employment in the world. This is a new global structure where north and south, east and west are now exchanging their places. Europe, or most of it, will experience a brutal increase of inequalities: a collapsing of the middle classes, a shrinking of skilled jobs, a displacement of “volatile” productive industries, a regression of welfare and social rights, and a destruction of cultural industries and general public services. This will precipitate a return to the ethnic conflicts which the European construction wanted to overcome forever.

While this quote is directed at Europe, I think we can see the threat mirrored in the US. For a decade there has been no real income growth from salary and wages. Income growth has compounded for corporations, disproportionately for senior management and stockholders. America’s vast middle class is pressured and increasingly left to its own devices, with even investment opportunities for savers lacking as interest rates are artificially low and stock markets are skimmed by traders, manipulators, and frontrunners. Pensions are largely gone. Someone should do a study on what part of corporate income growth is related to no longer funding defined benefit pensions, cutting 401K matches and cash balance pension contributions, and increasing drastically healthcare copays and deductibles. In other words, leaving employees to their own devices.

Something obvious should have been long acknowledged: there will be no progress towards federalism in Europe (the one that is now advocated by some, and rightly so) if democracy itself does not progress beyond the existing forms, allowing an increased influence for the people(s) in the supranational institutions. Does this mean that, in order to reverse the course of recent history, to shake the lethargy of a decaying political construction, we need something like a European populism, a simultaneous movement or a peaceful insurrection of popular masses who will be voicing their anger as victims of the crisis against its authors and beneficiaries, and calling for a control “from below” over the secret bargainings and deals made by markets, banks, and states? Yes indeed. I agree that it can lead to other catastrophes. But the risk is greater if nationalism prevails in whichever form.

This is the threat. Government and corporate leaders do not seem to recognize this threat. There is an increasing awareness of secret bargaining and deals. There is increasing economic pain felt by a larger number of citizens. The “recovery” is on wobbly legs. More financial shocks or higher unemployment will see a rise in anger which can spin out of control. The economic model is broken and nothing is changing from the top.

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5 Comments »

  1. “to shake the lethargy of a decaying political construction, we need something like a European populism, a simultaneous movement or a peaceful insurrection of popular masses who will be voicing their anger as victims of the crisis against its authors and beneficiaries,…”

    To hell with ” peaceful insurrection”. From the primordial swamp, to the beasts in the jungle, to the home invader stopped dead in his tracks to Hiroshima and Nagasaki. Nothing has proved to be as efficent and effective as violence. The phrase “violence doesn’t solve anything” is one of the most often used and false phrases in our lexicon.

    Comment by on very thin ice — May 26, 2010 @ 9:10 AM | Reply

  2. This is the crux of the problem: transnational corporations with enormous amounts of money and power and absolutely no concept of responsibility to anyone.
    We need to create a legal structure, probably by way of a constitutional convention, which can assert control over these entities and over the officers and major investors who run them.
    Many, many people should have their fortunes confiscated and serve long jail sentences.

    This may seem harsh but, frankly, if this goes on for much longer the lynch mobs are going to start coming for them.

    Comment by Craig Della Penna — May 26, 2010 @ 11:25 AM | Reply

  3. Notice how things are “beyond broken” everywhere we turn?

    It doesn’t matter what we’re discussing: economics here or abroad, the Gulf or a coal mine in WV, Government here or abroad, Countries/States/Cities, institutions/corporations – the systems we have built and sustained over the last 45+ years are failing.

    There’s plenty of blame to go around. But that’s the problem with blame – you just go round and round and nothing gets solved and or fixed. Those who are responsible and who are protecting the status quo love blame games as it keep them safe from being outed for their crimes and indiscretions.

    Sometime last year I finally realized the TRUTH. Our problems, challenges, issues lie beyond what any single person, politician, Party, Government, institution/corporation can solve. We’re in too deep! Those in positions of power have become absolutely powerless to do anything meaningful to change anything anymore. Witness the recent attempts at health care reform, financial reform, managing the BP disaster, and so on.

    They pretend they have achieved meaningful reform but instead, it’s BUSINESS AS USUAL. They can’t admit the truth of their impotency or the entire charade would collapse. That’s why we’ll never see real change from the top!

    Therefore, We the People must create the change we want to see – for ourselves, by ourselves. There is no other way. I’m advocating for a WE and not me approach here as this will take collaboration and teamwork on a broad scale. Look for Leaders/Leadership to emerge on a local level and within established communities (13 and 14, Mish, Karl Denninger,Charles/ OfTwoMinds, EV, Baseline, CR would be an example in the economic/financial realm). Together can develop plans for taking action and finding the way forward.

    It doesn’t have to be total chaos. We can choose. Let’s become advocates for what we want to be and NOT for what we have lost. This is the critical choice!

    Comment by Susan Marie — May 26, 2010 @ 1:56 PM | Reply

  4. And this doesn’t even speak to the other shoe about to drop – the growing threat from religious fundamentalism and poverty from the East that lingers in the shadows. Many of the European countries have large immigrant populations with ties to countries whose goals are to destroy the hated West. (This is not a screed against Islam or any other religion – we have our own fanatics in the US). But these immigrants are most likely to be the lowest strata, taking the most menial jobs, and having the least to lose. They represent another threat of destabilization to the status quo that the corporate bosses don’t seem to be taking into consideration.

    Comment by Sandi — May 27, 2010 @ 5:29 AM | Reply

  5. 14th writes: “Some may wonder why the 14th banker is talking so much about BP. It is because I see in BP what I see in big banks.”

    I was completely taken back when I read you (14th) consider yourself in line with “classical economics” and recommend Michael Hudson and link to the New Economic Perspectives blog. I had assumed you would find Hudson too radical. Arguably, a whole generation of politicians, economists and business leaders has been “brain washed” by the free market ideology from the Chicago School and the Austrian School of economics (Cultural capture.) IMHO, what needs to be worked out in this generation is reversing the excesses of free market fundamentalism.

    I can’t help feeling Hudson is on to something when he says what is needed is a “mixed economy”. Where there is economic planning by the government and where capitalism is regulated. Yes! — The regulation of capitalist enterprise. — Witness the BP oil disaster in the Gulf of Mexico. The cost of this environmental disaster will be socialized. The BP oil spill and global financial crisis, so obviously, share a similar provenance and mind set.

    What Hudson calls junk economics includes: (1) a deregulated financial system leading to housing and financial bubbles, (2) non-taxation of unearned income, (3) privatization of the Commons (ie, water, natural resources, infrastructure, utilities). I think we are definitely on to something here.

    Comment by tippygolden — May 30, 2010 @ 4:28 PM | Reply


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