PBS: New documentary on how bankers got off the hook

Watch The Untouchables on PBS. See more from FRONTLINE.

Where people emigrate: Cool visialization

Click here four the country you are interested in

http://peoplemov.in/#f_RO

Staying on the dole across capitalist systems

The much vaunted superiority of liberal systems (US, Ireland) versus regulated systems (France, Sweden) ain’t as obvious as the preachers of weakening labor institutions say. Here’s a good graph from ILO

Little to write home about: Romanian dependent capitalism before 1945

Following the intellectual lead of A.D. Xenopol, the Romanian state devised mercantilist strategies that were meant to provide the resources needed to enable domestic industries to “leapfrog” the technological barrier between them and the countries of the developed capitalist core: cheap industrial credit, higher import duties on industrial imports, preferential freight rates, taxes that encouraged the accumulation of capital in large firms (Montias, 1979; Janos 1979: 94-100; Lampe et al 1982).

This approach culminated with the adoption of legislation in 1924 that discouraged foreign investment and introduced new protectionist measures. While the Romanian government fostered the labor demand of the urban economy with an effective educational system (at least in the cities), until World War I it actively worked to depress the wage level through labor codes that outlawed agricultural strikes and made rural-urban labor migration difficult (Turnock, 2007: 1-31).

This neo-mercantile capitalist system dependent on West European investment, consumption and ideas made considerable progress towards socio-economic modernization. Some of the juridical bases of capitalist modernization (a sophisticated legislation and court system) were in place. After advancing at a snail’s pace, urbanization grew at a somewhat faster pace between 1930 and 1941 while educational progress gathered momentum. After 1918, an expanding and relatively competitive industrial base “inherited” from Austria-Hungary in southeastern Transylvania and the Banat could arguably have constituted a launching pad for large-scale industrialization in the future. Most significantly, industrial production increased by 80 percent between 1925 and 1938 (Turnock, 1970: 547). The oil industry in Southern Romania and the gas industry in Transylvania expanded at an impressive pace, with both Romanian and foreign engineering competing for new projects. The increased output of these industries in turn fostered the quick development of the chemical industry.

By the end of the 1930s, high tariffs, bold state investment and planning schemes laid the basis for a modern steel industry. The development of high value added sectors such as aircraft and electrical equipment in these regions and in Bucharest itself was particularly encouraging and proved to be the basis for the subsequent communist industrial take-off (Turnock, 2007: 17-31).

Yet when the first “globalization” came to an end on the eve of World War One, Romania was still heavily agricultural, industrialization was slow by regional standards, and the country lagged further and further behind in the race to catch up with the economies of the capitalist core. The situation did not change dramatically during the twenty years of peace that came after November 11, 1918. Despite its abundant natural resources, a large internal market, relative proximity to Western markets and a bureaucracy committed to state-led development, the performance of the Romanian economy between 1860 and 1938 was poor. During this period, a gap grew not only between Romania and France, but between Romania and other European countries that had a similar GDP in 1860 (Sweden, Hungary) (Bairoch 1976, 289; Murgescu 2010).

As a result of this slow industrialization, less than 3 percent of the labor force was made up of industrial workers in 1913. Also, despite massive employment in the bureaucracy, only 25 percent of the labor force was employed outside agriculture in 1938. Although industrial growth was average by regional standards, capital consolidation was very low: after decades of mercantilist policies, the capital stock of industrial firms with more than 25 workers totaled barely 1.5 percent of the total capital stock (Roberts). The domestic share of total capital holdings in industry increased from nearly rock bottom in the 1879s to about 60 percent in 1938. However, even though the transmission belt between Romanian industrialists, bankers and the state functioned flawlessly throughout the liberal era, and despite the state’s increasing assertiveness to limit the participation of foreign capital, Romania remained dependent upon West European investments to sustain its economy (Hitchins 1992: 1071).

The performance of Romania’s dependent capitalism looks mediocre in other respects as well. For a state with one of the highest percentages of bureaucrats per employed population in Europe, tax receipts were negligible and the state’s financing of expenditures with foreign debt made debt servicing one of the biggest budget items until 1938. Caught in this debt trap, the state had meager investment resources left and gave its public servants wages whose low levels generated incentives for extra-legal collection of revenues, most frequently from Jewish entrepreneurs.

Although the Romanian land reform of 1921 was the biggest land redistribution in Europe (outside the Soviet Union), it reduced already low productivity in agriculture and it did not ameliorate the social underdevelopment problems of the Romanian village. While a public pension system for waged employees was in place, the picture looked dire with regard to the social development indicators of the peasantry and urban poor.

Despite significant investments in education (16 percent of public revenue between 1918 and 1938), almost half of the population was illiterate in 1938 and only Albania and Serbia hosted fewer doctors per capita (1.1. doctors per 10,000, which was less than in India at that time). See Janos, 99. Between 1871 and 1935 the infant mortality rate remained the highest in Europe: 19.2 deaths per hundred (or 120,000 per year during the interwar years), largely the result of poor nutrition and farm work during pregnancy. The death rate in the population as a whole was also the highest in Europe (a disturbing 21/1000 as late as 1935). Well into the boom years of the 1930s, the rural population remained dramatically disease-ridden, deprived of basic healthcare and constrained to live in precarious hygiene conditions (Hitchins: 337).

Finally, it is far from clear that despite some progress, the educational system was structured to address an industrial take-off. The result was that, by the 1940s, Romania’s living standard, literacy and access to medical services were on a level with other peripheral European countries (Yusoglavia, Turkey, Portugal) and behind both its immediate Western neighbors (Hungary, Poland) and non-European peripheral countries (Chile, Mexico) (Jackson and Lampe 1982; Ben-Ner and Montias 1991).

Cuddly is good for you

An excellent study on voxeu refutes the fashionably conservative argument of Acemoglu and Robinson that social democratic capitalism is bad for innovation.

“Do the ‘cuddly’ Nordic countries free ride on the ‘cut-throat’ incentives for innovation in US-style economies? Don’t PCs, the internet, Google, Windows, iPhones and the Big Mac speak for themselves? Despite a higher overall tax burden and more generous safety nets, the Nordics have generated at least as much – if not more – innovation than the US. So far, ‘cut-throat’ capitalism has not been the only road to an innovative economy.”

You can find overwhelming evidence here

http://www.voxeu.org/article/nordic-innovation-cuddly-capitalism-really-less-innovative

And why are the Nordics doing so good, rather than be stuck in some Soviet-style sclerosis, as the neoliberals have been predicting for several decades.

“One explanation for Nordic good performance might be that they are better in mobilising human resources. While hours per capita are higher in the US, a larger share of the working age population is employed in the Nordics owing to more inclusive educational, social and employment policies.This may imply that talents are harvested better for gainful economic activity. A second explanation could be the rather determined public policies to promote innovation.A third explanation might be that the economic incentives for innovation in the Nordics, while weaker than in the US, are not miserable after all, at least not across the board. For instance, all Nordic countries have introduced dual income taxation, according to which capital incomes are taxed at a flat rate. This helps in motivating entrepreneurs, despite quite progressive taxes on earned income.”

And finally

“A well-designed safety net may also work to promote risk-taking. In particular, unemployment insurance may help risk-taking entrepreneurs by making it is easier for them to hire workers.”

The sooner we have the numbers on these explanations the better for the argument that innovation and a cuddlier economy can actually work together.

When the IMF battles inequality. No kidding.

“A few weeks ago the (Latvian) government re-paid the IMF loan it took in 2009 — around three years ahead of schedule.

While the IMF has officially “welcomed” the move, there has also been criticism by the Fund about the harshness of Latvia’s austerity, which it says will deepen already-high inequality:)

FT Alphaville

More skepticism on austerity from the IMF’s highest office

The skepticism comes from the head economist Olivier Blanchard. So what did the study find? That “in advanced economies, stronger planned fiscal consolidation has been associated with lower growth than expected, with the relation being particularly strong, both statistically and economically, early in the crisis. A natural interpretation is that fiscal multipliers were substantially higher than implicitly assumed by forecasters.”

Interesting to see how the IMF lives with the contradiction of stressing austerity just as its research finds it counterproductive.

The full study is here
http://www.imf.org/external/pubs/cat/longres.aspx?sk=40200

Where social democracy started

Born as a revisionist Marxist project at the cusp of the twin ideological crisis of late nineteenth- century orthodox Marxism and classic liberalism, social democracy became known as a political ideology, movement and institutional complex geared to tailor capitalism to the interests of workers and the lower middle classes via the political conduits of bourgeois democracy and the building cross-class political alliances. Yet beyond this definitional “core” one also sees a lot of temporal variation. Indeed, social democracy saw deep transformations during the past 120 years

On the liberal front, the challenge of various communitarianisms (religious, nationalist) led to the emergence of social liberalism, an intellectual tradition that wanted to save the capitalist order by addressing claims for more social justice in industrial societies marred by egregious political and economic inequalities.

The first period of social democracy was marked by the foundational work of Eduard Bernstein in 1899 and the synthesis of Keynesianism and social democratic ideology in the foundational act of the Swedish model in the Saltsjobaden agreements of 1936. This was an age when social democracy was a revisionist Marxist political movement of the working class pushing for social, economic and political reforms, yet without an economic paradigm of its own to address economic life under capitalism. Next came a period that can be dubbed classical social democracy, whose basic identity markers were the abandonment of central Marxist tenets and the embrace of Keynesian economics. Thus, between 1936 and 1982 social democrats used Keynesianism as the underlying economic policy paradigm to achieve most of the reformist agenda conceived during the revisionist Marxist decades while forging big compromises with capital. The end of this period was symbolically marked by the rightward turn in 1982 of the beacon of social democracy: the Swedish SAP. During this phase, which can be termed “Third Way,” social democrats terminated their commitments to Keynesianism and pursued socio- economic policies anchored in a more orthodox neoclassical intellectual blueprint while generally keeping their commitment to the welfare state. It is to the analysis of each of these phases that I now turn.

Transformation: Social Democracy as Revisionist Marxism (1899-1936)

I do not believe, either, that there will necessarily be an abrupt leap, the crossing of the abyss; perhaps we shall be aware of having entered the zone of the Socialistic State as navigators are aware of having crossed the line of a hemisphere— not that they have been able to see as they crossed a cord stretched over the ocean warning them of their passage, but that little by little they have been led into a new hemisphere by the progress of their ship.
Jean Jaures

As the quote from Jean Jaures suggests, social democracy marked a redefinition of Marxism away from the focus on revolution as a cataclysmic event and toward revolution as a gradual process of consensual but nevertheless socialist transformation of relations between society and the economic realm. The basic idea during this period was to transform capitalism so deeply that at some point social democratic reforms would usher the world into socialism through a process so gradual that the shift itself would not be noticed.

This transformation revolved around two main objectives. The first was immediate and consisted of reforming capitalism through parliamentary means so as to advance the political and economic rights of those who lived off selling their labor for a wage. The second objective was more distant and consisted of bringing about the socialization of the means of production through the ballot box, with electoral reversal being interpreted not as invitation to hasten the course of history, but as evidence that the moment was not yet ripe for socialist transformation. The reformist agenda included such concrete items as political secularization, universal education, social insurance, progressive taxation, state and municipal economic activities to mop up the unemployed, legislation on work conditions, old age and sickness benefits, freedom of speech and assembly etc. By contrast with their immediate list of political reforms, transition to socialism had a relatively abstract list of goals: abolish exploitation, the destruction of class divisions, the removal of all political, cultural and economic inequalities, the end of capitalist production, the building of cooperative economic institutions serving genuine rather than created human needs, freedom, rationality and justice. Since socialism was deemed inevitable, the struggle for the former was not deemed to be a departure from the latter.

These objectives were born from a fin de siècle revisionist drive inside Marxism. As liberals were reinventing the center and broaching a liberal argument for the welfare state and state intervention in the economy, Eduard Bernstein began to take issue with the predictive failures of orthodox Marxism and to deemphasize the possibility of an immediate transition to socialism on the political agenda. Rather than “lead with the certainty of doom to the shipwreck of capitalist production,” as Kautsky had prophesied, capitalist relations had emerged from crises with renewed vigor. Instead of being completely instrumentalized by capitalists, the bourgeois state had begun to show signs of autonomy and began not only to devise instruments to “save capitalism from capitalists” (prudential regulations, complex commercial codes etc), but also to respond to workers’ contestation with social and economic reforms. This became more obvious as the early twentieth century wore on. Thus, in Britain the Liberal governments of the Edwardian era reacted to labor union activism by establishing the first institutions of the welfare state and, as a result of such political interventions, by 1914 the wages, the working conditions and the political voice of the British proletariat had improved dramatically. Similarly, when social-democrats in Belgium and Sweden organized mass strikes to obtain universal (male) suffrage, the bourgeois state ultimately gave in.

Rather than putting history on fast-forward, as the Leninist strategy envisioned, social democrats saw parliamentary politics as the preferred and sufficient avenue8 towards a more humane capitalism at first and a progressive replacement of capitalist property by social property later on. As Jaures put it, democracy was ‘the largest and most solid terrain on which the working class can stand . . . the bedrock that the reactionary bourgeoisie cannot dissolve without opening fissures in the earth and throwing itself into them.”
From Austro-Marxists to Swedish social democrats, the center of the social-democratic strategy was to refrain from the orthodox Marxists’ choice to wait for the collapse of capitalism and to actively fight for socio-economic reforms that would lead to the overcoming of capitalism through evolutionary, non-violent and coalition-based political processes. The dream of overcoming capitalism remained, but at this time social democrats saw liberal democracy as finite and insisted that their project was about extending democracy from the political to the economic realm. Yet, despite their fears that the outcome of the electoral struggle would be their own suppression,10 the bottom line for social democrats was a clear rejection of the orthodox thesis of scientific progress towards that goal and the extra-parliamentary means of achieving it.
This strategy was neither linear nor uncontested inside the social-democratic movement of the first half of the twentieth century, as even the Swedish and the Austrian parties showed. While both Lenin and Luxembourg expected counter-revolution if socialism triumphed at the polls, according to Adam Przeworski “on several occasions Marx entertained the possibility that in England or in Holland counter- revolution would not occur if workers won the majority in the parliament.”

Hence the social-democratic dilemma of the day, as summarized by Gay in his biography of Bernstein: ‘Is democratic socialism, then, impossible? Or can it be achieved only if the party is willing to abandon the democratic method temporarily to attain power by violence in the hope that it may return to parliamentarism as soon as control is secure. Surely this second alternative contains tragic possibilities: a democratic movement that resorts to authoritarian methods to gain its objective may not remain a democratic movement for long. Still, the first alternative—to cling to democratic procedures under all circumstances—may doom the party to continual political impotence.” As Sheri Berman aptly put it:

[Bernstein] advocated replacing historical materialism and class struggle with a belief in the primacy of politics and the value of cross-class cooperation—a conviction that individuals, motivated by belief in a better world, could band together and use the power of the democratic state to gradually reshape the world around them.”

The social-democratic commitment to a parliamentary road to socialism was consolidated rather than weakened when workers’ strikes demanding more economic rights were being defeated in one country after another and resulted in more repression and decimation of union membership. At first, social democrats thought that reformist objectives and socialism itself were to be achieved through the activism of social-democratic parties and trade unions that would appeal to industrial workers. But when it became obvious that the proletarian class was not bound to become a majority of the population in even the most advanced industrial societies of Europe, social democrats gradually abandoned the commitment to being a party of this class and instead began to forge cross-class appeals towards ‘workers by brain,” lower middle classes and small peasants while seeking alliances with progressive liberals. By mid-century, cross-class appeals and electoralism became the hallmark of European social democracy.

Even when they controlled governments during the 1920s, social democrats agonized for many years on whether they should nationalize the “commanding heights” of the economy as a first big step to socialism. Owing to the technical difficulties of the matter, none actually ended this deliberation and all limited themselves to ad hoc measures meant to improve the conditions of workers (minimum wage, income taxes, old age benefits, affordable housing), but which were nevertheless consistent with the economic philosophy of the reform liberal- conservatism of Bismarck and Disraeli. This was tantamount to paralysis on economic policy. As Przeworski put it,

The economic theory of the Left was the theory that criticized capitalism, claimed the superiority of socialism, and led to a programme of nationalization of the means of production. Once this programme was suspended—it was not yet abandoned—no socialist economic policy was left. Socialists behaved like all other parties: with some distributional bias toward their constituency but full of respect for the golden principles of the balanced budget, deflationary anti-crisis policies, gold standard, and so on.
More specifically, the first source of the paralysis was that any gains made in income redistribution were wiped out by the recurrent crises of capitalism.The second was that the interests of workers were still understood as particularistic rather than universalistic, thus giving labor-capital relations a distinctive zero-sum game flavor.

The embrace of Keynesian economics by social democrats after 1936 and particularly after the war fully addressed these challenges and ushered social democracy into its “golden age” or “classical” era. This era changed the nature of capitalism from a “laissez faire” to an “administered” variety and made workers’ demands to increase consumption from a challenge to national interest to legitimate requirements to kick-start investment through increases in aggregate demand during crises.