Archive for January, 2015
Syriza won the Greek election and its leader, Alexis Tsipras, is now prime minister—the Greek people showed bravery and intelligence and we should be studying as well as supporting the efforts of Syriza and the Greek people to build a responsive, democratic, and solidaristic economy.
What follows are some articles that I have found helpful in understanding current developments.
Social and economic conditions and popular responses to them in pre-election Greece:
Few in Greece, even five years ago, would have imagined their recession- and austerity-ravaged country as it is now: 1.3 million people – 26% of the workforce – without a job (and most of them without benefits); wages down by 38% on 2009, pensions by 45%, GDP by a quarter; 18% of the country’s population unable to meet their food needs; 32% below the poverty line.
And just under 3.1 million people, 33% of the population, without national health insurance. . . .
The Peristeri health centre is one of 40 that have sprung up around Greece since the end of mass anti-austerity protests in 2011. Using donated drugs – state medicine reimbursements have been slashed by half, so even patients with insurance are now paying 70% more for their drugs – and medical equipment (Peristeri’s ultrasound scanner came from a German aid group, its children’s vaccines from France), the 16 clinics in the Greater Athens area alone treat more than 30,000 patients a month.
The clinics in turn are part of a far larger and avowedly political movement of well over 400 citizen-run groups – food solidarity centres, social kitchens, cooperatives, “without middlemen” distribution networks for fresh produce, legal aid hubs, education classes – that has emerged in response to the near-collapse of Greece’s welfare state, and has more than doubled in size in the past three years.
- Audit of the public debt and renegotiation of interest due and suspension of payments until the economy has revived and growth and employment return.
- Demand the European Union to change the role of the European Central Bank so that it finances states and programs of public investment.
- Raise income tax to 75% for all incomes over 500,000 euros.
- Change the election laws to a proportional system.
- Increase taxes on big companies to that of the European average.
- Adoption of a tax on financial transactions and a special tax on luxury goods.
- Prohibition of speculative financial derivatives.
- Abolition of financial privileges for the Church and shipbuilding industry.
- Combat the banks’ secret [measures] and the flight of capital abroad.
- Cut drastically military expenditures.
- Raise minimum salary to the pre-cut level, 750 euros per month.
- Use buildings of the government, banks and the Church for the homeless.
- Open dining rooms in public schools to offer free breakfast and lunch to children.
- Free health benefits to the unemployed, homeless and those with low salaries.
- Subvention up to 30% of mortgage payments for poor families who cannot meet payments.
- Increase of subsidies for the unemployed. Increase social protection for one-parent families, the aged, disabled, and families with no income.
- Fiscal reductions for goods of primary necessity.
- Nationalisation of banks.
- Nationalisation of ex-public (service & utilities) companies in strategic sectors for the growth of the country (railroads, airports, mail, water).
- Preference for renewable energy and defence of the environment.
- Equal salaries for men and women.
- Limitation of precarious hiring and support for contracts for indeterminate time.
- Extension of the protection of labour and salaries of part-time workers.
- Recovery of collective (labour) contracts.
- Increase inspections of labour and requirements for companies making bids for public contracts.
- Constitutional reforms to guarantee separation of church and state and protection of the right to education, health care and the environment.
- Referendums on treaties and other accords with Europe.
- Abolition of privileges for parliamentary deputies. Removal of special juridical protection for ministers and permission for the courts to proceed against members of the government.
- Demilitarisation of the Coast Guard and anti-insurrectional special troops. Prohibition for police to wear masks or use fire arms during demonstrations. Change training courses for police so as to underline social themes such as immigration, drugs and social factors.
- Guarantee human rights in immigrant detention centres.
- Facilitate the reunion of immigrant families.
- Depenalisation of consumption of drugs in favor of battle against drug traffic. Increase funding for drug rehab centres.
- Regulate the right of conscientious objection in draft laws.
- Increase funding for public health up to the average European level.(The European average is 6% of GDP; in Greece 3%.)
- Elimination of payments by citizens for national health services.
- Nationalisation of private hospitals. Elimination of private participation in the national health system.
- Withdrawal of Greek troops from Afghanistan and the Balkans. No Greek soldiers beyond our own borders.
- Abolition of military cooperation with Israel. Support for creation of a Palestinian state within the 1967 borders.
- Negotiation of a stable accord with Turkey.
- Closure of all foreign bases in Greece and withdrawal from NATO.
The story behind Syriza’s victory:
Syriza’s victory has electrified the left in Europe – even moderate social democrats who have floundered in search of ideas and inspiration since the 2008 crisis. Now there is talk everywhere of “doing a Syriza” – and in Spain, where the leftist party Podemos is scoring 25% in the polls, more than talk.
But Syriza’s route to becoming Europe’s first far-left government of modern times was neither easy nor inevitable. For the past 22 days, I have been part of a Greek documentary team following its activists and leaders on the campaign trail to watch how they did it. I have seen them offering new hope to farmers on the breadline, and drumming up supplies for their network of food banks. I have watched them win over old-school communists in the dockers’ union, smarting from seeing their workplace sold off to the Chinese, and present a modern, youthful alternative to a political establishment serving a corrupt elite. And I have seen their leader, Alexis Tsipras, in action in his private office at critical moments. . . .
In the weak January sun, the mountains along the Gulf of Corinth are topped with snow. Dotted along the hillsides are villages known as political “castles”, normally so wedded to one or other of the main parties – Pasok and New Democracy – that you could navigate at election time by following the posters. But this is a troubled land; two-thirds of the vineyards and lemon groves here are technically in foreclosure. The farmers have been forced to take morgtgages, the banks are clamouring to repossess and suicides in these quiet farming towns are on the up.
Giannis Tsogkas, a 56-year-old grape grower from Assos, tells us: “[The government] pushed us into the IMF deal and all they do is obey the rightwingers. The little man will die. We keep hearing about suicides. So we tried to find somebody on the left to protect us. And we found it in Syriza.”
As night falls, the taverna in nearby Psari is full of the old and children – most of the young adults are gone. The battered faces of farmers on the breadline stare cautiously as one Syriza man delivers a Bolshevik-style oration: “Why do the IMF want to destroy us? Is it because the sun shines here? Is it because we’re a hospitable people? Do they hate southern European life?”
But, says election candidate Theofanis Kourembes, it’s not rhetoric that has turned villages like this red. “We go out and help people. When they tell us something, we listen. When they ask for help, we are here. You never see Pasok or New Democracy.”
It’s small meetings like this, miles from the main towns, that have helped turn Syriza from a party polling 4% 10 years ago to, by the last week of campaigning, a party leading on 32%.
“You journalists have come all the way up here to interview us,” says one farmer. “Syriza is the only party that did the same. They came and talked to us. If we wanted to talk to the main parties, how would we find them?”
Greece’s prime minister, Alexis Tsipras, has lined up a formidable coterie of academics, human rights advocates, mavericks and visionaries to participate in Europe’s first anti-austerity government.
Displaying few signs of backing down from pledges to dismantle punitive belt-tightening measures at the heart of the debt-choked country’s international rescue programme, the leftwing radical put together a 40-strong cabinet clearly aimed at challenging Athens’s creditors.
Syriza appears serious—much to the surprise and dismay of the European elite:
In his first act as prime minister on Monday, Alexis Tsipras visited the war memorial in Kaisariani where 200 Greek resistance fighters were slaughtered by the Nazis in 1944.
The move did not go unnoticed in Berlin. Nor did Tsipras’s decision hours later to receive the Russian ambassador before meeting any other foreign official.
Then came the announcement that radical academic Yanis Varoufakis, who once likened German austerity policies to “fiscal waterboarding”, would be taking over as Greek finance minister. A short while later, Tsipras delivered another blow, criticising an EU statement that warned Moscow of new sanctions.
The assumption in German Chancellor Angela Merkel’s entourage before Sunday’s Greek election was that Tsipras, the charismatic leader of the far-left Syriza party, would eke out a narrow victory, struggle to form a coalition, and if he managed to do so, shift quickly from confrontation to compromise mode.
Instead, after cruising to victory and clinching a fast-track coalition deal with the right-wing Independent Greeks party, he has signalled in his first days in office that he has no intention of backing down, unsettling officials in Berlin, some of whom admit to shock at the 40-year-old’s fiery start.
“No doubt about it, we were surprised by the size of the Syriza victory and the speed with which Tsipras clinched a coalition,” said one senior German official, who requested anonymity because of the sensitivity of the issue. . . .
Even as Greek stocks plunged and bond yields soared on Wednesday, Tsipras continued to promise “radical” change.
Over the past 24 hours, his government has put two big privatisations, of Piraeus port and Greece’s biggest utility, on ice, and his ministers have pledged to raise pensions and rehire fired public sector workers.
Now the euphoria in Greece has subsided, it is being matched by astonishment in Berlin and the European Union institutions.
On its first day in government yesterday, Syriza cancelled a privatisation progamme of the ports and energy sector, pledged to re-employ around 15,000 workers, and announced minimum wage and pension rises costing around 12bn euros.
The astonishment in Europe cannot be expained by lack of foreknowledge. Numerous journalists who cover Greece, including me, reported in detail what Syriza planned to do: cancel the austerty and privatisations, run a balanced budget and massively hike the tax take from the so-called oligarchs and the black economy.
The astonishment comes because all the political centre’s contingency plans come apart. The centre-right did not win, the centre-left parties formed to create a moderation mechanism on Syriza in coalition did not get asked into the government (and in the case of Papandreou’s party, To Kinima, failed to get into parliament).
By tying up an immediate coalition with a far-right nationalist party, Tsipras was able to seize the apparatus of the Greek executive faster than anybody expected. That is what drove yesterday’s collapse of Greek bank shares, and the fall on the stock exchange.
Most market analysts thought before the election that Syriza would be forced into a U-turn. As someone who has grilled all of its economics team on camera, and Mr Tsipras himself, I can report they have no intention of backing down.
Might Spain be next with a Podemos election victory?
Something is happening in Spain. A party that did not exist one year ago, Podemos, with a clear left-wing program, would win a sufficient number of votes to gain a majority in Spanish Parliament if an election were held today. Meanwhile, the leaders of the group G-20 attending their annual meeting in Australia were congratulating the president of the Spanish conservative-neoliberal government, Mr. Mariano Rajoy, for the policies that his government had imposed. (I use the term “imposed” because none of these policies were written in its electoral program.) These included: (1) the largest cuts in public social expenditures(dismantling the underfunded Spanish welfare state) ever seen since democracy was established in Spain in 1978 and (2) the toughest labor reforms, which have substantially deteriorated labor market conditions. Salaries have declined by 10% since the Great Recession started in 2007, and unemployment has hit an all-time record of 26% (52% among the youth). The percentage of what the trade unions defined as “shit work” (temporary, precarious work) has increased, becoming the majority of new contracts in the labor market (more than 52% of all contracts), and 66% of unemployed people do not have any form of unemployment insurance or public assistance.
Americans have become increasingly critical of public policy as a means of addressing social problems. Many believe that public policies do not work but the reality is that public policies are often subverted in ways that make them ineffective or even counterproductive.
Take taxes and inequality. As Danny Vinik, writing in the New Republic explains:
The vast majority of Americans—both liberals and conservatives—believe that state and local taxes should also be progressive. That’s the finding of a new report released by WalletHub Monday. The researchers surveyed 1,050 Americans on what they thought the combined rate of state and local taxes should be at various income levels. Not surprisingly, liberals want the rate structure to be a bit more progressive than conservatives do, but their responses [as the following chart shows] were relatively similar:
However the reality is quite different. State and local taxes are actually quite regressive. The Institute for Taxation and Economic Policy studied the “fairness of state and local tax systems by measuring the state and local taxes that will be paid in 2015 by different [non-elderly] income groups as a share of their incomes.” They did this state by state and, as presented below, on an overall basis. As we can see, the lower the income, the greater the state and local tax burden.
- Virtually every state tax system is fundamentally unfair, taking a much greater share of income from low- and middle-income families than from wealthy families. The absence of a graduated personal income tax and overreliance on consumption taxes exacerbate this problem.
- In the 10 states with the most regressive tax structures (the Terrible 10) the bottom 20 percent pay up to seven times as much of their income in taxes as their wealthy counterparts. Washington State is the most regressive, followed by Florida, Texas, South Dakota, Illinois, Pennsylvania, Tennessee, Arizona, Kansas, and Indiana.
- Heavy reliance on sales and excise taxes are characteristics of the most regressive state tax systems. Six of the 10 most regressive states derive roughly half to two-thirds of their tax revenue from sales and excise taxes, compared to a national average of roughly one-third . Five of these states do not levy a broad-based personal income tax (four do not have any taxes on personal income and one state only applies its personal income tax to interest and dividends) while four have a personal income tax rate structure that is flat or virtually flat.
- States commended as “low tax” are often high tax states for low-and middle-income families. The 10 states with the highest taxes on the poor are Arizona, Arkansas, Florida, Hawaii, Illinois, Indiana, Pennsylvania, Rhode Island, Texas, and Washington. Seven of these are also among the “terrible ten” because they are not only high tax for the poorest, but low tax for the wealthiest.
In short, we know how to construct tax policies that can boost equality or at least minimize inequality. The reason the overwhelming majority of state and local governments preside over regressive tax systems is primarily explained by politics, and those who benefit from those systems are more than happy to have us believe that governments are incapable of serving the public interest.
Most economists now recognize that income and wealth inequality has significantly increased over the last few decades. Many, however, refuse to see it as a problem.
Several sessions at the January 2015 annual meeting of the American Economic Association [AEA] addressed French economist Thomas Piketty’s book Capital in the Twenty-First Century which highlighted both the growth of inequality and its negative consequences. Piketty works within the established framework of mainstream economics and his call for a global wealth tax is far from a challenge to the existing system. Yet his argument that capitalism left unchecked produces a steady and destructive growth in inequality doesn’t appear to sit well with many leading economists. [Useful reviews of the book are here and here.]
A case in point: one panel at the AEA meeting was organized by the influential Harvard economist Greg Mankiw, the author of widely used introductory and intermediate economics textbooks. Chuck Collins, from the Institute of Policy Studies, described the panel session as follows:
Three neoclassical economist critics, assembled by Mankiw, embarrassed themselves by quibbling with the incontrovertible evidence of growing concentrations of wealth and surging plutocratic trends.
As an outsider to academic economics, I was struck by just how compartmentalized and smug the field appears. At one point, Mankiw even put up a slide, “Is Wealth Inequality a Problem?” Any economist who ventures across the disciplinary ramparts will, of course, find a veritable genre of research on the dangerous impacts of extreme inequality.
We now have over two decades of powerful evidence that details how these inequalities are making us sick, undermining our democracy, slowing traditional measures of economic growth, and turning our political system into a plutocracy.
Mankiw, at another point in his presentation, had still more embarrassing comments to make. Piketty, he intoned, must “hate the rich.” Piketty’s financial success with his best-selling book, Mankiw added, just might lead to self-loathing.
There can be little doubt as to the growth in inequality as the following charts demonstrate. The first chart shows that the top 1 percent of households boosted their share of all pre-tax income from 8.9 percent in 1976 to 22.46 percent in 2012.
The second shows changes in real family income between 1979 and 2012. While the top 5 percent saw their real incomes grow 74.9 percent, the bottom 40 percent suffered actual declines.
At issue is the cause of these trends and the appropriate response to them. One obstacle to clarity is the fact that most economists, even liberal ones, refuse to acknowledge the limits or perhaps better said blinders of mainstream economics. See here for an example. And Piketty’s work for all its benefits in documenting inequality trends suffers from the same limitations. As the economist Michael Roberts explains:
The real problem is that Piketty’s explanation for rising inequality is faulty and his proposals for action either utopian or ineffective. This is where the heterodox/Marxist view of inequality comes in. While the likes of Piketty and Joseph Stiglitz entertained thousands in the big halls at [the AEA meetings], heterodox economists (including me) in the Union of Radical Political Economics [URPE] presented papers to about 30-40 on Piketty exposing the flaws in his explanation. My paper argued that by deflating productive capital into a wider definition including property and financial wealth, Piketty cannot really explain rising inequality. Indeed, when housing and financial assets are stripped out, Piketty’s rate of return on assets becomes Marx’s rate of profit. And, instead of being steady and invariable as Piketty claimed, it falls.
Two main arguments have been presented by Piketty, both based on mainstream economics, to explain why the ratio of capital (wealth) to income has been rising. Piketty relies on neoclassical marginal productivity theory. This theory suggests that the more capital invested should lead to falling returns but Piketty claims there is a high rate of substitution of labor for capital in production, so the share of income going to capital rises. But as Fred Moseley showed in a paper at [the AEA], marginal productivity is logically incoherent and empirically false (Moseley-Piketty).
The other argument from Piketty is that, over the long term, as the savings ratios of households rises, it will eventually lead to a rising capital share. Well, a paper by Frank Thompson at the University of Michigan showed that, while this is theoretically possible, it is extremely unlikely to be achieved (URPE@ASSA Piketty presentation (n 9) and indeed, others calculated that it could take 200 years of balanced economic growth to explain rising capital share and inequality by rising savings rates!
As the URPE sessions showed, a simpler and clearer explanation of rising inequality in the last 30 years in most economies is increased exploitation of labor by capital. There has been a rising rate exploitation along with a huge switch of value into the financial sector which is owned and controlled by the top 1%, or even just the top 0.1%. Marx’s exploitation theory is a better explanation of inequality compared to marginal productivity or rising savings rates. The so-called neoliberal period was characterized by holding down wages, globalization, a reduction in job security and privatization of public services, all of which boosted the rate of surplus value. So we entered the world of super-managers, oligarchs and top families that Piketty describes in his book.
But suggesting that rising inequality is the result of increased exploitation of labor by capital is not comfortable for mainstream economics, including Piketty, as it suggests something nasty about the capitalist mode of production, which the likes of Piketty, Stiglitz and others still support.
As to responses, if exploitation is the key explanation, organizing working people and their communities becomes the best response. Thankfully there are signs that those suffering from capitalist dynamics well understand the situation and are beginning to challenge it.