by Amartya Sen
IF proof were needed of the maxim that the road to hell is paved with
good intentions, the economic crisis in Europe provides it. The worthy
but narrow intentions of the European Union’s
policy makers have been inadequate for a sound European economy and
have produced instead a world of misery, chaos and confusion.
There are two reasons for this.
First, intentions can be respectable without being clearheaded, and the
foundations of the current austerity policy, combined with the
rigidities of Europe’s monetary union (in the absence of fiscal union),
have hardly been a model of cogency and sagacity. Second, an intention
that is fine on its own can conflict with a more urgent priority — in
this case, the preservation of a democratic Europe that is concerned
about societal well-being. These are values for which Europe has fought,
over many decades.
Certainly, some European countries have long needed better economic
accountability and more responsible economic management. However, timing
is crucial; reform on a well-thought-out timetable must be
distinguished from reform done in extreme haste. Greece, for all of its
accountability problems, was not in an economic crisis before the global
recession in 2008. (In fact, its economy grew by 4.6 percent in 2006
and 3 percent in 2007 before beginning its continuing shrinkage.)
The cause of reform, no matter how urgent, is not well served by the
unilateral imposition of sudden and savage cuts in public services. Such
indiscriminate cutting slashes demand — a counterproductive strategy,
given huge unemployment and idle productive enterprises that have been
decimated by the lack of market demand. In Greece, one of the countries
left behind by productivity increases elsewhere, economic stimulation
through monetary policy (currency devaluation) has been precluded by the
existence of the European monetary union,
while the fiscal package demanded by the Continent’s leaders is
severely anti-growth. Economic output in the euro zone continued to
decline in the fourth quarter of last year, and the outlook has been so
grim that a recent report finding zero growth in the first quarter of
this year was widely greeted as good news.
There is, in fact, plenty of historical evidence that the most effective
way to cut deficits is to combine deficit reduction with rapid economic
growth, which generates more revenue. The huge deficits after World War II
largely disappeared with fast economic growth, and something similar
happened during Bill Clinton’s presidency. The much praised reduction of
the Swedish budget deficit from 1994 to 1998 occurred alongside fairly
rapid growth. In contrast, European countries today are being asked to
cut their deficits while remaining trapped in zero or negative economic
growth.
There are surely lessons here from John Maynard Keynes,
who understood that the state and the market are interdependent. But
Keynes had little to say about social justice, including the political
commitments with which Europe emerged after World War II. These led to
the birth of the modern welfare state and national health services — not
to support a market economy but to protect human well-being.
Though these social issues did not engage Keynes deeply, there is an old
tradition in economics of combining efficient markets with the
provision of public services that the market may not be able to deliver.
As Adam Smith (often seen simplistically as the first guru of
free-market economics) wrote in “The Wealth of Nations,” there are “two
distinct objects” of an economy: “first, to provide a plentiful revenue
or subsistence for the people, or, more properly, to enable them to
provide such a revenue or subsistence for themselves; and secondly, to
supply the state or commonwealth with a revenue sufficient for the
public services.”
Perhaps the most troubling aspect of Europe’s current malaise is the
replacement of democratic commitments by financial dictates — from
leaders of the European Union and the European Central Bank, and indirectly from credit-rating agencies, whose judgments have been notoriously unsound.
Participatory public discussion — the “government by discussion”
expounded by democratic theorists like John Stuart Mill and Walter
Bagehot — could have identified appropriate reforms over a reasonable
span of time, without threatening the foundations of Europe’s system of
social justice. In contrast, drastic cuts in public services with very
little general discussion of their necessity, efficacy or balance have
been revolting to a large section of the European population and have
played into the hands of extremists on both ends of the political
spectrum.
Europe cannot revive itself without addressing two areas of political
legitimacy. First, Europe cannot hand itself over to the unilateral
views — or good intentions — of experts without public reasoning and
informed consent of its citizens. Given the transparent disdain for the
public, it is no surprise that in election after election the public has
shown its dissatisfaction by voting out incumbents.
Second, both democracy and the chance of creating good policy are
undermined when ineffective and blatantly unjust policies are dictated
by leaders. The obvious failure of the austerity mandates imposed so far
has undermined not only public participation — a value in itself — but
also the possibility of arriving at a sensible, and sensibly timed,
solution.
This is a surely a far cry from the “united democratic Europe” that the pioneers of European unity sought.
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