Ireland and Europe: the urgent need for a social, economic and ecologically just transformation

Posted on Wednesday, 25 November 2020
sustainable investment

Ann Pettifor outlined the type of social, economic and ecological transofrmation required to ensure a just recovery for Ireland and Europe at our Social Policy Conference 2020.  Below is an extract from her paper.

Protecting globalised capital – not society or the ecosystem
The 2020 Covid-19 crisis made utterly transparent the power and protection granted above all to private, globalised capital markets, creditors, investors and speculators. It is striking that world leaders proved unable to convene an international summit to prevent the spread of the pandemic and to collaborate on a vaccine for the world’s people. Some leaders deliberately attacked the system of multilateral coordination to defeat pandemics, organised under the umbrella of the World Health Organisation. And for decades, world leaders have failed woefully to tackle a threat to the very survival of humanity, brought on by what ecologists define as ‘earth systems breakdown’ – climate change, the collapse of biodiversity, and a dramatic rise in the rate of extinctions.

In the spring of 2020, central bank governors, led by the Federal Reserve under a very different approach. They coordinated their actions internationally to save globalised capital markets from the economic consequences of the pandemic. Even while the governments of Trump, Bolsonaro, Modi and Johnson divided the world, clowned around, and grievously mishandled the crisis, causing thousands to die unnecessarily, technocrats at the Federal Reserve, the Bank of England and the ECB engaged in decisive, expansive and internationally coordinated action to save rentier capitalism. Big Wall St. and City of London financial institutions, corporations like Apple and the world’s airlines quickly became beneficiaries of central bank largesse.

Such internationally coordinated protection was not granted to the world’s people or to the world’s threatened ecosystems. Instead world leaders effectively abandoned nature and their citizens, delegating leadership of the global economy to central bank technocrats and their clients in capital markets. 

An ‘ambitious, cohesive and transformative’ programme
To reverse this form of political defeatism, to undertake what Olaf Scholz called a “transformative programme” that would address both the economic and ecological threats facing European politicians need to exercise leadership in the world. They must take the lead in making or re-making the global economic system and altering the balance of power within that system – based as it currently is on the internationalism of capital.  They should substitute it with a new form of internationalism, as Geoff Tily, senior economist at the British TUC has argued. Instead of “globalisation amounting to an internationalism on the terms of capital, internationalism should be conducted on the terms of labour.” [1]

That is the kind of economic transformation EU Ministers and politicians should be advocating and leading. What is needed – given the dire ecological and economic threats facing Europe – is an economic transformation on the scale of the President Roosevelt’s New Deal of the 1930s.

Challenges for the European economy in 2020
At the height of the 2020 crisis triggered by a human-induced pandemic, the OECD predicted the deepest post-war recession in 2020, with GDP in the Euro area set to be nearly 12 per cent lower than in 2019. [2] Recession amplifies the risk of a debt-deflationary spiral for an EU-wide economy already characterised by falling real prices – (inflation turned negative in 12 of 19 eurozone countries in May, 2020) output gaps and an over-valued currency that will depress exports and hurt exporters. Deflation poses a real threat to highly leveraged corporates and to the private non-bank financial sector burdened by debt as well as to the Eurozone’s sovereign debtors - because deflation inflates the value of assets, including debt and therefore both the burden of debt, and the cost of debt servicing.

The forthcoming recession will strike a catastrophic hit to Europe’s labour market. While 60 million Europeans were being shielded by government furlough schemes, Eurostat estimates that already in May 2020, 14.366 million men and women, or 7.9% of the Euro area labour force were unemployed in the EU, of whom 12.146 million were in the euro area. In May 2020, the youth unemployment rate was 15.7% in the EU and 16.0% in the euro area. (Eurostat News, 2 July, 2020). These high levels of unemployment will very likely escalate as the “deepest postwar recession” hits over the winter of 2020/21.

The Green Deal
The European Commission’s commitment to tackling the threat of climate breakdown is commendable. The Green Deal – “striving to be the first climate-neutral continent” is a roadmap that can rightly be described as a ‘European man on the moon’ moment. The September 2020 vote by the European Parliament's environment committee to raise the EU-wide target, and reduce carbon emissions by 60% by 2030, is welcome political pressure for even greater ambition.

These are first steps towards the transformation needed by a powerful Union of 27 states. But they are just that: first steps. The financing proposed for the Green Deal economic programme is inadequate to the tasks that lie ahead and is hobbled by its reliance on the private sector.

Europe, as the Green Deal recognises, has to revolutionize three broad economic categories: its energy, transport and land use – i.e. agricultural systems. It has to substitute systems that use fossil fuels, generate toxic emissions, and accelerate biodiversity decline – with ecologically safe systems. To do so, it will have to revolutionise and transform the globalised financial system that currently shapes European economies, demands higher exports and wields power over key economic levers. It will have to do what Roosevelt achieved: the subordination of the private finance sector to the interests of society as a whole. It will have to strive for an internationalism of the interests of people and planet – and dismantle a system that prioritises the internationalism of capital.

The full paper can be downloaded here.  

[1] Geoff Tily, forthcoming in Spring, 20201. Return of the State: Restructuring Britain for the Common Good, published by the Progressive Economy Forum in conjunction with Agenda.

[2] OECD Economic Outlook, June 2020, p. 25