At the core of Wolfgang Streeck’s latest work “Buying Time: The Delayed Crisis of Democratic Capitalism” lies a gloomy prediction: the policy solutions to global economic woes since the seventies rather than solve have displaced problems in time. Streeck is arguably one of the most respected names on comparative political economy and institutional theory, currently Director of the Max Planck Institute for the Study of Social Sciences, has published several works on institutional change, varieties of capitalism and the evolution of the corporatist regimes that shaped post-WWII Western Europe. With his last book, joins the ranks of public intellectuals that re-assessed their point of view after 2008’s credit crunch, such as Martin Wolf.
On October 21th, Streeck presented his last book at Institute for Public Policy Research, in an event chaired by New Statesman’s editor Jason Cowley, who introduced Streeck’s “Buying Time” as a major contribution to build new progressive politics, jointly with Piketty’s “Capital in the Twenty-First Century”. An interesting comparison, giving the parallels that can be drawn across them: both books depart from a long term analysis that views the conditions of western post World War II settlement, that at some point were considered the norm, as an historical exception, worrying on how the reduction of inequality achieved across that period is being apparently reversed presenting gloomy prospects for the future. In the case of Piketty’s a return to a world of “patrimonial economics”, with success shaped by inheritance not effort; in the case of Streeck towards a more “uncertain” society, with the institutions that provided collective insurances across life in western economies being slowly dismantled, with growth substituted by periodic bubbles, echoing the vision of Larry Summers on “Secular Stagnation”.
Streeck’s thesis is that, somehow we had already been living in a prelude of this secular stagnation during the last 30 years. His book is divided in three sections: An analysis of the different economic crisis since the 1970, an analysis of the rising levels of public debt and the evolution of fiscal crisis across western economies, and a third and final part commenting on the development and evolution of the economic and monetary union. Streeck’s synthesized his analysis in these three trends: rising inequality, rising debt (public and private), and decreasing inflation these last years accompanied with stagnating growth; as we can see reflected on Figure 1. Streeck’s worries of the combination that these three trends have on politics and economics.
Figure 1: Global Trends
Source: Streeck, Wolfgang (2011): “The Crises of Democratic Capitalism”. New Left Review, 71, pp. 5-29
According to him, inflation and indebtedness are mechanisms convenient for governments to bypass redistributive conflicts over inequality, viewing the political dimension of inflation as a conflict of interest between labour, interested in a moderately high inflation, and capital. In his view, transferring the management of inflation to central banks allowed governments to push the redistributive conflict from labour markets towards financial policy. Financial liberalisation, allow to pacify the redistributive conflict by subsidising consumption through private debts. In Europe, the creation of the ECB allowed to translate redistributive conflicts from national scenarios towards supra national scenarios. Now the question is to redistribute between Germany and Greece, while in both countries rising inequality persists. Streeck’s intervention on the event can be summarized in two critiques. Firstly, critique to the use of public and private debt as a solution to redistributive conflicts that displaces problems in time. Secondly, the narrowing of the political debate due the displacement of policy tools from labour markets up to supra-national monetary policies. From these two insights, Streeck argued the need to dismantle the Euro to renew European democracies.
In a sense, as New Statesman’s Jason Cowley pointed out, Streeck’s work can be seen as an answer to Dani Rodrik’s globalisation trilemma, represented on figure 2. According to Rodrik, in a globalised economy nations face a policy trilemma: they must decide between globalisation, national sovereignty or mass politics. Globalisation, implies a narrower scope of policy options as they need to conform the requirements of mobile investments, as Streeck also diagnosed. A wider scope of policy options could be possible through the development of supra-national institutions, renouncing to the nation-state, or disconnecting from the global economy. Faced with this dilemma, Streeck opted for a sort of de-globalisation although stressed that his work was a diagnosis rather than a policy prescription.
Figure 2: Globalisation Trilemma
Source: Rodrik, Dani (2000): “How far will International Economic Integration Go?” The Journal of Economic Perspectives. Vol.14 N.1, pp.177-186.
The view on the limited policy options of nation-states, is coherent with Streeck’s previous research. The Varieties of Capitalism scholarship highlighted the different natures of institutional and economic settlements across advanced economies. One of the main debates on this strand of literature is on the existence of a convergence process across these different Varieties of Capitalism. In this divide, Streeck is firmly on the side of the convergence: alleging that coordinated market economies, such as Germany, have embraced liberal reforms of their institutions across labour and governance structures. In “Buying Time” he offers a similar perspective, pointing to the supremacy of global trends across in shaping the characteristics of western economies. In this case, the rise of global inequality.
In light of the recent research, we should not underestimate the rising concentration on wealth. However, I think that Streeck intervention at the ippr overlooked the important role of national political and economic institutions to shape the country degree of inequality. That, even in the context of the globalisation trilemma, the discretionary capacities of the nation-state to resist or enhance global trends are underestimated. To discuss the importance of these national institutions to mellow or intensify global trends, on figure 3 and 4 we can see the evolution of a couple of inequality indicators across a sample of European Countries.
Figure 3 compares inequality levels before and after state intervention in 1983 and 2005. The pale and dark blue columns represent structural inequality in 1983 and 2005 respectively, measuring the Gini coefficient before state intervention, and the pale and dark red columns represent the final level of inequality in 1983 and 2005, the Gini coefficient after taxes and transfer from the state. There is no doubt on the general increase on structural inequality, as numerous academics have pointed. Be that as it may, if we compare the red columns we’ll see that the increase on final inequality it is significantly different across countries. In some cases there are considerable increases but others, such as the Netherlands, the final levels of inequality are quite similar.
In Figure 4, we observe the share of income of the top 1% across the last three decades. As with the previous figure, we can observe a rising pattern but one that varies wildly differently across countries like UK, Ireland, France, Spain or Sweden. Of course these two are only a quick snapshot of the myriad of measures used to measure inequality, far from being able to provide any final judgement aim only to provide an informed comment to Wolfgang Streeck’s intervention at the ippr. Yet, it would not be too farfetched to point towards a closer look on how national institutions shape global trends. In previous posts of the CGR blog, we have commented how different countries have different preferences regarding re-distribution (hereand here) and different welfare structures. Different preferences, different welfare regimes, that could mediate on how an increase on global inequality is shaped across different countries.
A call for a closer look at states’ role in shaping global inequality is far from a superfluous comment, but one that points towards a different policy prescription and – given that ippr’s event and Streeck’s latest book are framed in a series of efforts of progressive intellectuals and academics to re-frame the discourse of the left after the financial crisis- the question of the prescriptions arising from the diagnosis is not a banal one. While a highly enjoyable event, with innovative insights such as the role of public and private debt as backstop policies to avoid redistribution conflicts, I am more sceptical of the answer given to the globalisation trilemma: some sort of de-globalisation that plainly speaking “brings back the money printing machines”, not only dismantling the Euro (which could be a necessary measure) but undermining the independence of central banks. However, if we believe that the state has no role in shaping inequality I could understand the logic behind this option: Globalisation undermines democracy, then we should de-globalise. On the other hand, if we acknowledge rising inequality as a phenomenon driven by global trends but shaped by national institutions, considering the degree of inequality on a given country as a reflection of their political and economic equilibrium, perhaps it is more pressing to analyse why some countries had been able to combine low inequality levels with continuous growth and if these models are exportable to other countries.
This piece is a review of the book presentation of Wolfgang Streeck “Buying time: the delayed crisis of Democratic Capitalism” not a review of the book itself. It provides a snapshot of the debate and questions that arisen during the event accompanied with comment informed by the reading of reviews on the book and previous works of the author.