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.