Economics

Against Capitalism: Resisting Wage Labour in the 19th Century

In the advanced economies of Europe, you would be hard pressed to find somebody who still calls themselves an ‘artisan’. The closest you might find, perhaps, is a marketing savvy barista whose artisan job title indicates they have mastered the complex arts of pouring coffee in a fashionable café. Yet throughout most of the 19th century, skilled and independently employed artisans were a sizeable and relatively autonomous part of any national workforce. More importantly, this autonomy and casualised form of life meant that, for a time, they were able to mobilise collectively and politically in order to counter the existential threats posed by the industrial revolution.

Alongside the contemporary collapse of the labour market, we have seen the rise of the ‘informal economy’, self-employment, and a return to casualised work. In Britain and across Europe, this transformation has inadvertently stoked an anti-immigrant sentiment, whereby mass migration is blamed for the lack of full time jobs and meaningful employment. But those who genuinely feel the fullest effects of this dual crisis of work and migration, should perhaps remember that these crises are the systemic products of a historically volatile capitalist process. Although this process now operates on an unprecedented global scale, the British artisans and self-employed of the 19th century once suffered similar effects of coercion into meaningless wage-labour, and were also forced to continually migrate from town to town, or emigrate overseas.

In the following article I explore the work of a few historians who have researched this often overlooked period in our history, of working people who, as with many of my own generation today, spent most of their time not working, but looking for work.

Throughout the length and breadth of our native land there has not been a corner or village but what some of our members have perambulated in pursuit of employment; our high roads have resembled that of a mechanical workshop, or a mighty mass of moving human beings.

Higenbottam, Our Society’s History, 18721

The masterless, migrating artisan is a recurring figure of mobilization throughout the history of socialist thought. The artisans appear, for example, during the social, religious and political upheaval of the English Revolution in the 1640s and 50s, roaming the countryside and woodlands in search of employment alongside preachers, vagabonds and beggars. The Marxist historian Christopher Hill dedicated a chapter to ‘Masterless Men’ in The World Turned Upside Down, describing “the seething mobility of forest squatters, itinerant craftsmen and building labourers, unemployed men and women seeking work […] congregating especially in London and the big cities, but also with footholds wherever newly-squatted areas escaped from the machinery of the Parish or in old squatted areas where labour was in demand.”2

John Rees’ The Leveller Revolution has more recently illustrated how the casualised labour, physical mobilisation and auto-didacticism of the London Apprentices (artisans in training), enabled them to become a core group of revolutionary subjects from which large numbers of Levellers, including the famous John Lilburne himself, emerged onto the political scene. They existed in vast numbers, he writes: the lowest estimates are above 10% and the highest above 20% of the population; it is likely true that apprenticeship in London made the capital into the largest educational site that existed in England before compulsory basic schooling was introduced in the late 19th century.3

Could this intense proliferation of educated individuals and unusually free political agency have had anything to do with the radical stirrings of the English Revolution? We are left with little doubt that Rees believes so. E.P Thompson has elsewhere provided us with incredibly rich accounts of the 18th century formations of the English working class, much owed to the central role of the radicalised artisans’ coordinated political gatherings and unionism.4 Iorwerth Prothero has notably examined the position of the skilled artisan in the politics of early nineteenth century London, and in another comparative study on radical artisans in England and France.5

The post-war period was a high water mark for Marxist Historiography in Britain. Its most recognisable methodology, ‘history from below’, was coined by E.P Thompson in an essay of the same name. In the preface to his 1963 book The Making of the English Working Class, he wrote: “I am seeking to rescue the poor stockinger, the Luddite cropper, the ‘obsolete’ hand-loom weaver, the ‘utopian’ artisan, and even the deluded follower of Joanna Southcott, from the enormous condescension of posterity.”6 Among the historically silenced voices of the oppressed and marginalised subjects unearthed by Thompson and his contemporaries, the artisans stand out as exemplary figures of mobilisation and resistance. Their traditional, pre-capitalist forms of life stood in stark opposition to the centralising encroachment of industrialisation. The emergence of bourgeois monopolies, rapid technological development and the introduction of wage-labour led to their eventual dissolution as a quantitatively significant social class. Yet this decline did not happen instantaneously.

So what form did this mobilised resistance ultimately take? The artisans were forced to initiate new processes of labour, systems of employment, and political organisation. Devised to deal with structural problems concerning the supply and demand of labour, unemployment and economic depression, their initiatives were instrumental to the formation of the early trade unions and modern kinds of welfare. Eric Hobsbawm’s 1951 essay The Tramping Artisan captured some of the key aspects of the systematic migration that took place during the industrial revolution. From the beginning of the 18th to the early 20th century, the ‘tramping system’ sustained calico printers, wool combers, paper-makers, hatters, smiths, carpenters, boot and shoe-makers, metal-workers, bakers, tailors, plumbers, painters and glaziers, bookbinders and others.7 It worked via documents, ‘blanks’, or ‘clearance’ which the artisan would carry on his travels, and affirmed his abilities as ‘a member in good standing of the society.’ He showed this upon arrival at his destination, a ‘clubhouse’ or ‘house of call’, which was ‘generally a pub ̶ receiving in return supper, lodging, perhaps a beer, and a tramp allowance. If there was work to be found, he took it; the call-book (if there was one) was of course kept at the house of call, an unofficial labour exchange. If there was none, he tramped on.’8

Hobsbawm’s essay was cited in The Making of the English Working Class – Thompson apparently enthused by the reference to the system as the artisans ‘Grand Tour’, which was about 2,800 miles long in the 1850’s.9 Thompson instead sought to demonstrate the artisans intellectual capacities, the political activities of The London Corresponding Society, of ‘organic intellectuals’ like John Thelwall, and the observations recorded directly by Henry Mayhew in his comparison with unskilled labourers. In his 1862 study, London Labour and the London Poor, Mayhew witnessed that “the artisans are almost to a man red-hot politicians. They are sufficiently educated and thoughtful to have a sense of their importance in the State…The unskilled labourers are a different class of people. As yet they are as unpolitical as footmen, and instead of entertaining violent democratic opinions, they appear to have no political opinions whatever; or, if they do… they rather lead towards the maintenance of ‘things as they are’, than towards the ascendancy of the working people.”10 Although participation varied across the country it is understood that the early trade unions, with their lodging and call houses facilitated a cross-fertilization of radical ideas, formalized in ‘friendly societies’, and within the walls of debating clubs. The tramping system itself sustained a similar circulation of radical thinking, as Hobsbawm discovered: “the traveller acted as a link between different areas, passing on information about local wage rates, advising on the best times to start a wage-movement, a walking encyclopedia of comparative trade-union knowledge.”11

Both Hobsbawm and Thompson fundamentally understood the system as a defensive measure. This defence was both lived and intellectual, consciously developed by the artisans in order to remain in frequent employment, and avoid subjection to mundane, restrictive, unskilled wage labour. They knew how a sustained and concerted migration could strengthen their bargaining power. Hobsbawm attributed its expansion and surge in popularity during the middle of the 19th century, to its ability to relieve strike funds, and provide means of countering victimization: from this to a more sophisticated calculation of political economy was only one step.

By removing the unemployed from places of slack trade, and keeping them in circulation, tramping kept the supply in the labour market limited. “If it had not been in our power”, wrote the General Union of Carpenters in 1846, “to keep up our tramping transport… a general reduction in wages would have taken place.”12 Just as it appeared at its height, with certain tramping trades perhaps coming close to the classical ideal of a perfectly mobile labour force, by the year 1860 the seeds of its undoing had already been sown. Aside from the technological advancement of public transport, such as the tram or train, one of the reasons for the tramping systems decline was the inability of small-scale competitive businesses to function within the dominant free market mechanism.

This new kind of economy led to the relative obsolescence of ‘casualism’ (the temporality of the artisans labour) as a viable form of life in Britain. As much as 36% of the workforce operated within the manufacturing industries as early as 1841, most of which was comprised of large private firms, factories and fixed capital.13 The rest of the population was largely concerned with agricultural production at this time. The centralized capitalist industries could not function without a constant influx of wage labourers willing to toil at the modern machinery, and had no need for independent, ‘self-employed’ artisans, unless they wished to join Britain’s reserve army of unemployed (although the actual term ‘unemployed’ was not in use at the time), or ‘surplus’ labourers.

Another contributing factor to the tramping systems demise worth mentioning here, and which for Hobsbawm ‘marked an important stage in the education of the labour movement’, was the introduction of ordinary unemployment relief by the trade unions. This followed, in particular, the massive unemployment and social upheavals of the 1840s. The unions adopted ‘static-out-of-work pay’, and developed more efficient ways to send workers from “slack places to busy places more efficiently than the happy go lucky tramping systems.”14 These ‘new unions’ Hobsbawm credits with recognising that the capitalist economy was not something to be sidestepped, but had to be dealt with by understanding its specific laws of motion.15

It is clear, then, that for Hobsbawm the tramping system was a foundational stage in a genealogical development of trade unionism. By tracing a line to the later unions he implicitly refers to the artisans, although diverse in occupation, as members of a homogeneous working class movement, as agents of socially produced knowledge which the movement advanced from. Perhaps this is part of the reason why critics of his generation of Marxist historians railed against them for their supposed historical ‘determinism?’16 For concocting the sense of an inevitable working class march, or class struggle, moving towards a Communist horizon.

But for all his perceived partisan unionist tendencies, Hobsbawm understood clearly, largely due to Karl Marx’s critique of capital, the economic reasons that made the tramping system’s continued functioning within the capitalist heartlands of Britain an economic improbability. At the end of the essay he speculates: “no doubt a mass exodus from low wage centres, a mass influx of organized men refusing to work below the rate, might have levelled conditions. But in the nature of things, this could rarely happen.”17 The ideal of an oppositional, or ‘levelling’, ‘anti-capitalist’ tramping system remained a figment of a socialist imagination, an imaginary which Hobsbawm himself had almost seemed hopeful that he would find in his research. The system was in fact always the last line of defence for a pre-capitalist class of artisans, which had to transform itself if it wanted to survive, or else emigrate overseas, where freedom from alienated labour still remained a possibility.

I believe the artisan remains relevant today because it is a figure tied closely to the labour process, but not, historically speaking, to the wage relation itself. Their self-reliance and masterless existence should not be taken as an affirmation of contemporary ‘self-employment’, but rather as a vivid portrait of a historical subject which, if only temporarily, managed to resist wage labour and in the process distort the flow and structure of aggressive capitalisation. The fruits of their resistance ̶ the birth of trade unionism and the precursor to our contemporary welfare system ̶ should stand as a vindication of workplace organisation, and continue to inspire the ailing trade unions that nonetheless still remain an important resource for the workers of today.

Tom Holland, March 2017

This article is an excerpt from the essay Towards an Artisan Imaginary, commissioned by
Nikki Kane as part of a project for CuratorLab at Konstfack, Stockholm


References

  1. Higenbottam, Our Society’s History, (1872), as cited by Eric Hobsbawm, Labouring Men: Studies in the History of Labour, (Weidenfeld & Nicolson, 1964), p.42
  2. Christopher Hill, The World Turned Upside Down, (Penguin Books, 1972), p.49
  3. John Rees, The Leveller Revolution, (Verso, 2016), p.24
  4. P Thompson, The Making of the English Working Class, (Penguin Books, 1963)
  5. Iorwerth Prothero, Artisans and Politics in Early Nineteenth-Century London, (Routledge, 1979) & Radical Artisans in England & France 1830-1870, (Cambridge University Press, 1997)
  6. P Thompson, The Making of the English Working Class, (Penguin Books, 1963), p.12
  7. Eric Hobsbawm, Labouring Men: Studies in the History of Labour, (Weidenfeld & Nicolson, 1964), p.36
  8. p.34
  9. P Thompson, The Making of the English Working Class, (Penguin Books, 1963), p.267
  10. Mayhew, London Labour and the London Poor (1862), III, p.243 & E.P Thompson, The Making of the English Working Class, (Penguin Books, 1963), p.20
  11. Eric Hobsbawm, Labouring Men: Studies in the History of Labour, (Weidenfeld & Nicolson, 1964), p.52
  12. p.41
  13. Office for National Statistics, 170 Years of Industrial Change across England and Wales, (Released: 05 June 2013) <http://webarchive.nationalarchives.gov.uk/20160105160709/http://www.ons.gov.uk/ons/rel/census/2011-census-analysis/170-years-of-industry/170-years-of-industrial-changeponent.html> [accessed February 2017]
  14. Eric Hobsbawm, Labouring Men: Studies in the History of Labour, (Weidenfeld & Nicolson, 1964), p.48
  15. Ibid, p.48
  16. See Geoffrey Elton’s essays: The Stuart Century, A High Road to Civil War? and The Unexplained Revolution in G. R. Elton, Studies in Tudor and Stuart Politics and Government: Volume II (Cambridge University Press, 1974)
  17. Eric Hobsbawm, Labouring Men: Studies in the History of Labour, (Weidenfeld & Nicolson, 1964), p.53

Amazon workers sleeping in tents: on the logic of serfdom

A brief analysis of the ‘economic rationalization’ that emerged throughout the comment sections of articles about Amazon employees, who chose to sleep in tents outside their warehouse to save money.

At the end of last year, stories emerged claiming that Amazon employees had been sleeping in tents directly outside their companies’ warehouse in Fife, Scotland. With Christmas approaching the combined prospect of cutting commuting costs whilst earning bonuses for overtime clearly made rough sleeping seem like a desperate but economical choice. Upon being interviewed one of the tent dwellers described Amazon as a “poor employer”, and confirmed that he had opted to stay in a tent as it was easier and cheaper than commuting from his home in Perth.1 Given the extreme nature of the decision, the size of Amazon’s reputation and the freezing temperatures at the time, the news went viral. With one or two exceptions, dozens of mainstream media sites including The Independent, The Guardian and The Sun used the opportunity to publish various shallow criticisms of the company’s working practices, citing previous allegations of international tax evasion, or the overworking and mistreatment of staff.2 The most vocal political critic of Amazon’s working model was the Liberal Democrat leader in Scotland Willie Rennie, who excoriated the “intolerable working conditions”, and “an oppressive culture where management and co-workers put undue pressure on other workers.”3

But while the establishment rhetoric of the media and those like Mr. Rennie who, with moderate political motives stood more or less united in condemnation of the retail giant, the ensuing public debate appeared definitively less so, and became extremely polarised. An indication of this division was expressed by an online poll on The Courier news website. It asked: ‘Should Amazon bear any blame for workers camping outside its Fife Centre?’ 50% (10,121) answered: ‘Yes, Amazon should do more to ensure workers welfare’, and the other 50% answered: ‘No, people look after themselves when they clock off.’ “We live in a society in which we are unconditionally free to choose where to work, and how to live” – this can be conceived as the base logic used to justify the answer of the latter 50%. This position was repeatedly reinforced by individual commenters across multiple news platforms covering the story, and on forums such as Reddit – enough so as to rid one of any doubts about the accuracy of the online poll:

What people do in their own free time is their choice. […] He’s a grown man. You can’t blame your employer for your transport arrangements” – commenter from Reddit4

If someone chooses to camp out to save money on a commute that has nothing to do with the company paying too little” – commenter on The Sun5

Although I am not an Amazon fan, they are hardly “forced” to sleep in tents. The last time I checked the UK was still a democracy where people had the right to work where they wanted to.” – commenter on The Independent6

These comments clearly demonstrate a lack of interest in raising the debate to a level which acknowledges the rapid increase of precarious work, stagnant wages, and insecure housing in this country. Nor can we expect such detail to be effectively espoused in the comment sections of mainstream news sources. It is therefore easy to simply ignore or discard such comments as instances of a short-sighted, unduly harsh, or conservative reactions to the tent occupants’ situation. Reversely, it is tempting to settle for railing against Amazon’s ‘working conditions’, as Willie Rennie has, without elaborating in an accessible manner a criticism of the structural conditions which make such desperate situations like the Amazon workers’, seem like worthwhile opportunities in the first place. In absence of any meaningful mainstream criticism and structural debate about the tent situation, then (and to insist that the event itself necessarily warrant’s this would be to miss my overall point), the impassioned comments threaded below the tent articles stood out explicitly as voices of the ideologically dominant, economically conditioned subject. They are examples of economic rationalization in action. This rationalization asserts that if you say ‘yes’ to something, then you implicitly had a choice. Even if your situation is so desperate that you could not otherwise refuse the exploitative deal that is being offered to you.7

The opinions of the commenters who sought to rationalize and defend ‘freedom of choice’ and some vague conception of self-reliance, form part of a broad and significantly de-politicised ‘common sense.’ From both a socio-political and moral perspective, I’d argue that we can trace the roots of this common sense back to one of the architects of our current neoliberal economic system, Friedrich Hayek, who in his book ‘The Road to Serfdom’ claimed:

Only where we ourselves are responsible for our own interests and are free to sacrifice them, has our decision moral value. We are neither entitled to be unselfish at someone else’s expense, nor is there any merit in being unselfish if we have no choice.”8

For Hayek, who believed that since the efficiency of the market and a competitive economy will in the long run benefit us all, moral action is only justified insofar as it can be turned into a profit. Any empathetic or moral response to the tent occupants’ situation would be, according to Hayek, misguided as soon as it is politicised. Political rationality, unless it acts in symbiosis with the principles of market competition via the state, is seen by the neoliberal economists as poisonous, precisely because it inevitably tends to constrain the market in ways that is detrimental to future profits.

As William Davies concisely articulates; neoliberalism is the active ‘disenchantment of politics by economics.’ In his most recent book, ‘The Limits of Neoliberalism,’ Davies conceptualises our current socio-economic crisis by asserting that neoliberalism has entered a ‘contingent stage.’ He argues that an underlying ‘violent logic’ has gradually won out over the long history of neoliberal thought and policy making.9 Perhaps it is the same violent logic which compels men to rough it in tents to get an increase in pay, ironically invoking a primitive image of the very same feudal ‘serfdom’ which Hayek once claimed to be the end product of socialism. In the book’s introduction Davies writes: “A political rationality that fails to recognise politics as a distinctive sphere of human existence was always going to be dumbfounded, once that sphere took on its own extra-economic life.”10 Finally, this might go some way to explaining why the commenters who embody this economic rationality, blindly invoking ‘freedom of choice’ on the tent article’s comment threads appear so de-politicized, superfluous, and morally bankrupt.

1Smith, Craig, ‘EXCLUSIVE: Amazon workers sleeping in tents near Dunfermline site‘, The Courier, 10/12/16 <https://www.thecourier.co.uk/fp/news/local/fife/325800/exclusive-amazon-workers-sleeping-in-tents-near-dunfermline-site/> [accessed Dec 2016]

2Osborne, Hilary, ‘Amazon accused of “intolerable conditions” at Scottish warehouse’, The Guardian, 12/12/16 <https://www.theguardian.com/technology/2016/dec/11/amazon-accused-of-intolerable-conditions-at-scottish-warehouse> [accessed Dec 2016] – for ‘international tax evasion’ see: <http://www.socialistparty.org.uk/articles/24104>

3Kentish, Ben, ‘Hard-pressed Amazon workers in Scotland sleeping in tents near warehouse to save money’, The Independent, 10/12/16 <http://www.independent.co.uk/news/uk/home-news/amazon-workers-sleep-tents-dunfermline-fife-scotland-a7467657.html> [accessed Dec 2016]

4Commenter called ‘Randomweej’, ‘Amazon workers sleeping in tents near Dunfermline site’, Reddit, 10/12/16 <https://www.reddit.com/r/Scotland/comments/5hlf5r/amazon_workers_sleeping_in_tents_near_dunfermline/> [accessed Dec 2016]

5Commenter called ‘Common Sense’, ‘NO HOLIDAY CAMP Amazon told “they should be ashamed of themselves” after workers spotted sleeping in TENTS outside Dunfermline base’, The Sun, 10/12/16 <https://www.thesun.co.uk/news/2372543/amazon-told-they-should-be-ashamed-of-themselves-after-workers-spotted-sleeping-in-tents-outside-dunfermline-base/> [accessed Dec 2016]

6Commeter called ‘Pinballwiz’, ‘Hard-pressed Amazon workers in Scotland sleeping in tents near warehouse to save money’, The Independent, 10/12/16 <http://www.independent.co.uk/news/uk/home-news/amazon-workers-sleep-tents-dunfermline-fife-scotland-a7467657.html> [accessed Dec 2016]

7Varoufakis, Yanis, The Cambridge Union, ‘This House has Lost Confidence in Austerity’, Youtube, 19/11/16, available at: <https://www.youtube.com/watch?v=8oF37Z74xGc> [accessed Dec 2016]

8Hayek, Friedrich August von, ‘The Road to Serfdom’, Routledge, 2001, ppg. 216/217

9Davies, William, ‘The Limits of Neoliberalism’, SAGE, 2016, pg. xxi (preface)

10Davies, William, ‘The Limits of Neoliberalism’, SAGE, 2016, pg. xxii

European Commission’s neoliberal agenda in France: weaker employee rights

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If you are following political developments in France a bit, you couldn’t have missed the recent waves of massive strikes and protests that hit the Hexagon. The cause is Hollande’s government push for “reforms” to the labour law. Obviously, the word reforms here stands for a range of measures in line with neoliberal tenets that take away rights from employees and give them to corporations. Namely, allowing less favourable local agreements on wages (to undermine collective bargaining of national trade unions) or making it easier to hire and fire staff. Crucially, the French government decide to invoke Article 49.3 of the Constitution that gives it the power to bypass parliament and impose reforms by decree. That way it also sidestepped critics in its own ranks, such as Parti socialist MP Laurent Baumel, who called the move ‘anti-democratic’ and labelled it as ‘a heavy-handed way of using the constitution to prevent the nation’s representatives from having their say.’

What is less apparent is that the French government’s attack on employee rights has a European dimension. Revealed recently by the association Corporate Europe Observatory, the European Commission is using all its new powers gained after the financial crisis of 2008 to move France in the direction of ‘liberalisation of labour code’. ‘Simply put, France has been required flat out to ensure higher profitability for businesses by driving down wages,’ say the authors of the study. For those interested in how the European Union stands on the side of austerity and neoliberalism, this is an interesting read that shouldn’t be missed.

‘Market economy status’ to China? A bad, bad idea

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According to a leaked paper published by the daily Politico this morning, granting China the status of a ‘market economy’ by the end of 2016 would not have the best consequences for EU economy. Directorate-General TRADE, the European Commission’s “ministry” responsible for these matters, in its own working document states that this move would not only entail significant job losses in Europe (up to 188,300 jobs), but also increase in imports (between 17 and 27 percent) currently affected by anti-dumping measures. The manufacturing sector would take the hardest hit and particularly Italy. It is little surprise then that Italy’s Prime Minister Renzi is expected to ‘lean strongly’ against DG TRADE’s push for granting China the market economy status.

One has to wonder what exactly pushes the European Commission – and European political elites in general – in the craze for constantly more ‘free’ trade without minding too much the consequences. The problem with free trade policies is that they only make sense if the competition is on the same ground. How can EU manufacturers compete if our environmental, health, work and social standards are on a higher level than in China? They are more protective, but also make the cost of the comparative EU product more expensive and less competitive as a consequence with the economies that have their system set differently. Yet this obvious truth, told already two hundred years ago by German economist Friedrich List, seems to be repeatedly ignored by the European Commission. The beneficiary of opening economic borders without minding whether there are really comparable standards is fairly clear: transnational corporations who can produce cheaply in China and sell with a big margin back in Europe. Is it the case that the Commission works only for the benefit of these corporate stakeholders?

 

Economic consequences of the cold peace with Russia

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Russia finds itself in a similar situation as interwar Germany. A war is not imminent, but a cold conflict could arise and impoverish the Russians and the Europeans alike. It is symbolic that nobody else but the Germans offer today an open hand towards Russia with an EU-Russia free trade deal. Russia should accept it. Otherwise, both Europe and Russia will severely lose out. History teaches us how and why.

Keep Reading

Germany and the crisis of the periphery

Merkel with Commission President Barroso (© Council of the European Union)

Germany has played a major role in every discussion revolving around the current Greek budgetary crisis. Not only has the country been singled out as the biggest creditor, and more generally as Europe’s paymaster, but it has also come under severe criticism for enforcing an export driven economic policy that condemns its European partners to negative trade balances with Berlin. It has been argued repeatedly that Germany is therefore at least partly responsible for the problems faced by countries on the periphery of the European Union. Germany’s chancellor, Angela Merkel has forced crisis-hit countries like Greece, but also Italy, Spain, Portugal and Ireland, to impose severe budgetary cuts and introduce reforms aimed at economic modernisation and labour market liberalisation. The results have been mixed, with the Irish economy clearly recovering and also Spain, Italy and Portugal disappearing from the headlines (and off the radar of most commentators and analysts, it seems). Greece on the other hand has remained in the spotlight and with the second bailout package agreed upon in Brussels recently, rumours have surfaced that a third package might be necessary (though, maybe wisely nobody has yet spoken of any rescue actions after this) to keep Greece from defaulting.

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Embargo on Iranian oil: A move to save the US Dollar hegemony

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US Dollar Hegemony pictured as a harvester with uncle Sam sitting behind the driving wheel that is on the way to run over the escaping globe @ Dollar Hegemony by Luojie, China Daily, China from www.caglecartoons.com # 85448Acting through its ambassadors, the European Union has announced the imposition of an oil embargo on Iran from July 2012 on as well as placement of sanctions against Iran’s Central Bank, which aim to disrupt the funding of the country’s nuclear programme. But will that suffice? Will it have any effect? Or will it rather be importers bearing the costs? In response to the declaration of the embargo, the Brent price of oil skyrocketed between 23rd and 29th January to $111 per barrel.1 Iran is the second largest producing country in OPEC that supplies 2.5 million barrels per day, out of which 450 thousand are sent to EU countries. If the stoppage of the Iranian supply is not substituted by some alternative source, the embargo on the trading of Iranian oil can significantly harm European economies.

The Oil from Saudi Arabia

Speaking through its Commissioner for Energy Günther Oettinger, the European Union boldly announced that imports from Saudi Arabia will cover the Union’s consumption needs. A difficulty lies in the fact that relying on the oil reserve capacity of Saudi Arabia, which has always played the role of a safety measure, is becoming increasingly problematic. Even a short disruption of the drilling of oil in Algeria, and in Libya during the recent civil war, were sufficient to deplete Saudi reserve capacities.

When Wikileaks published diplomatic cables in 2010, what many analysts had been claiming for some time became public: Saudi Arabia has been lying about its oil reserves. They are lower than it officially claims. As everything indicates, it won’t be in the position to extract more than 12 million barrels a day. Given that the whole world experiences increasing demand, this will push up the prices of black gold to yet unprecedented heights. Oil will keep flowing even without Iran, but then we should not be surprised when the price will jump to somewhere between $120 to $150 per barrel during the summer.

Let’s look at the issue from a different angle. Who can lose out on the disruption of Iranian oil supply is obvious. It won’t be Russia, China, India, nor Turkey, but the European Union. (Allegedly, Japan will only decrease the level of supply.) Iran will now have to sell to these countries for a lower price. Higher prices will be especially beneficial to Saudi Arabia, which needs expensive oil in order to have sufficient funds for bribing its inhabitans, whose uprising would cause a true Arab spring and large problems to the United States, which are publicly supported by the Saudi regime that also allows them to build strategic military bases on its soil.

What really bothers the Americans

According to the treaty between the US and Saudi Arabia from the early 70s, the trading in oil with OPEC is concluded exclusively in US dollars (the famous term „petrodollars“ emerged as the result of the treaty). It is quite simple, really: if you ensure that oil will be traded in US dollars only, the countries needing oil for their economy’s development will be forced to obtain your currency. And this is exactly the reason why the American FED can today print dollar banknotes on big scale.

In the 30 years of functioning of the petrodollar system, the US has run a semi-monetarist trade regime, which has in practice entailed that in exchange for its goods, a country in question has received printed dollars. Besides being highly profitable to the US, the country’s foreign trade could prioritise import over export, leading to a decreased demand for the production of export goods.

This model could predominate only as long as the international political standing of the United States was unshakeable. But as the importance of new seats of power of the East and South increases, the appetite for a new, more just global ordering grows too. Emerging economies that have huge consumption of oil suddenly feel that dollar is detrimental to their growth and want to get rid of it. On the other hand, for the US a breakthrough of euro, juan or yen as the means of exchange would entail that they would have to quickly balance out their trade deficit – and for the largest economic entity in the world this would mean a several years long, painful transition.

When mentioning Iran it is useful to remember the fate of its Iraqi neighbour (indeed, among other countries). Since it is highly interesting that the accusation that Iraq own weapons of mass destruction came few months after Saddam Hussein announced that he will sell oil exclusively in euro. The bizarre leader of Libya, Muammar Kaddafi, was on friendly terms with Western politicians for years and no one was concerned too much by repressions against opposition – not until the moment when he announced the plan to create a pan-African oil trading regime, which hoped to force out the US dollar by creating the “African denari”.

In the past, Iran tried to weaken the dollar’s influence on trade and minimise the dollar transactions made for its oil, and at the end of 2008 it completely succeeded thanks to the founding of the Iranian oil commodity exchange. Japan pays for oil in yens, while others in euro.

To facilitate transactions for oil exports to India, Iran recently concluded a treaty with two important Indian banks. And in order to avoid any disputes with the US, Iran has chosen banks that have no direct engagement with the United States. Russian Gazprombank is expected to play the role of an intermediary. Latest information so far indicate that India has  agreed to this unprecedented deal and thus became the first recipeint of Iranian oil who will pay for the supply in gold instead of by dollar.

If joined by China, this initiative will have yet unforeseeable consequences. Gold once again starts to fulfill the role of currency and the United States watch this development with unease. Since more than by the alleged Iranian nuclear programme, they are threatened by a collapse of the dollar’s hegemony. The explanation for the present war drumming and dispatching of flotillas to the Persian Gulf can thus also be an effort to get rid of the weakest link on the ‘anti-dollar front’ that would send to Russia and China a first, but resounding warning signal.

 

* Translated from Czech by Stanislav Maselnik. Originally published on Revue Politika.

Show 1 footnote

  1. Brent is a trading classification of a kind of crude oil sourced from the North Sea that serves as a major benchmark for petroleum production from Europe, Africa and the Middle East.

Is European economic prosperity really dependent on mass immigration?

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Senegalese immigrants arrive on a boat to Los Cristianos in Spain
Senegalese immigrants arrive to Los Cristianos in Spain

The purpose of this article is to overview the issues and arguments surrounding the question of mass immigration to Europe. Its analysis is conceptually and in the use of available data focused on the last decade of immigration to what is now the European Union of 27 member states. In doing so, it takes a critical stand on those arguments suggesting that Europe, for various reasons related to the economic growth, needs large-scale immigration in order to preserve its wealth and way of life to the future. Our analysis shows that when taken in the overall perspective, that is, when the immigration of low- and high-skilled workers is calculated together with public expenses with which the issue of immigration is connected and with tax gains that immigrants bring, the net economic gain is very low or none. However, although not being the focus of our present text, the underlying theme of this work is also to suggest that immigration needs to be consider also from other then economic terms and the results of our analysis cannot be taken as sole factor for providing political decisions on immigration to European countries.

In approaching our topic, we first make an overview of immigration trends to Europe. This overview provides both empirical and theoretical background information required for our subsequent evaluation of the arguments of official EU bodies and commentators, who claim that mass immigration is economically beneficial, and indeed necessary, for Europe.

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Europe agrees to boost EFSF – possible implications and problems

European Council meeting, 23 October 2011 © Council of European Union
European Council meeting, 23 October 2011 © Council of European Union

Last week brought a breakthrough in the EU’s fight against the lingering eurozone crisis that threatens to bring down the project of the common currency and, as some fear, the whole EU with it. The announcement that European leaders have come to an agreement about boosting the European Financial Stability Facility’s (EFSF) coffers so its lending capacity might be increased to 1 trillion euro. However, this will not be done through an increase in the already existing commitments of Eurozone member states but through the application of a so-called “lever”. Currently the EFSF can lend close to 440bn to countries in need, through “leveraging” another 560bn would be added to it. The EU plans to raise the money from external sources, such as hedge funds, other countries and banks.

Two models are currently considered to boost the EFSF, either:

  • by using the EFSF to guarantee a part of the loan, probably around 25% of the total sum. This would mean that countries willing to invest into a rescue package would have at least part of their investment insured against default. It might be called the insurance scheme. Or
  • throughthe creation of a special purpose investment vehicle (SPIV), in which the EFSF would again guarantee a certain share of the investment. Those SPIVs would be set up individually for every country. It would be used to buy up bonds on the primary and secondary market and would then issue credits to the troubled country. The ESFS would attach a partial-insurance on national government issued bonds, kind of making some of them safer than the rest.

Both schemes would provide only partial insurance for the invested money and it seems very likely that none of them, or a combination of both, will work if Europe will fail to attract investors. However, those will not join any proposals unless they can benefit from it too. Countries like China or Russia, as well as a number of Arab countries, have vast financial reserves and are looking for ways to diversify their portfolio away from the US dollar. However, reaching agreement with them will come at an additional cost.

Who’s going to invest into the EFSF?

China seems like an obvious partner for the EU, as it is heavily dependent on the EU markets and has huge foreign currency reserves, though mostly in US dollars. However, despite this China won’t be an easy partner. The country that has indicated its support for further European integration and its willingness to continue buying bonds of troubled states, such as Portugal, Spain or Greece. Nonetheless, even though this alone might already help to calm markets, it won’t boost the EFSF lending capacity, which means China would have to invest into that tool – most likely when it has been set up as a SPIV. The country’s sovereign wealth fund – CIC – holds up to $400bn and could probably provide around $100bn to support the EFSF. In return for this though China might demand that the EU accept it as a market economy. So far the EU has demanded that China improves its human rights record and the protection of intellectual property rights before it would recognise the country as a proper market economy.

Another potential investor would be Russia, which, benefiting from high energy prices, has been able to boost its budget and might thus be interested to buy into Europe. Unlike China, Moscow won’t bother to push issues such as human rights (think of Chechnya for example). Instead, aware of its important role in securing the EU’s energy security, Russia will urge the EU to open its gas market to Russian companies without having to unbundle its gas monopoly Gazprom. Russia might also target investments in Europe’s high-tech, banking and transportation sector. Unsuccessful attempts, such as the failed take-over bid for Opel in 2009, might then become less likely. Another issue Russia might push for is the visa facilitation for Russians travelling to or through EU territory.

A number of Arab sovereign wealth funds might also be considered as possible partners. However, it seems unlikely that any of them, like the Abu Dhabi Investment fund or the Qatari fund, will invest in the EFSF. This does not mean that there is no desire to help, but their approach is fundamentally different. Similar to Russia and to some extent China, Arab sovereigns have used the crisis to buy into European infrastructure and industries and might target companies such as EADS in return for support of the EFSF.

A number of other actors, such as Brazil, Mexico or India might be potential supporters, however, they will push for a greater role of the developing nations in the International Monetary Fund, a stronghold of US and European interests.

What cost is acceptable to save the Euro?

None of the above mentioned candidates will offer their help for free; however, the cost of accepting such an offer varies strongly. Whereas China’s request to have its economy recognised as a market economy might seem harsh, it actually is less of a big deal than it seems. According to WTO rules China will gain this status in 2016, regardless of what the EU does now. The United States might accept China as a market economy even before 2013. This does not mean that the EU will have to follow suit; however, if the EU wants to engage in horse trading, it should set clear limits. Recognising China’s market status in return for CIC’s involvement in the SPIV does not necessarily mean that the Union will have to refrain from criticising Beijing for its human rights record. However, if China is granted market economy status, this will make it a lot more difficult for the EU to impose anti-dumping measures on Chinese exports and would open up the EU to Chinese investments. Considering that China’s battle chest is filled with at least $3 trillion, Europe’s industries might face a wave of take-over attempts unprecedented in its history.

Russia’s demands seem more modest, however, they are also dangerous and potentially more threatening for Europe’s (energy) security. Russia’s focus is clearly on the essential infrastructure in the field of energy supply, as well as a number of key industries in EU member states. Attempts to buy into a number of big energy suppliers, such as RWE or E.ON, or ENI in Italy, have foundered in the past, but Moscow’s urge to gain access to western knowledge and technology will certainly trigger another wave of proposals to form joint-ventures. Outright attempts to take-over companies might be less likely, though they too cannot be excluded. Maybe the best solution for the EU could be an offer to facilitate the visa requirements for Russian citizens. This would address Russian concerns over the status of Kaliningrad, the Baltic Sea enclave. However, especially the Baltic States might object to any visa facilitation out of fear that this might led to a stronger presence of Russians on their territories.

As far as involvement of Arab or Gulf state sovereign funds is concerned, the question of acceptable costs becomes a bit more tricky to answer as the leaders in the region have taken it upon themselves to use the crisis as a “window of opportunity” to increase their assets portfolio through cheap European additions. There is no reason to object to further investment of those funds in countries hit hard by the crisis – on the contrary. Joint ventures will provide the necessary financial means to invest into infrastructure and modernise it. Neither Qatar, nor Kuwait or Saudi-Arabia have expressed concern over the developments in the EU, as demand for natural gas and oil has so far been largely unaffected by the financial troubles on the continent. The problem might thus be of a different nature. The most interesting targets for the Arab and Gulf state funds will probably be the most sensitive ones for European leaders, such as high-tech, aviation, pharmaceutical or communications companies.

Last but not least, the offer brought forward by Brazil, Mexico and other developing nations to help to bail out specific countries (in this case it was Portugal and, if necessary, Spain) makes them yet another potential candidates to help boosting the EFSF’s lending capacity. Their demand that the developing countries should have a bigger say at the IMF is neither surprising nor unjustified. Even though there has always been an explicit agreement that the head of the IMF should be a European and the deputy director an American, this agreement dates back to the 1940s and is outdated today. It does not take into account the increased importance of developing nations and remains thus essentially “western” in its political outlook. However, should the BRIC states or other developing nations get a much bigger say in the affairs of the IMF, European leaders fear it might get even more difficult to get the institution involved in actions to save European countries, whereas the focus might shift to the needs of other non-European nations.

The conclusion here is somewhat in line with what I wrote about China’s market economy status. It seems almost inevitable that the IMF is going to overhaul its structure and adapt to the new power-constellations in the world, which will have to result in a stronger say of China, India, Brazil or Mexico in international monetary affairs. The institution is undergoing an internal reform already, based on the 2010 agreement of the G20 in October of last year. The European heavyweights France, Germany and United Kingdom will lose some of their votes, whilst a total of 6% of the votes will be shifted to major developing nations such as China. However, this agreement does not foresee a change in the nominating practise that has so far guaranteed the superior influence of Europe and the US on the IMF board.

Leveraging” the EFSF is like playing with fire

Even though the idea of leveraging the EFSF to increase its lending capacity to €1trillion has been welcomed by markets and politicians, it remains a risky and not entirely understandable move. The new “firewall” should be sufficient to discourage markets from betting against smaller economies; however, should Spain or Italy tumble, even the full amount of one trillion Euros won’t be enough to save those countries. The problem is that even though investments into national bonds would be partially insured, this increases the risk of losing all the money in the EFSF. Should a country default and receive a haircut of say 25%, investors might still recover parts of their investment, but the EFSF itself might completely dry up.

To illustrate this, let’s assume a country A is in heavy financial troubles and the EFSF agrees to supply the said country with €400bn, issuing a guarantee for the first 40% of this investment. Countries B and C agree to support the troubled country with the bailout money. Now, despite help from the EFSF, country A defaults and receives a 60% haircut – country B and C would recover their losses, at least the first 40% of their investment from the EFSF guarantee. That’s good for the investor but really bad news for the EFSF, as its own funding would be dramatically reduced.. This also means that the countries behind the EFSF guarantees, those with the best credit rating in the EU, such as Germany or France, would eventually have to refinance the EFSF, risking their own credit rating and gambling with the money of tax payers.

On the other hand, if the EFSF was simply going to buy the debt of a troubled indebted country and that country would receive a haircut, it would still recover a large part of its investment. Usually more than half of the money made available would be retrieved as haircuts seldom exceed more than 50%. This seems like the more desirable option though it also means that the EFSF would only be able to draw on the current €440bn instead of, say, €1 trillion.

How will markets react?

In the past few months a certain choreography has developed between global financial markets and EU actions. Whenever rumours surfaced that a country might be facing financial trouble, the EU insisted that this was an exaggeration and the problems were rather minor. This calmed markets and helped recover the losses of the previous day(s) on the stock market. However, soon afterwards the minor problems actually turned out to be very serious and the EU, sometimes in concert with the IMF, would prepare plans to bail out a troubled economy. Markets tumbled as investors lost trust in the stability of that troubled country, but after a bailout agreement stock markets would be on the rise again. After a couple days of euphoria markets plummeted when analysts de-constructed the agreements and found them either too weak, or unrealistic. The case of the Greek haircut and the boosting of the EFSF triggered exactly the same reaction, however, following Prime Minister Papandreou’s surprise (or shock?) announcement to hold a referendum on the European debt, markets crashed.

Note: I am not an economist and the issue of the EFSF SPIV is among the most complicated models available to boost the bailout funds lending capacity. I hope that I have been able to portray it properly and have understood it correctly, otherwise my conclusions might be flawed. However, as far as the involvement of external investors is concerned, I believe a background in economics to be of secondary importance.

The Neoliberal Union: EU and its model of economic integration

The following analysis can be also downloaded as a pdf file by clicking on this link. Given the article’s extent (about 18 pages), it should make the content more readable.

EUTo accuse the European Union (EU) of supporting of unfettered rule of market forces in the form of neoliberal policies is increasingly common under the fiscal and economic crisis that engulfs Greece and the eurozone. But the connection made between the Europe’s transnational union and this strand of economic thought is far from being new. The French voters rejected the draft Constitutional Treaty in the national referendum in the spring of 2005, because they perceived its silence on social policy as a threat to the French social model.1 According to the French left-leaning monthly Le Monde diplomatique, the recent Lisbon Treaty only refurbished the same neoliberal principles that were already once rejected by the French people, but now without giving them the possibility of rejecting them again.2 A thorough discussion of the principles behind the current form of European integration is therefore crucial for understanding the future prospects of the European project, especially since commentators from both the political left and right agree that further integration would be possible only when it would be backed by the support of the European public.3 Furthermore, if the presence of neoliberal policies in the European foundational treaties is confirmed, this might also engender debates on the fundamental principles of constitution-making: would it be legitimate if any future European constitution or constitutional treaty also clearly specified the principles (neoliberal or other) according to which its policies must be developed?4

In order to further this debate, this essay discusses the institutional structure and policies of the EU and, agreeing with some other commentators that discussed the same topic, it argues that the EU promotes a specific model of capitalism that can be best understood as ‘embedded neoliberalism’.5 In doing so, the approach of this work is following. First, it develops a model of neoliberal economics. Second, it continues by giving a brief historical overview of how this model competed for influence with other alternative models of capitalism at the EU level and states the reasons for its victory in the 1990s. And thirdly, it discusses the institutionalization of neoliberalism and overviews the major EU policies that can be associated with it.

The Political and Economic Principles of Neoliberalism

As even many authors that are critical of neoliberal policies acknowledge, the term ‘neoliberalism’ is eminently vague.6 It is often used pejoratively to describe the global spread of market economy and consumerist lifestyle at the expense of the traditional welfare state, thus avoiding rigorous analysis of the phenomenon.7 Thorsen and Lie, who manage to provide a very thorough overview of the concept, observed that the main problem when approaching the available literature is that ‘there does not seem to be anyone who has written about neoliberalism from a sympathetic or even neutral point of view.’8 Notwithstanding such problems inherent to the debate, for the purposes of this essay it suffices if neoliberalism is defined in terms of the core policies that are associated with it. Apart from Thorsen and Lie’s critical study, it is David Harvey’s A Brief History of Neoliberalism that provides a dispassionate introduction to the topic. He defines neoliberalism as being

in the first instance a theory of political economic practices that proposes that human  well-being can best be advanced by liberating individual entrepreneurial freedoms and skills  within an institutional framework characterized by strong private property rights, free markets and free trade.9

Consequently, the role of the state is minimised to that of the preserver of the institutional framework appropriate to the free market economy. However, this does not entail that the state loses any of its political authority. Quite the contrary, as could be seen during the Reagan and Thatcher administrations in the US and UK respectively, ‘a more authoritative state must now concentrate on providing the conditions under which individual entrepreneurship, self-government, freedom and responsibility can be possible.’10 In other words, although its nominal sphere of influence is to be reduced, the state has to first roll back the ‘nanny’ welfare state and thus secure the legal framework for the inhibited running of markets. In this way, it also ensures the inviolability of the private property, or guarantees the defence and policing of the country. Furthermore, the state is put in charge of the privatisation of state-owned companies and of public utilities that aims at extending the domain of the market economy by creating new markets. The tight fiscal and monetary discipline, the liberalisation of trade and capital markets and the ‘flexibilisation’ of labour market are thus natural steps to be taken by the state when following the neoliberal principles.  On the international scale, neoliberalism is associated with the promotion of reducing trade barriers and enhancing capital mobility and ‘together with the application of new information-based technologies, [it] facilitate[s] the emergence of less constrained multinational corporations able to negotiate the very favourable terms of investment with national governments’.11 Obviously, neoliberalism could be also studied from the perspective of its underlying political philosophy, where the most important conclusion is that in putting the political emphasis on the individual, the differences between liberalism and neoliberalism are only slight.12

Foundation of the EU and Neofunctionalism

The European Union began as a project of economic, not of political integration. Jean Monnet, a key architect of the ECSC, explicitly based his views of the future of European integration on neofunctionalism.13 The neofunctional theory of regional integration was first developed by the American political scientist Ernst Haas, who argued that establishing economic interdependence between several countries will give the process its own internal dynamics, thus leading to the political integration through a series of ‘functional spillovers’.14 The 1985 White Paper of the European Commission on the creation of a single market in this way claimed that ‘just as the Customs Union had to precede Economic Integration, so Economic Integration has to precede European Unity,’ thus confirming that the neofunctionalist approach to the integration persisted as the dominant model throughout the Union’s whole history. The neofunctionalist approach can be criticised for giving excessive predominance to economy at the expense of politics or culture, as indeed many authors have done,15 but it is not directly connected to neoliberal policies. Similarly, the idea of economic integration has no necessary connection to (neo)liberalism as it is entirely possible to conceive an integrated economic system that would have upheld more social democratic values, protected its members against the negative effects of economic globalisation, and/or integrated only certain sectors of economy while supporting the local producers against large transnational corporations.16 While the idea of a common market is therefore not (neo)liberal per se, this work argues that the actual economic integration of the EU has been made according to fundamentally liberal principles, which consequently provided it with the institutional basis for the political shift to ‘embedded neoliberalism’ by the early 1990s. In order to analyse whether the EU contained neoliberal policies since its foundation, it is now necessary to turn to concrete policies that were behind such abstract phrases as ‘economic integration’.

The Development of the Economic Integration: Neoliberalism, Neo-Mercantilism, and Social Democracy

The European Coal and Steel Community was created as the first supranational institution in 1951 to encourage the expansion of iron and steel production and of heavy industry and, more generally, with the aim of preventing any future wars between France and Germany. As Christoph Hermann notes, it was ‘inspired by the notion of coordination and cooperation rather than market-mediated competition.’17 It was only the establishment of the European Economic Community (EEC) in 1957 that took the first steps to a free trade zone by creating a customs union with a common external tariff. Thus, in Article 3 of the Treaty of Rome, one can read that member states subscribe to a gradual development of a ‘common market free from distortions to competition’ – an idea with clearly liberal roots. At this point, thus distinguishing it from later neoliberal policies, the common market meant only free circulation of goods – free movement of labour, capital, and services were only institutionalised with the signing of the Single European Act (SEA) in 1986. The single European market of SEA was considered the last-resort response to the economic crisis Europe underwent in the early 1980s, when individual national therapies failed. Its aim was to create a ‘healthy’ pan-European competitive environment, with flexible capital and labour markets that would make it easier for the firms to carry structural readjustments that were until then hampered by the welfare regimes of individual member states.18 As Stephen Gill remarked, SEA marked a key shift in the European community’s policies towards a form of neoliberalism, for at that point ‘scientists, journalists and politicians succeeded in presenting the Single Market as the breaking-up  of  incrusted  and  rigid  structures  of  European  labour  and  social regulations.’19 Hermann observes that a key part of SEA was the principle of mutual recognition for those goods and services for which the EU did not regulate.20 This principle had an inherently liberalizing tendency, since as no overarching regulation, supervisory procedures or common standards on goods were established, it has allowed the use of the lowest standards to be found among the contemporary 27 member states. This leads Hermann to conclude that the common market ‘has thus become a neoliberal market characterized by weak regulations or even deregulation.’21 This also amounted to a de facto liberalisation of the external trade policies, as the principle of mutual recognition has also applied to them.22 Furthermore, as Fritz Scharpf observes,

it required the liberalization of hitherto protected, highly regulated and often state-owned service-public industries and infrastructure functions, including financial services, air, road and rail transport, telecommunications and energy; and it extended the reach of European competition law to all national polices that could be regarded as distortions of free competition.23

As described by Bastiaan van Apeldoorn, the establishment of the single market coincided with the creation of an elite forum of Europe’s emergent transnational capitalist class – the European Round Table of Industrialists (ERT). Founded in 1983, this lobby currently unites 50 CEOs of ‘of major multinational companies of European parentage covering a wide range of industry and technology’.24 Apeldoorn’s analysis tries to show that the ideological development of ERT can be considered a microcosmos of the EU as a whole. In the early 1980s, ERT was dominated by European industrial capital, which had the major interest in protecting the European market from the global competition. Apeldoorn calls the model of capitalism to which they subscribed ‘neo-mercantilism,’ characterizing it as promoting defensive regionalisation as against globalisation.25 At the same time, neo-mercantilism was largely compatible with the social-democratic strand of capitalism to which at least nominally subscribed Jacques Delors and his three Commissions (1985-94).26 Delors’ support for the ‘European champions’ was a direct correlate of the neo-mercantilist arguments of ERT, but European industry was also willing to concede a further point to social democracy by supporting a certain level of social partnership with European labour.27 The social democratic model also supported the ‘European social model’ of mixed economy that would complement ‘negative’ market integration, would strengthen supranational institutions, or ensure high levels of social protection for workers.28 Nevertheless, the neo-mercantilist project, gradually faded into background when ERT, since the late 1980s fully controlled by globalised sections of European capital, shifted its support to ‘embedded neoliberalism’. The lobbying of ERT in support of neoliberal policies consequently played a vital part in undermining the social-democratic plans of Delors.29 Furthermore, Andy Storey concludes that the support for neoliberal policies within European companies is likely to become even more entrenched as their sales outside Europe grow when compared to European markets.30 Thus, he notes, between 1987 and 2000, the top nineteen companies of the European parentage increased their non-European sales from 34% of turnover to 46.2%, while within the EU their sales almost did not increase at all.31 Apeldoorn thus describes the embedded neoliberalism as a hegemonic project of ‘a class-conscious transnational business elite’.32 The difference between the embedded and ‘pure’ liberalism is in this way marginal: the difference lies in the former’s effort to co-opt other social forces such as trade unions by incorporating into the neoliberal discourse certain aspects of social policy. The social policy at the EU level thus acquires the ‘market enabling’ at the expense of traditional social policy instruments such as social protection or income redistribution. When compared to national welfare state models, the remit of the market remains unrestricted and the social policy itself acquires the character of facilitating the workers’ participation in the labour market (e.g. for instance through training or requalification). On the other hand, all efforts that would have provided for a substantive EU social policy and that would have balanced out the fiscal constraints imposed on the member states by the treaties, EMU and SGP so far failed.33 A clear example of market-enabling social policy is present in the Europe 2020 strategy recently put forward by the Commission. Although it claims that it sets out a vision of ‘Europe’s social market economy,’ it stresses that the European economy must be restarted by privileging an economy ‘based on knowledge and innovation’, ‘fostering high-employment’, and ‘modernis[ing] labour markets and empower[ing] people by developing their of [sic] skills throughout the lifecycle with a view to increase labour participation’.34 When it comes to the social dialogue and partnership that the European founding treaties refer to (Arts. 152 & 153 of the Treaty on the Functioning of the European Union), the most of the commentators argue that trade unions have at best a mixed record when engaging with the EU politics.35 In this way, Andy Storey then adds that that ‘engagement there has been has tended towards the containment of the unions within corporatist structures rather than seriously challenging neoliberal policies.’36

In criticising this lack of a full-fledged social policy at the EU level, it must be noted that the authors such as Scharpf argued that an option of having a traditional welfare state at the EU level is in practice foreclosed by the diversity of European welfare state models and that only an intergovernmental co-operation based on the strengthened Open Method of Co-operation is in practice feasible.37 In this model of strengthened co-operation of Scharpf, or Iain Begg and Jos Berghman, a common approach to social policy would be adopted and be enforceable at the EU level, while its implementation would still remain national, with sufficiently extensive provision for national differences.38 If such option is open, it should be concluded that there is clearly no other reason than the member states’ and the EU’s commitment to neoliberalism that would explain the lack of political will in implementing such European model of social policy provision.

Economic and Monetary Union and Stability and Growth Pact

A crucial further step in the process of ‘neoliberalisation’ of the EU has been the Economic and Monetary Union of the EU (EMU) that was completed in three stages between 1990 and 1999, with the Euro as the common currency being adopted in 2002.39 For purely pragmatic political reasons (it was perceived as a crucial step in the long-term development of the economic integration), the EMU was backed in the late 1980s even by the ‘Europeanist’ part of ERT.40 The EMU is administered by the independent European Central Bank (ECB) that is endowed with an explicit anti-inflationary mandate, maintaining high interest rates to this end. Commenting on the latter, Scharpf thus observes that the monetary union has not only deprived the member states of the capacity to control exchange rates according to local economic exigencies, but also of the the ability to control interest rates.41 This entails that the interest rates set by the ECB to correspond to average conditions in the Eurozone ‘will be too high for economies with below-average rates of economic growth and inflation and too low for countries above the average. Hence they will further impede the recovery of sluggish economies and add to inflationary pressures in countries with high growth rates’.42 Indeed, the disparities between different regions are a problem in any larger state, but then they are solved by national redistribution policies, which are, as was stated above, unavailable to the EU.

The Stability and Growth Pact (SGP), which was as a part of EMU adopted in 1997, adds further neoliberal constraints on the fiscal policy of the member states. Its purpose is to monitor the fiscal discipline of the EU member states and potentially sanction the offending members. Although its efficiency was recently doubted,43 for the purposes of this essay it suffices to say that the criteria it officially sets are clearly neoliberal. Thus, according to the SGP, the annual budget deficit of the member states should not be higher than 3% of their national GDP and their national debt should be lower than 60% of their GDP. These rules were softened in 2005 (budgetary objectives are now reviewed every fourth year and countries with a low public debt and a potential for high growth are allowed a budgetary deficit of 1% of GDP in the medium term), but their fundamental neoliberal nature remains unchanged.44 By the SGP and other above stated measures related to the EMU, the European law thus effectively bans the use of those national macroeconomic (Keynesian) instruments that could positively influence national growth.

European Treaties

The presence of neoliberal policies is the most fully developed in the European founding treaties themselves. They will be discussed by referring to the last, post-Lisbon consolidated version of Treaty on European Union (TEU) and Treaty on the Functioning of the European Union (TFEU).45 The Art. 26 of TFEU, which outlines the principles of the internal market, thus states that it ‘shall comprise an area without internal frontiers in which the free movement of goods, persons, services and capital is ensured in accordance with the provisions of the Treaties’. The Art. 119.1 of TFEU expands this by confirming that the adoption of an economic policy will be ‘conducted in accordance with the principle of an open market economy with free competition’. The third point of the same article further adds that the guiding principles of economic and monetary policy will be ‘stable prices, sound public finances and monetary conditions and a sustainable balance of payments’. The only exceptions to the free running of the markets that are mentioned in the treaties are in the Arts. 27 and 144. The first of these states that the Commission can decide on temporary derogation from the principles of free market for the ‘economies showing differences in development’, however, such provisions ‘must be of a temporary nature and must cause the least possible disturbance to the functioning of the internal market’. The Art. 144 contains a similar clause that allows the governments to take precautionary protective measures in case of a sudden crisis in the balance of payments. The Art. 21.2e of TEU also mentions that in its foreign policy, the EU shall ‘encourage the integration of all countries into the world economy, including through the progressive abolition of restrictions on international trade’. This clear adherence to the neoliberal project is further expanded in the Art. 206 of TFEU, which states that the Union will contribute ‘to the harmonious development of world trade, the progressive abolition of restrictions on international trade and on foreign direct investment, and the lowering of customs and other barriers’. Finally, if the member states adopt measures that distort competition and the principles of free market as laid down in the treaties, the Arts. 258, 259 and 348 of TFEU allow the Commission or any member state to bring that matter before the European Court of Justice. The Art. 260 of TFEU then stipulates that the Court’s decisions are binding and the member states that fail to comply are liable to fine specified by the Commission.

Notwithstanding the presence of these neoliberal provisions in the EU treaties, some authors such as Laurent Pech argued that the leading critics of neoliberalism ‘are mysteriously selective in their reading’.46 Pech therefore points out that TEU and TFEU also contain what he considers an ‘extensive set of social objectives’.47 Is it possible to confront such charge? Indeed, Pech is right when he notes that the present treaties explicitly mention a number of social commitments. One should thus recall the Art. 3.3 of TEU that states that the Union shall establish ‘a highly competitive social market economy, aiming at full employment and social progress, and a high level of protection and improvement of the quality of the environment’ (it should be noted that some authors would certainly see argue a contradiction between ‘highly competitive’ and ‘full employment and social progress’). Similarly, the Art. 153 of TFEU recounts an extensive list of the objectives that ‘the Union shall support and complement’ to the activities of the member states. They range from the commitment to the improvement of working conditions (a) and working environment (b), to the combating of social exclusion (j).

Nevertheless, in the light of the actual institutionalisation of the EU treaties as recounted higher above, one should question the seriousness of these commitments. Surely, if that commitment carried more than rhetorical weight, the EU would not subsume social policy under that general neoliberal framework, which was analysed over the course of this essay. The goal of combating social exclusion, or building a truly social market economy is certainly not compatible with the weak institutionalisation of the social dialogue with the employees, absence of substantive social policy, weakly regulated common market that favours ‘high competitiveness’, or the policies of fiscal austerity promoted by the EMU and SGP. It is rather the case, as Apeldoorn pointed out, that such subscription to social policy goals is characteristic for the political project of embedded neoliberalism with its effort to co-opt the other social strata to what still remains essentially a neoliberal project. In the end, however, such support for social values does not go beyond mere rhetorical commitment.

Conclusion

As Douglass North suggested already in 1991, the structure of the EU, including both its constitutive treaties and its actual policies, is ‘not politically innocent, but rather facilitates or hinders the adoption of specific political programs’.48 In this essay it was argued that the model of capitalism promoted by the EU can be best described as embedded neoliberalism. To this end, a general model of neoliberalism was developed and consequently applied when analysing the development of the EU’s economic integration from Jean Monnet to the last amendment of the constituting treaties by the Treaty of Lisbon. Firstly, the claim that the neofunctionalist project of economic and political integration was inherently (neo)liberal was dismissed. Secondly, it was shown that in the 1980s the project of embedded neoliberalism, supported by the European Round Table of Industrialists, won over other two competing models of capitalism: neo-mercantilism and social democracy. The subsequent development in the EU, as best perceived in the establishment of Economic and Monetary Union and fiscal constraints imposed by the Stability and Growth Pact, then proceeded along the lines of embedded liberalism, with a limited commitment to social policy, which acquired market-enabling character. Finally, the neoliberal character of the European economic integration was confirmed by analysing the essential principles of the Treaty on European Union and Treaty on the Functioning of the European Union.

* I have written this paper in 2010 as a part of completing my MA European Studies at King’s College London. This version has a slightly reworked introduction that sets it in the context of the eurozone’s fiscal crisis.

Bibliography

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Show 48 footnotes

  1. Hainsworth (2006), p. 104.
  2. Cassen (2007), p. 8.
  3. E.g. for the position from the right see Strafford (2009); and from the left Tsoukalis (2008).
  4. Indeed, the majority of constitutional theorists argue that a constitution should outline only the most general principles of the political unity with which the whole polity can identify. Cf. Schmitt (2008), pp. 59-74. This would leave the determination of concrete political norms, which have always more transient nature than the constitution, to the actual, democratically elected parliamentary majority.
  5. Cf. Apeldoorn (2002); Bonefeld (2002); Storey (2008). But consider Pech (2007), who disagrees with Storey and argues that the EU project also contains a substantial social dimension.
  6. Saad-Filho and Johnston (2005), pp. 1, 3.
  7. Cf. Bourdieu (1998); Chomsky (1999); Touraine (2001); or Saad-Filho and Johnston (2005).
  8. Thorsen and Lie (2000), p. 2.
  9. Harvey (2005), p. 2.
  10. Kendall (2003), p. 6.
  11. Hermann (2007), p. 62.
  12. Kendall (2003), p. 6.
  13. Mitrany (1994).
  14. Haas (1958); Gillingham (2003), p. 28.
  15. Cf. Benoist (2008).
  16. Blackburn (2005); Grieve Smith (2005); Mitzman (2005); or Storey (2008), pp. 76-77.
  17. Hermann (2007), p. 69.
  18. Eichengreen (2007).
  19. Quoted in Hermann (2007), p. 70. The original source is Gill (2003), p. 63.
  20. Hermann (2007), p. 71.
  21. Ibid.
  22. Hanson (1998).
  23. Scharpf (2002), pp. 647-648.
  24. European Round Table of Industrialists website.
  25. Apeldoorn (2002), pp. 78-82.
  26. Ibid., pp. 171-173.
  27. Ibid., pp. 78-82.
  28. Ibid.
  29. Apeldoorn (2002), pp. 158-89; Kol and Winters (2003).
  30. Storey (2008), p. 70.
  31. Ibid., p. 71.
  32. Apeldoorn (2002), p. 185.
  33. Scharpf (2002), pp. 645-670.
  34. European Commission (2010).
  35. Cf. Bieler (2007); Taylor and Mathers (2002), pp. 39.-60.
  36. Storey (2008), p. 71.
  37. Scharpf (2002), pp. 645-670.
  38. Begg and Bergman (2002).
  39. European Central Bank website.
  40. Apeldoorn (2002), pp. 162-170.
  41. Scharpf (2002), p. 648.
  42. Ibid.
  43. Talani (2008).
  44. Kesner-Škreb (2008), pp 84-85).
  45. European Council (2008).
  46. Pech (2007), p. 5.
  47. Pech (2007), p. 6.
  48. Quoted in Pollack (1998), p. 5.