EMU AND UNEMPLOYMENT

Speech by Esko Seppänen, MP for the Left Alliance Party of Finland, Dublin on May 25, 1996.

Only work keeps society together and produces the social contacts and networks that all people require. Work brings with it the opportunity to learn. Work provides people with work mates and a work society. In work people feel useful and part of something bigger than themselves. Work creates a feeling of belonging and solidarity. Work helps people to see ahead and opens up distant vistas. Through work people become social and feel socially content. Only after the question of a secure income has been settled can people start thinking about the things that make life pleasant.

People have become human though work. Even though there would be a billion people in Internet, or even two billion, one cannot visualise a time when people would learn new intellectual or manual skills - or become social - without doing work. People must have the right to gain satisfaction from work without giving the best part of themselves to the actual process of work. The goal of all work is the improvement of people's abilities and increasing life management.

Before John Maynard Keynes wrote his General Theory economics consisted of monetarist theories and micro-economic theories of consumer and corporate behaviour. These were unable to explain the causes of the Great Depression of the Thirties. The absence of work was not considered a problem in economics.

Keynes, who called capitalism a casino, introduced a new way of explaining and predicting economic behaviour: macro economics. Keynesianism in its various forms was the dominant economic theory and doctrine up to the Seventies. Since then its hegemonic position has been replaced by the New Liberalism and monetarism. As a result, economic science provides no answer to the problems of our time. Economics is as useful in combatting unemployment as theology.

Unemployment did not decline in the early Thirties, even though the economy was in balance and there was a fall in both prices and wages. Keynes observed that the balance created during the Great Depression was wrong and at too low a level; despite the balance not all had work. The balance had been created at a level lower than full employment. Now in the Nineties a balance is again being struck at the wrong level. Keynes considered that economic policies should aim at both a balance and full employment. He noted that under normal conditions prices and wages do not fall in the way free market theory had assumed, but that they were associated with social friction. They did not fall freely. Consequently, this so- called internal devaluation did not work in practice. During Keynes' lifetime, the public sector share in the British economy was under 10 per cent. Thus it was quite revolutionary to suggest stimulating demand and expanding public expenditure.

Since then all industrialised states have become indebted. Governments have had free access to the same markets and the same global finance pool: the private capital market. Countries are good debtors as they do not go bankrupt. Through becoming indebted they have promoted an economic growth tied to, and dependent upon, debt. Over the past two decades, the indebtedness of states has increased in a way Keynes could never have dreamed of. In the last 20 years, the net public debt of OECD countries has risen from 15 to 40 per cent of gross domestic product (gdp).

States do not, however, repay their debts, but manage old debts by incurring new ones. Thus they have to maintain their debt management ability. The important thing here is the concept of 'credibility', which comes from games theory. The key role here is played by market expectations.

As early as the Seventies, the New Right discovered the weak spot of the Welfare State: the escalating share of the public sector. To rectify the situation old monetarism was rehabilitated. This was the ideological counter-attack of the New Right. And it is no different from the socialist monetarism  which European social democrats are promoting in the name of federalism and economic and monetary union (EMU).

The explosive growth in unemployment has been influenced by three revolutions which no country could have countered. The objective reasons for unemployment are, 1) unprecedented  scientific-technical developments, especially in the fields of information technology and communications, 2) the collapse of communism (socialism, socialist economic system, socialist command economies, socialist centrally-planned economies), and 3) the revolution in markets: the birth of a new global capitalism and the supremacy of market forces.

Global capitalism, the new economic order, is also due to the intensification of the work organisation and management methods, and the new iron work discipline resulting from mass unemployment. Consequently, all that remains of Schumpeter's gale of 'creative destruction' is the remnants of old organisational models of work and states.

In addition to the objective reasons ushered in by the three new revolutions, unemployment has also been affected by economic policies: the economies of all EU countries have been simultaneously deflated. This happened in order to fulfill the EMU convergence criteria. Through them the economies of EU countries have been standardised and uniformised with Germany. The costs of this adjustment have been a charge on other countries, not Germany. They have had to pay a very special price in the shape of unemployment for this process of 'Deutschlandisierung' and the alteration of economic structures to make them D Mark acceptable.

Inflation is like filling a balloon with air, deflation like letting it out. Deflation is like deep freezing the economy, neither is there any hope that all will have work. Inflation means reducing the internal value of money, on the other hand, deflation is the violent reinstatement of its value. Deflation leads to depression and unemployment. The fight against inflation, which is the very essence of EMU monetary policy, has led to deflation throughout Europe. Under these circumstances nothing else will help the unemployed than a redivision of work or a shortening in working hours, and this is only possible through the solidarity of those in work with those without. It this is not done, then some of our fellow creatures will be expelled from society; they will be rejected and their unemployment accepted with all its social consequences. Politically speaking, this may lead to alienation rather than resistance, or the rise of extreme nationalist or religious movements.

Both the German and Finnish organisation of work is Taylorist in the sense that work is split into small parts and the tasks standardised. Wherever possible, production is capitalised mass production in which the labour content is low. However, what is decisive from the point of view of work, is the growth in the service industries. Due to public sector indebtedness, this can only happen through the market. The average hourly wage, inclusive of indirect costs, in Taiwan, South Korea and Singapore is 6 dollars, in Malaysia 2 dollars, and in China even less. Thus it is no miracle if the growth area in global production is centred in the Far East. Even in Eastern Europe the pay differential is considerable. All in all, a massive redivision of work is going on between the West and the East.

Adopting a common currency is justified if the different countries have similar economies and structures. This is not so in the EU, neither are there balancing-out mechanisms for the difference in economic developments in the EU. If they were created then the EU would become even more of a federal state. And it would cost even more for the northern countries which nowadays have their own mass unemployment. The history of the economies of different countries is reflected in exchange rates. Countries have different natural resources, different production structures, different labour legislation, educational levels and social security, in addition to their national identities. As a result, their economies develop at different rates. Not all economies can be poured into the same mould with the aid of unchangeable exchange rates and a common currency.

The struggle against inflation and for unchangeable exchange rates is justified on the grounds that there would then be no need to alter exchanges rates. This, however, is a very narrow viewpoint. In addition to inflation, exchange rates are influenced by other factors from the real world: technology, productivity, competition, the value of other currencies, and so on.

As economies are different, EMU is like an unripe fruit with which the federalists and unionists are force-feeding Europe. It is paid for with deflation - and thus unemployment. Monetary policy has become the guillotine of employment and the welfare state, rather than the mechanism for controlling the demand for money and its supply. However, even Keynes wished in the Bretton Woods Agreement to avoid those problems which, in the shape of deflation, were associated with the gold standard.

The success of monetary policy is measured with inflation. Its failure can lead either to inflation or deflation. Inflation is frequently associated with economic activities and new income formation which are never connected to deflation. Fundamentalists associate the absence of inflation with growth and employment, which is wishful thinking, at least in the Europe of the Nineties. Inflation has never been lower than now, but it has not engendered new growth or employment, not even as much as during the period of high inflation. How long, therefore, must we wait for new jobs?

It is the political goal of the federalists to turn the EU into a federation. That is why they wish to introduce EMU, which means the supremacy of politics over economics. EMU means that national states will lose their independence in monetary and economic policy making, as well as the opportunity to devise a suitable economic policy. In a free capital market, a central bank cannot affect exchange and interest rates at the same time. It can choose one them, but market forces will take care of the rest.

Power has always been concentrated in the hands of those whose power is based on money. Monetary policy consists of the regulation of exchange rates, interest rates and the amount of money in circulation, and, naturally, the fight against inflation. If these weapons are removed from the arsenal of national economic policy, then others must be used. EMU does not remove the need for countries to protect themselves against external shocks. This need remains because countries are different and because the EU is not an optimal currency area. EMU changes the instruments of adjustment. In the monetary union, the adjustment instruments that remain if exchange and interest rates are made uniform, are unemployment, wage reductions, emigration and a reduction sale of natural resources.

The EU's answer to global problems is the organisation of states into a trading block and the surrender of national states: federalisation. This is like mercantilism or the gold standard without gold. It is the protection of self-interest through administrative and political means, and an attempt to expand market shares. It also means the strengthening the power of the state - in this case the federal state. It is also preserving the illusion that Europe is a high-wage area, although in reality it is an attack on just this Europe. It is difficult to defend as, technologically speaking, it is on the defensive.

EMU means the running down of the public sectors of all countries.

The attack on Europe will come from the new industrialised countries. The EU will be forced to face some unpleasant truths. The present structure of Europe's labour markets is the consequence of the kind of regulation that does not exist elsewhere. Under these circumstances, can the EU defend today's Europe - and does it want to? Or are the eurocrats the political police of capitalism who will prevent national states from restricting the free play of rampaging capital? Which is the worst alternative for national states, to be or not to be the object of exploiting market forces? In the USA over the last 20 years, some 30 million new jobs have been created. The price paid for these is the one the EU appears ready to pay: that people are divided, economically and socially, into different castes. Those in full-time employment belong to the upper caste. Temporary and part-time jobs performed by the working poor, are the new, efficient forms of work organisation. An ever smaller parts of the fruits of labour are paid to the workers, even though they all receive a proper hourly wage. It is just no longer paid for the whole day.

In the past there was an alternative to capitalism: socialism (whatever that was). Following the removal of the socialist countries from the map of the world, that alternative no longer exists. After the metamorphosis of these countries, more than 2 billion new people have entered the world's markets. And, as the population of the world has also grown, these changes have created for capitalists such a reserve of cheap labour that a unique redivision of production is taking place in the world between the old industrialised countries and those walking the road to capitalism via industrialisation.

In the USA the problem was solved so that the national economy was adjusted to the changes in power relations in the world economy by creating a new social class: the working poor. There the markets produced an economic system based on unrestricted labour flexibility and a vast migrant population looking for work. Flexibility projects in the EU are not yet ready, but they are on the way. EMU is the means by which European capitalists will bring about a revolutionary change in the labour market: the final crushing of the trade union movement (as already has happened in the USA). Nobody knows how global capitalism will solve its social contradictions. These will come as there are far too many losers. Free market forces are like letting a fox loose among the chickens.

The monetary economy has gradually distanced itself from the basic economy or primary production. Whereas before money was used only as a means of exchange, in modern currency trading the connection is nebulous.

The 'freeing' of the markets from administrative regulation and supervision by the authorities meant the creation of a global capital market. On every single day in 1992 some 900 billion US dollars were bought and sold on the international currency markets. Since then the figure was only increased and is now about 1 300 billion dollars. At the beginning of the Eighties when about 10 times more currency was bought and sold in the world than was required for the settlement of all world trade, the ratio between the actual use of money and mere financial dealings was 1:10. Nowadays it is now about 1:60.

The markets are both unwilling and unable to solve the problems of societies and countries. They are not concerned about employment or incomes, that is the responsibility of politicians. For politicians, however, their time is almost over. This is a time when the end of politics is in sight, if the red and green free left cannot politicise the unemployed. This could happen by opposing EMU.

An alternative to EMU is to allow exchange rates to float for a long time to come. Countries must have at their disposal the kind of economic policy instruments that will allow them to defend their interests and launch the battle against unemployment.

[ Arcticles in English | seppanen@kaapeli.fi ]