The International Writers Magazine: Greece 2015
A Philosophical Error
The European Union’s crisis with Greece symbolises a fundamental philosophical error in modern thinking, the intellectual dislocation of three symbiotic areas: society, politics and economics.
This error reveals itself in the operation of the European Union as well as our approach to globalisation and the treatment of each area as a separate focus for three distinct disciplines. We find experts in each displaying ignorance of the other two.
The Greek problem is generally discussed in economic terms, with concerns about how different measures would affect financial markets. The problems are presumed to have economic roots, to have been caused by economic errors and to depend on economic solutions. In each case the focus is too narrow. When commentators use terms such as catastrophe or disaster should Greece leave the Euro they are generally thinking of economic effects while ignoring the fact that politically and socially the catastrophe has already occurred.
For whom would Greece’s departure from the Euro zone be a disaster? We are told that Greece is running out of money, when they actually mean running out of credit. Should Greece return to using the Drachma there would be no shortage of money as a means of exchange within the country. The currency would probably be worth peanuts on the foreign exchanges, initially, and imported goods would become unaffordable to ordinary Greeks, who can’t afford them now anyhow. The concomitant effect would be to make Greek exports cheap, and Greek property would become very attractive to foreign buyers. This could stimulate a huge inflow of foreign investment, as well as making Greek exports more competitive.
So, even thinking narrowly about economic effects, it is by no means certain that the catastrophe would be felt by Greeks more than by Spaniards, Italians and Portuguese whose products became relatively uncompetitive. Should we broaden our focus to take in political and social effects, it is far from clear that the outcome would be, on balance, negative for the Greeks. The government could gain politically for having kept its promise, and Greek society would be relieved of the existing austerity measures.
The negative economic outcomes would possibly be found in the other countries that I have mentioned. Were that to be the case it would quickly become apparent that the problems are not confined to economics, but have social and political consequences. In all probability radical fringe parties would gain credibility, and underlying fractures in society would be exposed. Should such things happen, Brussels too could suffer political repercussions. What is today predicted as an economic catastrophe for Greece, could turn out to be a political disaster for the European Union, and almost certainly for the Eurozone.
What about the causes of these problems, which again are presumed to be economic? A more comprehensive examination reveals that politics have played a major part, both within Greece and in the European Union generally. A difficulty faced by the Greek people is the fiscal imbalance caused by the Colonels when they ruled that wealthy Greek ship-owners should not have to pay tax. The reasons why that decision was not rescinded by subsequent elected governments cannot be economic, but have political and social roots. More generally, a key factor was the decision by the European Union to create a common currency for countries with vastly different political, social and economic histories. That largely political decision resulted in a number of countries being denied the use of devaluation as a means to economic equilibrium. Meanwhile, German exports benefited from being priced in a currency valued below the level that a retained Mark would have merited.
Leaving Greece aside, the governance of the European Union is fundamentally flawed in that it has spread far beyond the original membership to embrace countries that differ widely in social customs, political conventions and economic development. Although the expressed rationale is economic, the social and political effects of the free movement of labour and capital have been enormous. I mentioned underlying fractures in society. These exist in many states including the UK, France, Italy and Spain, although those states have avoided fragmentation, the pressures are always there. If the Spanish government, for instance, is hard put to maintain a unified state, what chance has Brussels, other than by undemocratic, bureaucratic centralisation?
In effect, the European Union is globalisation in microcosm, and we see the same problems emerging. In pursuit of allegedly economic objectives, countries are paying a heavy price in social and political terms. Long established social conventions and relationships are being disrupted with the excuse that economic reality leaves us with little choice. Politically, parliamentary democracy is threatened as financial clout trumps the ballot box. I say ‘allegedly’ here because the economic rationale is questionable, if we are considering macro-economic outcomes on society at large. It is quite a different matter perhaps if we are talking about micro-economic outcomes for our legislators.
As I write, negotiations are being conducted on international free-trade arrangements which will have the effect of further diminishing the power of elected governments in individual nation states, while enhancing the power of international corporations. One set of negotiations covers the USA and nations of the Pacific, while a separate set covers the USA and the European Union. I cannot believe that the governments involved are unaware of the probable political and social consequences of entering into these agreements. We could all become ‘Greeks’: powerless to improve our condition through a democratic process as governments are denuded of powers to regulate corporate behaviour.
The philosophical error I referred to is no accident, but the result of a carefully managed campaign of indoctrination that has aimed to denigrate Keynesian views of political-economy. The intellectual drive behind this movement is a combination of Hayekian views of the state, and Chicago School economics. Its devotees now populate such bodies as the International Monetary Fund, the World Bank and numerous government departments in the developed world. They are proponents of the view that one-size-fits-all in managing the political-economy, and the results are already evident in some of the poorer countries of the world on which their formula has been imposed.
In pursuit of global free-trade poor countries have been denied the ability to use import tariffs to protect infant industries, with the result that industries do not develop and they rely on imports from countries which themselves developed behind tariff barriers in the past. As Thomas Piketty points out in his book ‘Capital in the Twenty-First Century’ this imposition has the secondary effect of denying government in these countries revenue from tariffs that could be used to finance public services. This latter point perhaps explains in part why some of these countries are so dependent on overseas aid.
We are in danger of drifting into an arrangement whereby individual states are unable to protect their citizens from the predations of international corporations and their political puppets. How ironic it would be if the author of ‘The Road to Serfdom’ should be identified with the enslavement of the many to the commercial interests of the few.
© Tom Kilcourse March 1st 2015
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