Merkel, Scholz, the German Social Democrats and the Meaning of the Left

Angela Merkel is stepping down, and as often happens in these circumstances (or when someone of historical importance passes; see here for my review of Thatcher and Volcker obits) there is a flood of analysis of their contributions. Merkel is no exception, and most 'serious' outlets have suggested that she was a great stateswoman, and that she managed to save the euro (an honor she often shares with Mario Draghi), the European Union and provided leadership in the midst of the vacuum caused by Donald Trump (see here, or here, for example). The newspaper of record, linked there, says that: "Chancellor Angela Merkel steered Europe through crises, and Germany has boomed during her tenure." I kid you not! Yes, boomed. The actual real GDP growth was about 1.1 percent on average during her tenure (as per graph; data from the Conference Board).

Note that there is no acceleration of growth, that has remained low since reunification with Helmut Kohl, and with the brief interregnum of Gerhard Schröder, the center-left (more on that below) leader of the social democrats in the early 2000s. The New York Times suggests, not incorrectly (at least on this) that she leaves many economic problems behind, but argue that those stem from lack of investment in education (the 'human capital' mantra) and on high-tech technologies. Note that investment often follows growth, and that has been anemic in Germany, and productivity follows growth, including in the high tech industries. It is demand driven. Merkel did not create the neoliberal model, but she certainly followed it.

Her legacy should be tied to the euro, and to Greece (I wrote quite a bit on Greece over the years; see here, and in the other blog here starting even earlier in 2010), and there her legacy of austerity, fiscal adjustment, which allowed Germany to maintain fiscal and current account surpluses (the measure of her success, I would guess), is an undeniable disaster. Greece GDP never recovered (see figure below; same source).

In other words, nobody should think that these is something to be emulated. The reason right-wing, photo fascist parties, like some of the craziest stuff that one can see in the United States are possible in Europe is because of the policies that she adopted. Of course, as I noted these policies precede her, and Kohl, the German version of Reagan and Thatcher deserves a lot of the credit, both as instrumental on the unification, which still has important implications for the levels of employment in the ex-Eastern Germany, and the policies that led to the euro. Of course, it took a social democrat, Schröder, to promote the labor market reforms (essentially, more flexible markets, making it easier to fire workers, and providing lower benefits for the unemployed) and a policy of wage compression.

And that brings us to Olaf Scholz, Merkel's finance minister, and the leader of the social democrats (which were in many ways a reference for the left globally at some point in the very distant past), which are uniformly described as center-left (NYTimes here). I will not spend too much time discussing that, but I would note that a left of center government must have policies to promote the wellbeing of the working class, including higher wages and something that resembles full employment. The German Social Democrats are not that. And if Mr. Scholz manages to form a coalition government, it will be with the Greens, which will push for degrowth (on that see this old post), and perhaps with the neoliberal Free Democratic Party, mostly people that have not seen a fiscal adjustment plan they did not like. So Merkel's legacy lives on.

How well has Brazil done during the Workers' Party administration?

First, let me be absolutely clear. I do in general favor the current administration in Brazil, as much as other left of center governments in South America. But I do understand some of the critiques from the left (not the right wing conservatives that are against social spending and more redistribution of income). A good example of the limits to the current experience in the region are provided by the Brazilian case.

Recently a post (in Portuguese; full disclosure one of the authors is a friend) went viral in Brazil. It showed how much Brazil has grown during Lula/Dilma, from the Workers' Party (PT, in Portuguese) compared to the rest of the world, and advanced economies, and the same exercise done for the Fernando Henrique Cardoso (FHC), from the Brazilian Social Democratic Party (PSDB in Portuguese) period.

Clearly, the FHC period (1995-2002) is worse than the Lula/Dilma period (2003-2014), in which the last year is an estimate (all data, as in the viral post, from the IMF's World Economic Outlook). In the Workers' Party period Brazil was growing faster and keeping pace with the rest of the world, and catching up, growing faster than advanced economies.

However, as noted in this blog several times (Dean Baker has been one of the few others that noted this in the US; part of debunking the BRICS myth) Brazil has not grown really that fast. Instead of comparing with advanced economies and the rest of the world, the picture changes a bit if one does it with developing countries, as shown below.

Note that while it is true, as it should be, that Brazil catches up with the advanced economies during the Lula/Dilma period and not so during the FHC one, it is also the case that the Brazilian performance when compared to developing countries is far from stellar. In that sense, there is a certain frustration about the lost possibilities. Mind you, conservative views that Brazil needs to return to more rigid fiscal surpluses, and tighter inflation targeting (presumably with an independent central bank, and higher rates of interest) are NOT the solution. But that is the topic of another post, I guess.

PS: I should note that there is also a frustration on part of the left in the US with Obama, and the notion that an opportunity was lost. In that respect, there is a similarity between left of center critics of the Workers' Party and the US counterparts.

Mark Weisbrot on Venezuela’s Struggle - Widely Misrepresented, Remains a Classic Conflict Between Right and Left

By Mark Weisbrot

The current protests in Venezuela are reminiscent of another historical moment when street protests were used by right-wing politicians as a tactic to overthrow the elected government. It was December of 2002, and I was struck by the images on U.S. television of what was reported as a “general strike,” with shops closed and streets empty. So I went there to see for myself, and it was one of the most Orwellian experiences of my life. Only in the richer neighborhoods, in eastern Caracas, was there evidence of a strike, by business owners (not workers). In the western and poorer parts of the city, everything was normal and people were doing their Christmas shopping – images unseen in the U.S. media. I wrote an article about it for the Washington Post, and received hundreds of emails from right-wing Venezuelans horrified that the Post had printed a factual and analytical account that breathed air outside of their bubble. They didn’t have to worry about it happening again. The spread of cell-phone videos and social media in the past decade has made it more difficult to misrepresent things that can be easily captured on camera. But Venezuela is still grossly distorted in the major media. The New York Times had to run a correction last week for an article that began with a statement about “The only television station that regularly broadcast voices critical of the government …” As it turns out, all of the private TV stations “regularly broadcast voices critical of the government.” And private media has more than 90 percent of the TV-viewing audience in Venezuela. A study by the Carter Center of the presidential election campaign period last April showed a 57 to 34 percent advantage in TV coverage for President Maduro over challenger Henrique Capriles in the April election, but that advantage is greatly reduced or eliminated when audience shares are taken into account. Although there are abuses of power and problems with the rule of law in Venezuela – as there are throughout the hemisphere– it is far from the authoritarian state that most consumers of western media are led to believe. Opposition leaders currently aim to topple the democratically elected government – their stated goal – by portraying it as a repressive dictatorship that is cracking down on peaceful protest. This is a standard "regime change" strategy, which often includes violent demonstrations in order to provoke state violence.

Read rest here.

The Latin American left and its discontents

Since the election of Chávez, fifteen years ago, to the more recent re-election of Correa and the election of Maduro earlier this year, the left of center parties have been on the rise in Latin America. The list is long and includes the Kirchners in Argentina, Lula and Dilma in Brazil, Evo in Bolivia, Correa in Ecuador, Funes in El Salvador, the return of Ortega in Nicaragua, Tabaré and Mujica in Uruguay, and Chávez and Maduro in Venezuela. The Concertación (particularly the Socialists, Lagos and Bachelet), and Ollanta in Peru seem to be in a different category altogether. Lugo in Paraguay and Zelaya in Honduras were brought down by coups (yes they are still around), and López Obrador in Mexico was prevented from getting the job by fraud (these never vanish completely).

Overall the period was one of relatively fast growth for the region as a whole, particularly since 2003. And the recovery from the 2008-9 global crisis was relatively fast in most countries. Further, income inequality and poverty tended to decrease, with the expansion of social spending. Yet, even though growth was more or less general, some countries did better than others, and not all can be simply attributed to the external conditions.

As noted by UNCTAD (2012, p. 58): "the income gap has narrowed in Latin America since the early 2000s, in parallel with a significant economic recovery. Between 2002 and 2010, the average regional Gini coefficient declined by 4 percentage points, and by even more in several countries in South America (Argentina, the Bolivarian Republic of Venezuela, Bolivia, Brazil, Paraguay and Peru). Together with significant improvements in external conditions, the general policy reorientation played a central role in achieving growth with better income distribution. On the macroeconomic side, many of the successful countries followed countercyclical fiscal policies, achieving fiscal balances through an increase in public revenues (including commodity rents) rather than by expenditure cuts." Note that the improvement in income inequality in the 2000s is not a global phenomenon (see figure below from UNCTAD, 2012, p. 56).

There are, obviously, problems, and not everything is perfect. The strategy of development is over-dependent on commodity exports in South America, and the export of people (directly through migration, and indirectly through maquilas; both cases of cheap labor) in Central America and Mexico (see more here or here for the full paper). And that implies that Import Substitution has not gone too far in this last decade. A risk of integrating once again as an exporter of commodities and cheap labor into world markets, this time around with the Asian periphery (i.e. China) rather than Europe and the US, is dangerous. Risks are associated to the instability of terms of trade, remittances and demand for consumption goods in developed countries.

But note that the opposition to the left of center governments has not changed its discourse from the Washington Consensus period. The alternative offered is basically the extension of bilateral Free Trade Agreements (FTAs) and Bilateral Investment Agreements (BITs), like the one recently signed by Colombia, that ossify a peripheral integration into world markets, in the case of Colombia as an exporter of commodities, increasingly oil to the US (see here), which favors mostly transnational corporations and the powerful few in the region (for the Colombian FTA go here).  And ultimately, it is important not to forget that the US geopolitical project for the region is fundamentally one that expands 'free trade' in region (see here). Note that on the Pacific coast, with the exception of Ecuador, the US does indeed already have a FTA.*

MERCOSUR (or MERCOSUL in Portuguese) is the only alternative in town. And yes, it was originally thought as a regular FTA in the 1990s, but the current problems between Argentina and Brazil are a good starting point for a return to the old ECLAC idea that integration was necessary for productive reasons. That is, to increase the size of markets and the returns to scale associated to larger production levels. Development banks like the Bank of the South and the Brazilian BNDES could play a role in that, including pushing infrastructure integration, which is desperately needed. And for now MERCOSUR is there to preclude the expansion of more FTAs, which is in of itself a good thing.

Protesters in the region, the Brazilian ones being the more recent, are welcome and show a thriving civil society willing to demand more and better public spending on services (from transportation to education), less environmental degradation, and accountability from their representatives, and more. But note that while most protests are punctual and associated to specific problems within their respective communities, there are also in Latin America several groups that resemble the Tea Party in the US, in Latin America associated to middle class groups for the most part. They want the reversal of the policies of the last decade that have been good for the majority (including for them too). And like the Tea Party in the case of the US, if governments actually followed their demands they would actually hurt the poor. The cries against the 'populism' of the left of center governments is a thinly disguised demand for the return of the failed neoliberal policies of the 1990s.

* Ecuador, the exception, is interestingly enough dollarized, as are El Salvador and Panama, the only cases of dollarization with FTA. Mind you, while the US does not officially push for dollarization, informally the use of the dollar is always encouraged, and loans from multilaterals guarantee that a sizable amount of debt is in dollars. In a sense, dollarization cum FTA is the US project for integration with Latin America, which makes the European project, hijacked by neoliberals with the euro and Free Trade look good in comparison. Of course, go ask the Greeks, Irish, Italians, Spaniards, and Portuguese what are their views on the euro and the European neoliberal project of integration these days.

Chávez and the left in Latin America

Chávez has passed away, and there will be a lot of reviews on his tenure, much of it biased and incorrect I'm afraid. As noted by Mark Weisbrot not long ago: "such is the state of misrepresentation of Venezuela – it is probably the most lied-about country in the world – that a journalist can say almost anything about Chávez or his government and it is unlikely to be challenged, so long as it is negative."

Growth performance, after the failed coup in 2002 and the oil strike, was reasonably good, and the recovery from the 2009, was not the best in the region, but has been steady. The average growth rate between the debt crisis in the early 1980s and the election of Chávez was around 2%, while in the post-Chavéz era it was around 2.3%. If one takes the post-crisis period, starting in 2004, with the commodity boom, growth was around 5.5% or so (see graph below). Mark provides a good analysis of the Venezuelan economy here.

More importantly, the oil boom allowed space for redistribution policies. Chávez was the central figure in what has been termed natural resource nationalism, which has been central in the rise of left of center governments in South America. One characteristic of these governments is that functional income distribution improved as a result of increasing social transfers. As noted in UNCTAD's last Trade and Development Report: "the share of wages increased significantly in Chile (during the 1990s), the Bolivarian Republic of Venezuela (since 1997) and Argentina (since 2003), although it did not return to its previous peaks" (see graph below).

That does not mean that everything is fine with the Venezuelan economy. The limits of a model based on the exploitation of natural resources are difficult to overcome, and some authors like Leonardo Vera, had noted the problems of low labor productivity growth, particularly in the industrial sector.

A balanced view of Chávez would probably have to admit that he did reasonably well. But you might read a lot about the end of the dictatorship, and the return of democracy. For that it's worth remembering what Mark noted (in the same piece quoted above): "here is what Jimmy Carter said about Venezuela's 'dictatorship' ...: 'As a matter of fact, of the 92 elections that we've monitored, I would say that the election process in Venezuela is the best in the world'."

Three part interview with Jamie Galbraith

At the German website NachDenkSeiten (here, here and here for the English transcripts). In the last one, important to note his views on why the Obama fiscal package and the momentary Keynesian period was insufficient for recovery. He says:

"The crisis imposed a momentary intellectual discipline and a resurgence, a reassertion of Keynesian principles. But that discipline did not extend into decision-making circles, at least not deeply enough, and it was overridden by, let's say, existing protocols, existing habits of thought and action that had developed in policymaking circles. And those protocols and habits precluded taking adequate action. What I mean by that specifically is that you had ways of making forecasts which were intrinsically too optimistic, intrinsically assumed that you were going to return to a baseline over a five-year time frame. And that meant that you were not going to get even presented to the president the possibility that the crisis was on the scale of the 1930's."

This has important implications for Europe, which since yesterday, will have a Socialist in charge in France. Also, on what has happened with left of center parties around the globe.

"What were historically left parties both in the United States and Europe, equally true of the Democrats and the SPD and the PS in France have adopted what would have been in earlier times considered to be right-wing orthodoxies, particularly with respect to budget deficits, public debt. So they can pretend to be in favor of solidaristic social policies, but unfortunately unable to do anything in the face of the realities they allegedly face" [italics added].

As far as I can tell only in Latin America, some left of center parties, that had moved to the right in the 1990s, returned to the fold in this century. As he notes, in the case of the US and Europe the collapse of the Soviet Union played an important role in the political changes of the 1980s and 1990s. In Latin America the return of left was associated to a more significant collapse of the neoliberal model. One can hope that the obvious collapse of the austerity programs in the developed world would lead to a revival of the left. Hope springs eternal.