As Greece continues to spiral out of control financially, Greek Prime Minister Alexis Tsipras has ordered local governments to transfer their reserve funds to the central bank. This decree has come at a time of dire straits for Greece. EU negotiations over another Greek bailout are at a standstill and Tsipras needs money to repay the International Monetary Fund (IMF) in addition to the salaries and pensions of his citizens. A Greek exit or ‘Grexit’ now seems entirely possible, which many fear would be a worst case scenario.
— Mohamed A. El-Erian (@elerianm) April 20, 2015
Some claim this problem stems from a flaw in the Greek character; Greece lied about its finances to gain entry into the EU and there is widespread corruption accompanied by massive tax evasion. Although these issues may contribute to the problem, there is a growing consensus among economists and scholars that the crisis in Greece runs much deeper than what is visible on the surface.
Their findings strike at the very heart of what many believe is wrong in Greece and the rest of the Eurozone–Neoliberalism.
Neoliberalism can be defined as an economic ideology that encourages trade liberalization, privatization, financial deregulation, and tax cuts for the wealthy. This ideology has dominated US and EU economic policy for the past 25 years and has fueled critics like Engelbert Stockhammer, who argues that neoliberalism “has given rise to an unstable finance-dominated accumulation regime,” which he claims, “relies either on financial bubbles and rising household debt (‘debt-driven growth’) or on rising export surpluses (‘export-driven growth’).”
An Advocate of Neoliberalism in Europe: Michael Maibach
Michael Maibach is a senior fellow at the Aspen Institute, a policy studies organization dedicated to facilitating discussion on critical global issues. In the past, he was also the president and CEO of the European-American Business Council.
Recently, Maibach was hosted by the Reiff Center and the Economics Department at Christopher Newport University to speak about the future of the Eurozone and its relationship with Greece. Maibach argues that the solution to Europe’s woes lies with policies that favor business friendly economic liberalism, which include:
- Promoting longer hours, more years, and phase-in retirement for workers
- Trimming government to 33% of gross domestic product (GDP)
- Accepting “creative destruction” by choosing innovation over regulation
Working Longer and Harder for Less Security
The reality that employers and employees are facing around the world is the fact that people are living longer and healthier lives. As Maibach points out, “our grandchildren will live to be 100 years old.” Baby boomers in their 60’s and 70’s are now working past the traditional retirement age or returning to work due to financial necessity.
Maibach argues Europeans will have to work longer hours and more years to support their healthcare and pension system. In addition, he advises that flexible labor laws must be implemented and protective subsidies dropped. The downside of this approach is, as critics argue, a lower, unbalanced, and stressful quality of life. The US for example, which has adopted this mentality, is considered the most overworked industrialized nation in the world. According to a new Gallop poll, “half of full-time employees work more than 40 hours each week and almost four in 10 claim to work 50 hours or more.”
Trimming Government and Dismantling the Welfare State
Maibach claims the European social welfare state is not sustainable and argues the EU should reduce taxation and regulation to become more globally competitive. To a certain extent, he is right; social welfare is undoubtedly expensive. According to Eurostat in 2010, unemployment assistance, health care, retirement, and education represented 19.9% of the EU’s GDP.
However, the notion that the social welfare state is unsustainable is highly debated. Although healthcare and pensions will notably require major reform due to the continent’s aging population, there are arguably solutions that simply require a commitment from Europeans to defend their social model.
Maibach’s reasoning would seem to stem from his reliance on capitalism and market economy, which he examines in his speeches with great detail. He states, “successful 21st century economies will trim government to a healthy 33% of GDP.” In this type of scenario therefore, Maibach states, “We have to have a positive attitude and understanding about what capitalism is.”
What is capitalism then? Maibach argues that capitalism is not about money and that commercial life is a virtuous life. In a speech he gave at the World Affairs Council in Washington D.C, Maibach stated:
“There is nothing wrong with capitalism. It is about serving others through teamwork, practical wisdom, service to others, reinvestment, innovation…all the virtues you would want if you were a king or queen in your subjects. That’s what capitalism does every day, unless its dishonest, then that’s a problem.”
Critics would argue that capitalism is precisely that, dishonest. Former US Secretary of Labor Robert Reich, for example, lambasted neoliberalism what he sees as one of its direct consequences, income inequality. He raises the question, when does income and wealth inequality pose a threat to the economy, equal opportunity, and democracy as we know it?
Accepting Creative Destruction
Maibach would like people to think like Joseph Schumpeter, one of the most influential economists of the 20th century, by accepting the reality of ‘creative destruction’ and favoring innovation over regulation. The term in this sense is highly in sync with neoliberal economic theory and refers to a process of increasing the efficiency of a company or economy. By continuously revolutionizing the economic structure from within and incessantly destroying the old one, ‘creative destruction’ was Schumpeter claimed, “an essential fact about capitalism.”
“Schumpeter believed innovation was all about ‘creative destruction,'” Maibach says and illustrates his point through the success of Andrew Carnegie, an industrialist who became the richest man in the world after monopolizing the US steel industry.
At the same time, Schumpeter agreed with Karl Marx on the notion that capitalism would gradually destroy itself and give rise to socialism; but not due to its failures, rather its successes. In Schumpeter’s most popular book, Capitalism, Socialism and Democracy, he theorized that the success of capitalism would lead to corporatism and to values hostile to capitalism, especially among intellectuals, a segment of society able to critique social issues in the interests of other classes. As a result, Schumpeter argued, states would naturally elect socially democratic parties, who would in turn suppress the entrepreneurship of capitalism.
It seems at least some of his predictions have come to fruition. After the global economic collapse of the 1930’s and World War II, socially inspired democracy dominated America’s political economy up until the late 1970’s. Critics of neoliberalism, however, like to credit Schumpeter’s adversarial contemporary, John Keynes, for “saving capitalism from itself” during the Great Depression and providing the theoretical framework for a booming post world war middle class, known as Keynesian economics.
However, even Keynes admitted his theories ultimately would not and could not permanently fix capitalism. In fact, he had hoped that humanity by 2030 could find an economic solution that would solve the dilemma of capitalism; systematic risk, the component that both Marx and Schumpeter believed drives innovation.
There still may be more time for Schumpeter’s predictions to come true. Today, there is growing animosity towards the neoliberal version of capitalism. Greece is a good example, but one cannot forget the #OccupyWallStreet movement that swept across the US and the world following the financial meltdown of 2008. Furthermore, the most advanced democracies such as Sweden, which are relying on welfare-based social democracy, are becoming models for the world.
One thing is clear, as an international community, we need to address the problems of capitalism and at the very least its neoliberal variant before it thrusts our planet into extreme social upheaval, chaos, and deterioration. This domino effect has the potential to start with Greece, a country stricken with poverty and despair. Therefore, in the spirit the Reiff Center’s mission of human rights and conflict resolution and for the sake of Greece and the rest of humanity, I hope we can find that solution that Keynes hoped for as well.
For Dr. George Zestos
DDisclaimer: The views and opinions expressed in this blog are those of the author and do not necessarily reflect those of the Reiff Center For Human Rights and Conflict Resolution or Christopher Newport University.