Are left-wing policies feasible within the eurozone? – 1/12/2015

Theoretically, Greece should have been a laboratory of left-wing policies, with its terrible combination of inequality, poverty and unemployment. But how feasible are left-wing policies within the eurozone?

The question is relevant, not only because of the SYRIZA-led government in Greece, but also due to the prospect of a leftist coalition in Portugal.

Global capitalism is conducive to leftist protest, less so to leftist governance. The European Single Market is more restrictive, and monetary union even more so. Add the constraints of a bailout program, and the degrees of freedom are almost eliminated. Clearly, any protest movement aspiring to graduate into a left-wing government should be aware of these factors.

What are the left’s priorities? The left normally seeks to reduce poverty and inequality, increase opportunities for the weak, and strengthen social and intergenerational justice. A serious left would seek to make its interventions stick for the longer term – such as a permanent minimum guaranteed income scheme rather than temporary clientelistic handouts to the poor. It would also try to make sure that such interventions would be sustainable in the face of economic downturn – and certainly avoid introducing measures that would accelerate a macroeconomic deterioration.

Furthermore, a serious left would be able to appreciate the fact that the social crisis in Greece is mainly and directly associated with the high unemployment. The most serious poverty category in Greece comprises the long-term unemployed, especially the long-term jobless who don’t have the protection of a minimum safety net – that is to say, the overwhelming majority of unemployed. Long-term unemployment can be the most crippling form of marginalization, especially when it comes to the hundreds of thousands of poor households without a breadwinner. A reduction in unemployment should be the absolute priority of the left.

So with unemployment at 26 percent, the government’s first concern should not be to raise the minimum wage, but rather to foster the incentives that can create jobs, new businesses and investment. The priorities of the left under high unemployment are not the same as under full employment. So far, SYRIZA has not adopted any of the above policies – and probably the prospective leftist coalition in Portugal won’t either, though it is of course too early to tell.

What is a left government to do if it is obliged to maintain a framework of austerity? It would at least aim at a fair distribution of the costs of austerity, and at growth-enhancing policies. It would tax wealth progressively and it would keep VAT high on consumption, but it would reduce employer contributions, in order to provide incentives for hiring and employment in the formal labor market. A leftist government would be at the forefront in seeking to increase investment (private or public), reform the state, accelerate justice, complete the land register, improve the various indicators of “ease of doing business,” aim at excellence in education and connection with the labor market, raise the average size of businesses, and strengthen exports and the tradable sectors, all toward one “left-wing” objective: to increase competitiveness and export-oriented growth, canceling a downward pressure on wages, and instead allowing wages to rise over time as productivity increases. All this, however, require a serious – that is social-democratic – left.

A left-wing prime minister, committed to the goal of 100 billion in investment the country needs over the next few years, would open the gates to any investor with a serious business plan. He would get rid of party hacks and local para-states that strive to drive away productive flagship investments, as in Skouries. He would recognize his government’s responsibility for the mass exodus of firms from the country following the imposition of capital controls (thousands of company tax numbers have been registered in Cyprus and Bulgaria recently), and would do all in his power to reverse it.

The only version of the left that can operate in the framework described here is that of the social-democratic left. It is the only sustainable evolution for a governing SYRIZA or a left coalition in Portugal. And this realization has special significance after the experience of summer 2015, when any illusions of a so-called “left” alternative to the euro and the memorandum collapsed, when the economy fell apart following an erratic and farcical five-month “negotiation,” and the country had a near-death experience under the threat of either defaulting within the euro or ending up outside its confines. Social democracy, then, is the only road for the left, if it is also to be taken seriously.

Are left-wing policies possible in the euro? Not under the objective constraints of integrated markets, trade globalization and the free movement of capital. A more progressive policy shift within the eurozone, however, would be possible. It would be possible with real European solidarity, burden- and risk-sharing between states, so the euro could operate as more of an economic union. It would be possible with a single budget, a European unemployment insurance scheme, and a single deposit guarantee system. A progressive shift is possible under a wider investment stimulus in the eurozone, counteracting the accumulated effects of disinvestment and a collapsing employment rate, with zero-bound interest rates creating a once-in-a-lifetime opportunity for a massive European investment stimulus that would raise the potential growth rate. A progressive shift could act as a source of pressure for more expansionary initiatives from the European Central Bank, so inflation could rise closer to the 2 percent target, in order for deflation/lowflation and stagnation to be averted. A general progressive shift at the eurozone level is feasible. But the possibility of left-wing policies in one or two countries is not on the cards.