Transcript: Comments on The Future of Capitalism

I will start this talk by explaining where I come from. My background is from Norway, a tiny country in the outskirts of Europe, where the struggle to stay outside of the EU has been fought from the left.

We fought against what we saw as a neoliberal project that would move our democracy to Brussels. With a coalition of farmers, unions and the political left — and against the will of the political elites and the main media — the Norwegian people said ‘no’ to the EU in two referendums, in 1972 and 1994.

So, in many ways, I was looking at the unfolding of the Greek crises from the outside.

Norway was one of the countries that got rather quickly through the economic crises. The policies of our socialist finance minister were directed at not only saving the banks, but also our jobs. By increasing public spending, and giving the regions fresh resources so they could hire people to repair old school buildings and build new bicycle paths, jobs were created directly and the tax flow was secured.

Of course our oil money was important, but not as important as people might think. The political decision to not decrease taxes in times of crisis, but instead increase public spending, was much more central. As the economy got back on its feet, the banks were able to pay back the bailout money.

The Story We Were Told

In this respect, it was very interesting to follow what the media in Norway, and also in the rest of Europe, were saying about what was happening in Greece. Article after article focused on how the Greeks could blame themselves, because they were so lazy. The reason for the crisis was apparently that the Greek people were not working long enough hours and that their pensions were too high.

Angela Merkel was pretty straight forward, claiming that “We can’t have a common currency, where some are taking out more vacation than the others”, and also claiming that “the people of Greece, Spain and Portugal can’t take out their pensions earlier than people of Germany”

It’s Time for Some Mythbusting

Reading the blog of Yanis Varoufakis at the time, and articles by my colleagues in Norway, I was shocked to learn the truth, which was contrary to what we were being told by our mainstream media and politicians. Average working week in Greece was 41 hours, which is much more than what is normal in Europe.1

It is true that Greek women had a very low pension age. Though they continue to be productive, with a lacking welfare state, someone has to take care of grandchildren and old parents. On the other hand, Greek men were on average staying in the working force longer than German men, and it’s the same story for Spain and Portugal.2 Why was the information we were getting from our political leaders and media some kind of fake storytelling?

Especially because there were so many other stories that could have been told. For example the one about how Greek private fortunes were estimated at about €700 billion, which is the double of the debt of the country.3 In other words, the issue was not a lack of national resources, but of public resources.

Punishing Greece

Once the narrative of the lazy, overspending Greek had invaded our conscience, it was not hard for the politicians of Europe to tell us that the only remedy for this overspending was austerity. We had to show them that this kind of behavior was not acceptable. What followed were demands for lower pensions, lower public salaries, a more flexible workforce, privatizations and large cuts in public spending.

Neoclassical economic theories will support this policy, claiming that in a deficit situation you simply cut expenses to get a balanced budget. Also, that a flexible workforce and lower salaries will enhance your competitiveness. Well, the problem is that this is a very bad theory. And it would never have been accepted if the people of Europe were not first convinced that there was a reason to punish the lazy Greeks.

Especially in Norway, you would think that no one would believe this narrative, because it is exactly our strong welfare state that is the most important factor behind our productivity. With high wages and job security, firms invest in both their employees and in machinery. As a result, the Norwegian workforce is among the world’s most productive. We might not be able to compete with the rest of the world on low prices, but we can compete on the quality of the products we export.

Future of Capitalism

The European Dream

For most people in Europe, the dream about the European Union has always been about the countries of Europe pulling together and cooperating, creating growth and welfare for all its member nations. And there are definitely parts of the Union that serve that function. But in general, it has become competition, and not cooperation that is the backbone of the EU.

Countries compete for market shares, trying to lower prices by pushing down wages. According to mainstream economic theory this type of competition will increase our common welfare.

The German Miracle

The main driving force in the competition for cheaper labor has been Germany. To reduce unemployment, Germany promoted a deregulation of the labor market with the aim of reducing wages.

The following reforms were very effective. The number of fully employed Germans defined as working poor grew quickly. Work has become more precarious, there are more part-time jobs, mini-jobs and millions work for the new temporary work agencies. It was so successful that in 2005, former chancellor Gerhard Schroeder boasted at the World Economic Forum that they had “built up one of the best low wage sectors in Europe.4

These policies did have a positive impact on German competitiveness. At the end of the first decade of implementing the Euro, the cost and price gap between Germany and southern Europe amounted to some 25 percent.5 As a consequence, the German trade surplus increased.

A competition where the goal is to reduce wages is of course a competition that everyone will loose. It is a race to the bottom. What might have worked for German corporations cannot work if it spreads to the rest of Europe. If no countries experience wage increases, who will buy all the goods that Germany wants to export. It’s a policy for poverty and recession. Germany has started a process of unbalanced trade that is now causing the disintegration of Europe.

At the same time, all this surplus capital was lent out to deficit countries. With banks competing for market shares, cheap credit led to a housing bubble in Spain and in Greece a corrupt government used foreign credit as a substitute for tax income. In 2009, German banks had acquired an outstanding credit of €816 billion, with Greece, Ireland and Spain being among the main debtors.6

When the crisis hit, the ECB acted quickly to save the German and French banks. A process was started where the Troika took over as creditor for the Greek private and public debt. The banks, and the European cash flow, was secured.

The Greek Tragedy – What Austerity Means

Now the Troika are using their creditor position to force Greece to co-opt the German model. But the large cuts in public budgets and the decrease in wages and pensions are causing a great retraction in demand. The result is thousands of stores and cafés having to close down from a lack of customers. 25 percent of Athens stores went bankrupt, changing the life on the streets dramatically. Youth unemployment is now over 50 percent, and it has been like that for years.

What this means, is that the austerity measures have pushed a whole generation of young people out of the work force. The troika was so afraid of Greek people being lazy on their nice beaches, they demanded policies that crunched the economy and as a consequence people were pushed out of the labor force.

30 percent of the Greek population is now living below the poverty line. And these are people who used to live ordinary lives.7

The Theory of Austerity

The economic theory behind austerity policies is that the reduction in wages and prices will make the country competitive again. But the theory is failing catastrophically, and the reality is that the Greek people are forced into a situation where they are not allowed to work themselves out of the problems. Syriza’s program for public spending and job creation was denied. Instead it seems like they are supposed to starve themselves out of the crisis.

It is a supply driven theory, only focusing on how to reduce costs. It does not look at the demand side. The failure of this policy is now evident for everyone. Debt as a proportion of GDP has increased from 130 percent to 177 percent.8

Hijacking Democracy

The story of the Greek tragedy is a story about a European Union built around the interests of the economic elites. The story about Syriza shows how people are without democratic tools to decide the future of their own country. It shows us that the EU will not allow the people of Greece to work themselves out of the depression.

I do not share Varoufakis belief that it is possible to democratize the European Union. When the power is moved far away from the people, it is too easily hijacked by corporate interests, as we have already seen in the US.

People in both the EU and in the USA are left practically powerless. The consequence is the rise of right wing extremism. Varoufakis asks for more openness, democracy and cooperation in the EU. I share these values. But I believe that the cooperation has to be between autonomous, democratic nation states. And that the future of the Greek people would have been better secured with a Grexit. The experience from Norway tells me that this is the best chance we have of securing that the power is with the people.


1 It is true that a large part of the Greek population is outside of the working force. One reason for this is the lack of a functioning welfare state, resulting in women staying home to take care of children and elders. But the Greeks who were employed were working more hours annually than any other country in Europe. “Average number of actual weekly hours of work” from Eurostat and Lars Gunnesdal. “Den late Greker. Myter og fakta om den økonomiske krisen i Hellas”, Manifest Tankesmie (2011)

2 OECD – Pensions at a Glance 2009

3 Credit Suisse: Global Wealth Databook 2011

4 1 out of 5 Germans are defined as low income workers, The number of full-time workers on low wages rose by 13.5 percent to 4.3 million between 2005 and 2010, three times faster than other employment. Jobs at temporary work agencies reached a record high in 2011 of 910,000 — triple the number from 2002 when Berlin started deregulating the temp sector. Data from the Organisation for Economic Co-operation and Development shows low-wage employment accounts for 20 percent of full-time jobs in Germany compared to 8.0 percent in Italy and 13.5 percent in Greece. One out of five jobs is a now a “mini-job”, earning workers a maximum 400 euros a month tax-free. For nearly 5 million, this is their main job, requiring steep publicly-funded top-ups.

5 In other words, Germany’s real exchange rate had depreciated quite significantly, even though national currencies no longer existed within the EMU. Flassbeck, Heiner and Costas Lapavitsas. Against the Troika: Crisis and Austerity in the Eurozone

6 Engelstad, Ellen. Syriza. Den greske våren og kampen for Europas sjel

7 ibid.

8 This is of course due to the shrinking of the Greece GDP. The public debt, after reaching a peak of €355 billion in 2011, was subjected to a bout of restructuring of privately owned debt (mostly held by domestic banks and various smallholders), which reduced its size to €304 billion in 2012. Yet, debt rose again to more than €320 billion by 2014. (Flassbeck & Lapavitsas op. cit.)

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