Tim Harford in The Financial Times
We all seem to be worried about the robots taking over these days — and they don’t need to take all the jobs to be horrendously disruptive. A situation where 30 to 40 per cent of the working age population was economically useless would be tough enough. They might be taxi drivers replaced by a self-driving car, hedge fund managers replaced by an algorithm, or financial journalists replaced by a chatbot on Instagram.
By “economically useless” I mean people unable to secure work at anything approaching a living wage. For all their value as citizens, friends, parents, and their intrinsic worth as human beings, they would simply have no role in the economic system.
I’m not sure how likely this is — I would bet against it happening soon — but it is never too early to prepare for what might be a utopia, or a catastrophe. And an intriguing debate has broken out over how to look after disadvantaged workers both now and in this robot future.
Should everyone be given free money? Or should everyone receive the guarantee of a decently-paid job? Various non-profits, polemicists and even Silicon Valley types have thrown their weight behind the “free money” idea in the form of a universal basic income, while US senators including Bernie Sanders, Elizabeth Warren, Cory Booker and Kirsten Gillibrand have been pushing for trials of a jobs guarantee.
Basic income or basic jobs? There are countless details for the policy wonks to argue over, but what interests me at the moment is the psychology. In a world of mass technological unemployment, would either of these two remedies make us happy?
Author Rutger Bregman describes a basic income in glowing terms, as “venture capital for everyone”. He sees the cash as liberation from abusive working conditions, and a potential launch pad to creative and fulfilling projects.
Yet the economist Edward Glaeser views a basic income as a “horror” for the recipients. “You’re telling them their lives are not going to be ones of contribution,” he remarked in a recent interview with the EconTalk podcast. “Their lives aren’t going to be producing a product that anyone values.”
Surely both of them have a point. A similar disagreement exists regarding the psychological effect of a basic jobs guarantee, with advocates emphasising the dignity of work, while sceptics fear a Sisyphean exercise in punching the clock to do a fake job.
So what does the evidence suggest? Neither a jobs guarantee nor a basic income has been tried at scale in a modern economy, so we are forced to make educated guesses.
We know that joblessness makes us miserable. In the words of Warwick university economist Andrew Oswald: “There is overwhelming statistical evidence that involuntary unemployment produces extreme unhappiness.”
What’s more, adds Prof Oswald, most of this unhappiness seems to be because of a loss of prestige, identity or self-worth. Money is only a small part of it. This suggests that the advocates of a jobs guarantee may be on to something.
In this context, it’s worth noting two recent studies of lottery winners in the Netherlands and Sweden, both of which find that big winners tend to scale back their hours rather than quitting their jobs. We seem to find something in our jobs worth holding on to.
Yet many of the trappings of work frustrate us. Researchers led by Daniel Kahneman and Alan Krueger asked people to reflect on the emotions they felt as they recalled episodes in the previous day. The most negative episodes were the evening commute, the morning commute, and work itself. Things were better if people got to chat to colleagues while working, but (unsurprisingly) they were worse for low status jobs, or jobs for which people felt overqualified. None of which suggests that people will enjoy working on a guaranteed-job scheme.
Psychologists have found that we like and benefit from feeling in control. That is a mark in favour of a universal basic income: being unconditional, it is likely to enhance our feelings of control. The money would be ours, by right, to do with as we wish. A job guarantee might work the other way: it makes money conditional on punching the clock.
On the other hand (again!), we like to keep busy. Harvard researchers Matthew Killingsworth and Daniel Gilbert have found that “a wandering mind is an unhappy mind”. And social contact is generally good for our wellbeing. Maybe guaranteed jobs would help keep us active and socially connected.
The truth is, we don’t really know. I would hesitate to pronounce with confidence about which policy might ultimately be better for our wellbeing. It is good to see that the more thoughtful advocates of either policy — or both policies simultaneously — are asking for large-scale trials to learn more.
Meanwhile, I am confident that we would all benefit from an economy that creates real jobs which are sociable, engaging, and decently paid. Grand reforms of the welfare system notwithstanding, none of us should be giving up on making work work better.
Showing posts with label basic income. Show all posts
Showing posts with label basic income. Show all posts
Friday 29 June 2018
Monday 18 December 2017
Universal basic income is no panacea for us
Sonia Sodha in The Guardian
There aren’t many ideas that unite trade unionists, the libertarian right, the green movement, and the Silicon Valley tech scene . But that’s the rainbow alliance backing a universal basic income, a centuries-old idea posited as the solution to a range of 21st-century problems. Is its surprising coalition of bedfellows a sign of an idea whose time has at last resoundingly come – or a symptom of a catch-all, superficial fix in search of a problem?
Universal basic income, sometimes called a citizens’ income, is the idea that the state should pay every adult citizen a regular, modest income. It is a no-strings payment, so unlike benefits currently available to people of working age, it is not means tested. You get it regardless of whether you have a job, are looking for work, or whether you are even willing to work.
A basic income has long counted on support from the political fringes. It has appealed to radical feminists and greens frustrated by capitalist failure to properly value non-monetary work, such as care. The libertarian right embraces it as an opportunity to roll back the bureaucracy of the state, replacing public services with a simple, regular cash payment, to be spent as people wish.
But the real reason for basic income’s unlikely elevation to idea of the moment is the growing chorus of thinkers who seem to believe the modern economy can’t function without it. Tech utopians talk up the rise of robots and the development of artificial intelligence, which they say will leave less work to go round. They argue that this is the perfect opportunity to embrace a four-day working week and top everyone up with a basic income payment.
Labour market dystopians, on the other hand, rightly point to growing insecurity in the low-paid labour market and the millennials bouncing from gig to gig, never quite pinning down the security of a permanent contract. For them, a basic income is the poverty backstop that could help people cope with this brave new world.
Ken Loachian welfare critics, meanwhile, denounce today’s convoluted benefits system, worlds away from the contributory, insurance-based system of the past. It has become overloaded with sanctions as politicians compete to become ever more punitive to demonstrate there’s no such thing as something for nothing. So people who have been laid off find themselves pushed further into hardship after having their benefits docked for reasons outside their control. Wouldn’t it be easier to eradicate that inhumane, overbearing complexity, and replace it with something that gives people more breathing room to find the right job?
But, like so many ideas overstretched to become the answer to all problems, a basic income falls short on all of the above. If we could be bothered, we could fix the caring issue simply by increasing the generosity of the stingy state benefits paid to those who care full-time for older people or adults with disabilities. If we were so inclined, we could get rid of punitive benefit sanctions and replace them with a welfare-to-work system that puts much more emphasis on training and support for people to find the job that is right for them, not the first that comes along.
But it is in its most ambitious and radical incarnations that basic income runs aground. People have been predicting the end of work for a long time. Guess what: whether they count themselves utopian or dystopian, they have always been proved wrong. The wheel, the loom, the washing machine, the PC: as innovation after innovation has replaced some forms of human labour, the steady march of progress has replaced that labour with something else.
It’s tempting to think our inventions are more transformative than those of our ancestors. But it’s much more likely that, as in the past, technology will radically reshape the world of work without reducing its sum total. That’s partly because the idea that there is a set amount of paid work to be done is an error, which economists call the “lump of labour fallacy”. In fact, the richer we get, the more cash we have to spend – creating more demand and more jobs.
None of this should take away from the fact that we have some serious challenges ahead. The idea that the labour market is being reshaped rather than shrunk won’t be very comforting to taxi drivers losing their jobs to self-driving cars and finding they lack the skills for the new ones being created. But paying people a meagre basic income won’t help: we know from deindustrialisation in the past that leaving people who get laid off languishing on long-term benefits wreaks untold damage on working lives curtailed decades too early.
Britain has also always had too many low-skill, low-paid jobs offering poor prospects of progression. That should seriously worry us, particularly in the light of new research that suggests having a low-paid, stressful job is even worse for your mental health than unemployment.
Far from robots stealing jobs, the reality of today’s economy is that many companies are underinvesting in technology, suppressing productivity growth. In some sectors, labour is so cheap and easily exploitable it doesn’t make sense to modernise – for instance, Leicester’s garment industry is still heavily reliant on old-fashioned sweatshop models. In sectors such as parcel delivery and logistics, technology itself is being used to turn workers into quasi-robots. Wrist-based devices measure routes workers take round the warehouse or delivery rounds to check them for speed and efficiency, and track them right down to how long they take for toilet breaks.
The answer cannot be to accept this sorry state of affairs and try to patch things up with a basic income. It must be to address the fundamental power imbalances that allow employers to shift risk on to their employees by forcing them to become self-employed contractors, or refusing to pay them for breaks. And to develop long-term solutions for improving the quality of work.
You can see the attractions of a basic income for Silicon Valley. Firms such as Uber, whose drivers are classified as self-employed “partners” rely on this risk-shift model. Even as Facebook’s founder, Mark Zuckerberg, heaps praise on a basic income, the tech giant does all in its legal power to avoid tax and dodge paying its fair share towards the social infrastructure it relies on. The left must not allow itself to be seduced. A basic income is a distraction from these core issues of economic power; a radical-sounding excuse to look the other way from the less glamorous, more complex question of how to ensure labour market rights are properly enforced. Accepting a deterioration in employment rights and working conditions in exchange for a basic income could be dangerously counterproductive.
The tax credits that function as income top-ups for people in low-paid work have steadily been eroded by Conservative chancellors over eight years. Labour rights are more future proof: it’s impossible to imagine the government being able to cut statutory maternity leave, the minimum wage or limits on the working week without a much tougher fight – although if they are not properly enforced these rights can end up meaning little in practice for workers with unscrupulous employers.
The left will have to pick its battles. It must focus on winning the right to a decently paid job for all, not sell out by extolling a basic income as a panacea for the ills of the modern labour market. It must choose the fight for power, not the fight for a dribble of cash.
There aren’t many ideas that unite trade unionists, the libertarian right, the green movement, and the Silicon Valley tech scene . But that’s the rainbow alliance backing a universal basic income, a centuries-old idea posited as the solution to a range of 21st-century problems. Is its surprising coalition of bedfellows a sign of an idea whose time has at last resoundingly come – or a symptom of a catch-all, superficial fix in search of a problem?
Universal basic income, sometimes called a citizens’ income, is the idea that the state should pay every adult citizen a regular, modest income. It is a no-strings payment, so unlike benefits currently available to people of working age, it is not means tested. You get it regardless of whether you have a job, are looking for work, or whether you are even willing to work.
A basic income has long counted on support from the political fringes. It has appealed to radical feminists and greens frustrated by capitalist failure to properly value non-monetary work, such as care. The libertarian right embraces it as an opportunity to roll back the bureaucracy of the state, replacing public services with a simple, regular cash payment, to be spent as people wish.
But the real reason for basic income’s unlikely elevation to idea of the moment is the growing chorus of thinkers who seem to believe the modern economy can’t function without it. Tech utopians talk up the rise of robots and the development of artificial intelligence, which they say will leave less work to go round. They argue that this is the perfect opportunity to embrace a four-day working week and top everyone up with a basic income payment.
Labour market dystopians, on the other hand, rightly point to growing insecurity in the low-paid labour market and the millennials bouncing from gig to gig, never quite pinning down the security of a permanent contract. For them, a basic income is the poverty backstop that could help people cope with this brave new world.
Ken Loachian welfare critics, meanwhile, denounce today’s convoluted benefits system, worlds away from the contributory, insurance-based system of the past. It has become overloaded with sanctions as politicians compete to become ever more punitive to demonstrate there’s no such thing as something for nothing. So people who have been laid off find themselves pushed further into hardship after having their benefits docked for reasons outside their control. Wouldn’t it be easier to eradicate that inhumane, overbearing complexity, and replace it with something that gives people more breathing room to find the right job?
But, like so many ideas overstretched to become the answer to all problems, a basic income falls short on all of the above. If we could be bothered, we could fix the caring issue simply by increasing the generosity of the stingy state benefits paid to those who care full-time for older people or adults with disabilities. If we were so inclined, we could get rid of punitive benefit sanctions and replace them with a welfare-to-work system that puts much more emphasis on training and support for people to find the job that is right for them, not the first that comes along.
But it is in its most ambitious and radical incarnations that basic income runs aground. People have been predicting the end of work for a long time. Guess what: whether they count themselves utopian or dystopian, they have always been proved wrong. The wheel, the loom, the washing machine, the PC: as innovation after innovation has replaced some forms of human labour, the steady march of progress has replaced that labour with something else.
It’s tempting to think our inventions are more transformative than those of our ancestors. But it’s much more likely that, as in the past, technology will radically reshape the world of work without reducing its sum total. That’s partly because the idea that there is a set amount of paid work to be done is an error, which economists call the “lump of labour fallacy”. In fact, the richer we get, the more cash we have to spend – creating more demand and more jobs.
None of this should take away from the fact that we have some serious challenges ahead. The idea that the labour market is being reshaped rather than shrunk won’t be very comforting to taxi drivers losing their jobs to self-driving cars and finding they lack the skills for the new ones being created. But paying people a meagre basic income won’t help: we know from deindustrialisation in the past that leaving people who get laid off languishing on long-term benefits wreaks untold damage on working lives curtailed decades too early.
Britain has also always had too many low-skill, low-paid jobs offering poor prospects of progression. That should seriously worry us, particularly in the light of new research that suggests having a low-paid, stressful job is even worse for your mental health than unemployment.
Far from robots stealing jobs, the reality of today’s economy is that many companies are underinvesting in technology, suppressing productivity growth. In some sectors, labour is so cheap and easily exploitable it doesn’t make sense to modernise – for instance, Leicester’s garment industry is still heavily reliant on old-fashioned sweatshop models. In sectors such as parcel delivery and logistics, technology itself is being used to turn workers into quasi-robots. Wrist-based devices measure routes workers take round the warehouse or delivery rounds to check them for speed and efficiency, and track them right down to how long they take for toilet breaks.
The answer cannot be to accept this sorry state of affairs and try to patch things up with a basic income. It must be to address the fundamental power imbalances that allow employers to shift risk on to their employees by forcing them to become self-employed contractors, or refusing to pay them for breaks. And to develop long-term solutions for improving the quality of work.
You can see the attractions of a basic income for Silicon Valley. Firms such as Uber, whose drivers are classified as self-employed “partners” rely on this risk-shift model. Even as Facebook’s founder, Mark Zuckerberg, heaps praise on a basic income, the tech giant does all in its legal power to avoid tax and dodge paying its fair share towards the social infrastructure it relies on. The left must not allow itself to be seduced. A basic income is a distraction from these core issues of economic power; a radical-sounding excuse to look the other way from the less glamorous, more complex question of how to ensure labour market rights are properly enforced. Accepting a deterioration in employment rights and working conditions in exchange for a basic income could be dangerously counterproductive.
The tax credits that function as income top-ups for people in low-paid work have steadily been eroded by Conservative chancellors over eight years. Labour rights are more future proof: it’s impossible to imagine the government being able to cut statutory maternity leave, the minimum wage or limits on the working week without a much tougher fight – although if they are not properly enforced these rights can end up meaning little in practice for workers with unscrupulous employers.
The left will have to pick its battles. It must focus on winning the right to a decently paid job for all, not sell out by extolling a basic income as a panacea for the ills of the modern labour market. It must choose the fight for power, not the fight for a dribble of cash.
Wednesday 1 February 2017
The hidden agenda behind Benevolence - An Indian critique of Universal Basic Income
G Sampath in The Hindu
The idea of a universal basic income (UBI) has been gaining ground globally. While Switzerland held a referendum on it last year (it was voted down), Finland introduced it earlier this month. Media reports suggest that the government of India’s flagship Economic Survey this year is likely to endorse the UBI, setting the stage for its introduction.
On the face of it, an unconditional basic income for everyone seems a great idea. In the West, the UBI is being discussed as a solution to two problems: unemployment due to automation; and growing social unrest caused by extreme inequality and precarity. It is expected to solve the unemployment problem by decoupling subsistence from jobs, freeing human beings to realise their true potential, preferably through entrepreneurship. It would address the second by supplying monetary resources to access the necessities of life. This, in a nutshell, is the popular understanding of the UBI. The reality, however, is not so rosy.
The UBI debate in India has been a narrow one — restricted, for the most part, to financial viability. Its advocates argue that it is a more efficient way of delivering welfare, while its opponents hold that the fiscal burden would be too much. What hasn’t received adequate attention is the politics behind the UBI: who is pushing the idea? To what end? And why?
The UBI evangelists
The most eloquent advocates of UBI today are free-market enthusiasts — the same lot branded as neo-liberals for their advocacy of deregulation, privatisation, and cuts in welfare spending. Their guru, Milton Friedman, was an early advocate of basic income. Outside the academic realm, the biggest champion of UBI is the global tech sector. Silicon Valley billionaires such as Elon Musk, the founder of Tesla Motors, and Facebook co-founder Chris Hughes have publicly backed the idea.
Could it be possible that the global financial elite have finally sprouted a conscience? The reports of the UBI pilot projects conducted so far offer a clue. Invariably, they all present the same conclusion: giving cash to the poor is better than traditional welfare.
Of course, it would be wonderful if the problem of inequality and poverty were solved for us by a sudden moral awakening of the rich. Unfortunately, the current enthusiasm for the UBI is not the product of such a momentous development.
Not an add-on benefit
The biggest myth about the UBI, partly responsible for sections of the Left endorsing it, is that it is a redistributive policy that would reduce inequality. It is indeed possible to have a redistributive UBI. But it would need to fulfil two conditions: it must be funded by taxing the wealthy; and the existing entitlements to the poor must not be taken away. Such a UBI would actually be a socialist measure that would increase the bargaining power of the working classes by giving them an income cushion.
But neither of these conditions is met by any of the UBI designs being promoted today, either globally or in India. The much-touted Finnish experiment is restricted to the unemployed. It does not cover all working individuals. And it only replaces the already existing basic unemployment allowance and labour market subsidy — it is not an add-on benefit.
In India, too, the UBI is not an add-on. On the contrary, it is about giving in a different form (cash), and under one umbrella, what is already being given (in-kind and cash benefits) via different channels.
Back in 2008, in an influential paper in the Economic and Political Weekly titled ‘The case for direct cash transfers to the poor’, Arvind Subramanian, the present Chief Economic Adviser of the government, along with economists Devesh Kapur and Partha Mukhopadhyay, argued that the ₹1,80,000 crore spent annually on centrally sponsored schemes and assorted subsidies should instead be distributed as cash directly to 70 million households below the poverty line. Put simply, the UBI in India is nothing but the old wine of direct cash transfer in a fancy new bottle.
Its objective remains the same: to eliminate the public distribution system (PDS) and with it, the food, fuel, and fertiliser subsidies. The same old arguments for replacing the PDS with cash transfers are now being trotted out in favour of the UBI. The addition of the word ‘universal’ signals greater ambition but alters neither the substance nor the motive.
But let us take the arguments in favour at face value. What constitutes a basic income? Common sense dictates that it should be whatever is required to take care of basic life needs. A logical equivalent for this figure would be the minimum wage. The central government’s move last year to raise the minimum wage for non-skilled, non-agricultural workers to ₹9,100 per month was set aside following opposition from industry. Perhaps ₹9,100 per month is too luxurious an income to qualify as ‘basic’. The actual minimum wage in India is around ₹4,800 per month. Could we then expect at least this amount from our UBI?
While different numbers have been bandied about, there seems to be a broad consensus around the Tendulkar committee poverty line of ₹33 a day. This works out to a basic income of ₹1,000-₹1,250 a month or ₹12,000-₹15,000 a year. But even this modest figure is estimated to cost 11-12% of the GDP. In contrast, all the government’s subsidies put together account for only 4-4.5% of the GDP. This presents three options: one, the government makes up the deficit through additional tax revenue; two, it limits the fiscal burden by shrinking the UBI coverage from ‘universal’ to those below the poverty line; and three, it further shrinks the amount being doled out.
Given India’s narrow tax base, and a policy mindset hostile to the idea of extracting more tax revenue from the wealthy, we can rule out option one. So the UBI we get, if we get one, would be derived from a combination of the second and third options, which means both ‘U’ and ‘B’ are out of UBI, leaving us effectively with what we already have: cash transfers.
Most critically, one aspect is taken for granted by all the three options: the UBI will be funded primarily by the money allocated for CSS and subsidies. In other words, a basic income, however paltry, would help strengthen the case for the elimination or a significant roll-back of programmes such as the PDS, midday meal schemes, and the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS).
Why a UBI now?
There is no point reprising here the case against direct cash transfers, which economists such as Jean Dreze have made convincingly. It is nonetheless fascinating to see the emerging contours of a distinctive political project.
The Jan-Dhan Yojana set out to make every Indian accessible to global finance. The Aadhaar card set out to make every Indian identifiable and enumerable as data — the currency of global tech. The high mobile penetration has connected every Indian to the global digital network. An element that was missing was consumer behaviour, which the recent demonetisation sought to address, by force-feeding ‘cashless’ to a cash-dependent population. The UBI fits perfectly in this scheme of things, as it seeks to compress the whole gamut of welfare benefits into one, and mount it on a singular JAM (Jan-Dhan, Aadhaar, Mobile) platform.
But why a UBI now? One explanation could be the immense pressure on India in secretive free trade negotiations. The developed nations have for long wanted India to wind up its food security-related provisions — both state procurement of foodgrains, and their subsidised distribution via PDS. A UBI would pave the way for the elimination of these measures, dealing a death blow to food security and deepening farm distress.
Another is that the Indian state is stuck with welfare commitments it cannot renege on without political and legal consequences. The efficiency/inefficiency argument for scraping PDS and MGNREGS never acknowledges that these are rights-based social entitlements with specified outcomes — and that is not accidental. Shifting the welfare paradigm to UBI would loosen the bonds of legal and social accountability. Under the PDS, for instance, the state must provide a specified quantity of foodgrains to the poor no matter what. With UBI, it has the option letting the payout slide behind inflation, as has already happened with the old age and widow pensions.
In the final analysis, we need to answer a simple question: is the UBI about reducing inequality and poverty? If the answer is yes, then there are many things the state could do at a fraction of what the UBI would cost — from enforcing the minimum wage law, to releasing funds on time for MGNREGS. But if a dispensation hostile to these tried and tested anti-poverty measures develops a sudden zeal to eliminate poverty through UBI, a measure of scepticism is in order.
The idea of a universal basic income (UBI) has been gaining ground globally. While Switzerland held a referendum on it last year (it was voted down), Finland introduced it earlier this month. Media reports suggest that the government of India’s flagship Economic Survey this year is likely to endorse the UBI, setting the stage for its introduction.
On the face of it, an unconditional basic income for everyone seems a great idea. In the West, the UBI is being discussed as a solution to two problems: unemployment due to automation; and growing social unrest caused by extreme inequality and precarity. It is expected to solve the unemployment problem by decoupling subsistence from jobs, freeing human beings to realise their true potential, preferably through entrepreneurship. It would address the second by supplying monetary resources to access the necessities of life. This, in a nutshell, is the popular understanding of the UBI. The reality, however, is not so rosy.
The UBI debate in India has been a narrow one — restricted, for the most part, to financial viability. Its advocates argue that it is a more efficient way of delivering welfare, while its opponents hold that the fiscal burden would be too much. What hasn’t received adequate attention is the politics behind the UBI: who is pushing the idea? To what end? And why?
The UBI evangelists
The most eloquent advocates of UBI today are free-market enthusiasts — the same lot branded as neo-liberals for their advocacy of deregulation, privatisation, and cuts in welfare spending. Their guru, Milton Friedman, was an early advocate of basic income. Outside the academic realm, the biggest champion of UBI is the global tech sector. Silicon Valley billionaires such as Elon Musk, the founder of Tesla Motors, and Facebook co-founder Chris Hughes have publicly backed the idea.
Could it be possible that the global financial elite have finally sprouted a conscience? The reports of the UBI pilot projects conducted so far offer a clue. Invariably, they all present the same conclusion: giving cash to the poor is better than traditional welfare.
Of course, it would be wonderful if the problem of inequality and poverty were solved for us by a sudden moral awakening of the rich. Unfortunately, the current enthusiasm for the UBI is not the product of such a momentous development.
Not an add-on benefit
The biggest myth about the UBI, partly responsible for sections of the Left endorsing it, is that it is a redistributive policy that would reduce inequality. It is indeed possible to have a redistributive UBI. But it would need to fulfil two conditions: it must be funded by taxing the wealthy; and the existing entitlements to the poor must not be taken away. Such a UBI would actually be a socialist measure that would increase the bargaining power of the working classes by giving them an income cushion.
But neither of these conditions is met by any of the UBI designs being promoted today, either globally or in India. The much-touted Finnish experiment is restricted to the unemployed. It does not cover all working individuals. And it only replaces the already existing basic unemployment allowance and labour market subsidy — it is not an add-on benefit.
In India, too, the UBI is not an add-on. On the contrary, it is about giving in a different form (cash), and under one umbrella, what is already being given (in-kind and cash benefits) via different channels.
Back in 2008, in an influential paper in the Economic and Political Weekly titled ‘The case for direct cash transfers to the poor’, Arvind Subramanian, the present Chief Economic Adviser of the government, along with economists Devesh Kapur and Partha Mukhopadhyay, argued that the ₹1,80,000 crore spent annually on centrally sponsored schemes and assorted subsidies should instead be distributed as cash directly to 70 million households below the poverty line. Put simply, the UBI in India is nothing but the old wine of direct cash transfer in a fancy new bottle.
Its objective remains the same: to eliminate the public distribution system (PDS) and with it, the food, fuel, and fertiliser subsidies. The same old arguments for replacing the PDS with cash transfers are now being trotted out in favour of the UBI. The addition of the word ‘universal’ signals greater ambition but alters neither the substance nor the motive.
But let us take the arguments in favour at face value. What constitutes a basic income? Common sense dictates that it should be whatever is required to take care of basic life needs. A logical equivalent for this figure would be the minimum wage. The central government’s move last year to raise the minimum wage for non-skilled, non-agricultural workers to ₹9,100 per month was set aside following opposition from industry. Perhaps ₹9,100 per month is too luxurious an income to qualify as ‘basic’. The actual minimum wage in India is around ₹4,800 per month. Could we then expect at least this amount from our UBI?
While different numbers have been bandied about, there seems to be a broad consensus around the Tendulkar committee poverty line of ₹33 a day. This works out to a basic income of ₹1,000-₹1,250 a month or ₹12,000-₹15,000 a year. But even this modest figure is estimated to cost 11-12% of the GDP. In contrast, all the government’s subsidies put together account for only 4-4.5% of the GDP. This presents three options: one, the government makes up the deficit through additional tax revenue; two, it limits the fiscal burden by shrinking the UBI coverage from ‘universal’ to those below the poverty line; and three, it further shrinks the amount being doled out.
Given India’s narrow tax base, and a policy mindset hostile to the idea of extracting more tax revenue from the wealthy, we can rule out option one. So the UBI we get, if we get one, would be derived from a combination of the second and third options, which means both ‘U’ and ‘B’ are out of UBI, leaving us effectively with what we already have: cash transfers.
Most critically, one aspect is taken for granted by all the three options: the UBI will be funded primarily by the money allocated for CSS and subsidies. In other words, a basic income, however paltry, would help strengthen the case for the elimination or a significant roll-back of programmes such as the PDS, midday meal schemes, and the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS).
Why a UBI now?
There is no point reprising here the case against direct cash transfers, which economists such as Jean Dreze have made convincingly. It is nonetheless fascinating to see the emerging contours of a distinctive political project.
The Jan-Dhan Yojana set out to make every Indian accessible to global finance. The Aadhaar card set out to make every Indian identifiable and enumerable as data — the currency of global tech. The high mobile penetration has connected every Indian to the global digital network. An element that was missing was consumer behaviour, which the recent demonetisation sought to address, by force-feeding ‘cashless’ to a cash-dependent population. The UBI fits perfectly in this scheme of things, as it seeks to compress the whole gamut of welfare benefits into one, and mount it on a singular JAM (Jan-Dhan, Aadhaar, Mobile) platform.
But why a UBI now? One explanation could be the immense pressure on India in secretive free trade negotiations. The developed nations have for long wanted India to wind up its food security-related provisions — both state procurement of foodgrains, and their subsidised distribution via PDS. A UBI would pave the way for the elimination of these measures, dealing a death blow to food security and deepening farm distress.
Another is that the Indian state is stuck with welfare commitments it cannot renege on without political and legal consequences. The efficiency/inefficiency argument for scraping PDS and MGNREGS never acknowledges that these are rights-based social entitlements with specified outcomes — and that is not accidental. Shifting the welfare paradigm to UBI would loosen the bonds of legal and social accountability. Under the PDS, for instance, the state must provide a specified quantity of foodgrains to the poor no matter what. With UBI, it has the option letting the payout slide behind inflation, as has already happened with the old age and widow pensions.
In the final analysis, we need to answer a simple question: is the UBI about reducing inequality and poverty? If the answer is yes, then there are many things the state could do at a fraction of what the UBI would cost — from enforcing the minimum wage law, to releasing funds on time for MGNREGS. But if a dispensation hostile to these tried and tested anti-poverty measures develops a sudden zeal to eliminate poverty through UBI, a measure of scepticism is in order.
Sunday 10 April 2016
Interview with Yanis Varoufakis
Courtesy The Economist
Greece’s former finance minister talks Greece, Europe, the Labour Party and the future of social democracy
YANIS VAROUFAKIS is a Greek economist who served as finance minister in his country's Syriza government from January to September last year. After this approved the third bailout package, which he described as a surrender, he declined to stand in fresh elections and set about founding DiEM25, an international "movement" committed to overhauling the European Union's institutions and agenda. Recently he gave a wide-ranging interview to The Economist at his flat in Athens. This concentrated primarily on the poor state of social democratic parties across the continent (the subject of a briefing in this week’s issue) but also ranged across events in Greece last year, DiEM25 and politics in Spain, Germany and Britain, where it was recently revealed that he is advising Jeremy Corbyn, the Labour Party leader.
The Economist: We’ve gone through a crisis in which the limitations of untrammelled capitalism were made clear. Back in 2008-09 the social democrats thought they were living through a social democratic moment. But here we are a few years later and they have tanked. What’s your explanation for that?
Yanis Varoufakis: A few years ago I was invited to Vienna to address the Kreisky Forum [a social democratic Austrian think-tank]. That’s where I first articulated what I am going to tell you now. Social democracy is the result of the split of the Second International, between the traditional Marxist-Communist line that capitalism could not be civilised and the social democratic path of proposing change through the ballot box and some accommodation—the mixed economy. When I was a young man the dominant theme was pretty social democratic (even the Tories had accepted it). It was the idea of a mixed economy, i.e. that certain areas of the economy need to be left to the market and others that have to be dominated by the state. Behind that was this notion that started in Germany with Kautsky and the social democratic tradition that began in the 1910s, -20s, -30s with the SPD, which spread out and influenced the Labour Party and so forth. The main idea was that yes, there is class conflict, there is a tug of war between profit and the wage bill, but the role of the state is to regulate this, to forge a social contract, to press capital to deliver part of its return to the state so the state can provide the welfare net and some redistribution of profits towards wages. That was the social democratic project. During the Bretton Woods era, the post-1950 period, it was put in practice. It was dominant. You had the government mediating between trades unions and employers (primarily the industrial sector) to effect this transfer, and to convince industrialists to give up a percentage of their profits to the state to fund welfare institutions. Harold Wilson did it in Britain. Willy Brandt did it in Germany. Bruno Kreisky did it in Austria.
That was the electoral high point as well. That is what social democracy was about. But then Bretton Woods died in the 1970s and all hell broke loose. My next book will be about that (it’s out in April). And we entered the era of financialisation. How it came about is a long story. It has to do with American global dominance. But for the purposes of our conversation what matters is financialisation. The most potent moment in this phenomenon was the shift from options to sell to options to buy. This transition was critical. You have an option to sell as an insurance when you are buying. If you buy shares, you buy an option to sell at a minimum price; you’re hedging in case the share you purchased tanks.
But an option to buy is speculation?
Yes. So by moving from one to the other we licensed the financial sector to print its own money. And to make a great deal of profit on the upside. It was at that point that various social democratic parties cottoned on to this. Put simply, being the prime minister in Britain—Callaghan, or Blair later, or Schröder in Germany—and constantly having to fight with industrialists to keep taxing them more, being badmouthed by them, by the press they influence, is not pleasant. Much easier to say: “OK, stuff that. I’m going to have a Faustian bargain with the bankers, with the financial sector. I will turn a blind eye to your shenanigans and you will give me a cut.”
That bargain was struck out of electoral necessity.
No. It was the path of least resistance. It was much easier to do that than to continue mediating between industrial capital and labour… OK, you are right in a sense: the industrial sector was suffering in places like Britain. So there was not much you could squeeze out of it. In Germany it wasn’t declining but it was still easier to turn a blind eye to what Deutsche Bank does and fund, through its super-profits (paper profits but nonetheless profits) part of the expansion of the social welfare system in Germany, than to keep pressing Siemens for greater transfers to the state and to wages.
Well the Third Way was all about redistribution instead of fiddling with wage levels and profit levels.
Redistribution on the basis of what? On the basis of taxing the City. If you depend on tax from the City you cannot at the same time regulate the City. This is why I call it a Faustian bargain. You turn a blind eye to everything they were doing and then finance the NHS from a cut of this pyramidic pseudo-value production. The moment social democrats stopped playing the role of mediators between capital and labour, the moment they turned their back on the class struggle (which social democracy always accepted but tried to regulate) it was the end for social democracy. Because all it took was the 2008 implosion and suddenly, the same people that they were in bed with had all gone bankrupt.
So you’re saying the Third Way sowed the seeds of the current crisis of social democracy.
The Third Way everywhere, not just Labour. And when those same bankers that (instead of industrial profits) were bankrolling the welfare state picked up the phone and said to Schröder, or to Blair or to Brown or whoever, “we need a few hundred billion or there will be no functioning ATMs tomorrow”, at that point the social democrats in power lacked both the analytical power to understand what was going on and the moral courage to oppose their bid to be bailed out along with their institutions. Their analytical power was “blown” the moment they bought all the rubbish about riskless risk and all that. Thus, when 2008 happened, they had no idea how that had happened. They had believed the rhetoric about boom and bust having been ended. And they lacked the moral authority to say to the bankers: “Sorry, you’re out. We’re salvaging the banks but not you.”
When you study the decline in support for social democrats across Europe, you notice the remarkable uniformity of that trend in a continent that still contains myriad sorts of capitalism ranging from the Nordic model to southern Europe. Why is that the case?
That’s financialisation for you.
It transcended borders?
It penetrated everything. It was like a colony of termites that had eaten the foundations from within.
So it undermined that social democratic formula.
Yes, for example the social democratic model in Sweden was severely bruised after the banks there had gone crazy as well.
1994.
Yes. In 1992-93 the Swedes, the Finns, dealt very well with the banking collapse. But then once they privatised them again, they set them free of proper regulation. And the wall of money that was coming from Wall Street, which was all being manufactured in the financialisation machine, was so large that these people had no resistance. The bankers themselves didn’t even know what was going on.
At the time of the crisis?
No, before the crisis. Between 1993 and 2007. They had no idea. They just knew that all the other bankers around the world were making all this dough. And if they couldn’t show similar returns they were goners, their shareholders would have got rid of them. So they started mimicking. And I don’t believe they even knew what they were buying.
The Swedes?
The Swedes, Deutsche Bank, Societé Générale… I don’t think they understood what they were doing. Because they were not creating the stuff, they were just buying it. The people at Goldman Sachs always knew what they were doing, because they were manufacturing it. Their European “clients” did not have a clue.
Weren’t the ratings agencies the ones that were really in the dark?
It’s one thing to be in the dark. It’s another to have your salary depend on you being in the dark.
Let me play devil’s advocate. The case for Blair, Schröder, even Persson in Sweden was: the right is in power in a way it has not been before (in Britain and Germany it had been almost hegemonic), we are in despair, the working class is fragmenting and the electorate is evolving in a more consumerist, more market-liberal direction. The party has to move with that. Notwithstanding what has happened since, is there any part of you that sympathises with that impetus in the 1990s to make what you call this “Faustian pact”?
Look, I sympathise with Faust when I read Goethe, or even Marlowe for that matter. I completely sympathise with Faust. Don’t you? It’s a very compelling story. You can see things from his perspective. You can see why he was lured. So yes, I do. But this does not change anything: Faust erred badly.
I can see you there, in Auerbach’s Cellar, cheering Faust on.
[Laughs] Look, take the Labour Party in Britain. And that’s self-criticism too because I was part of the demonstrations from 1978 to 1988. We were defending a model that was finished. We were defending coal-powered electricity generation. That wasn’t going to end well. Of course, that is not to say it was right to jettison hundreds of thousands of people—whole communities—without any period of transition to some other model. But we were fighting a losing battle. You have a point. People like Blair saw this. In that sense: yes, to that extent I’m sympathetic. Where I’m not sympathetic is where they lost sight of capitalism. The Left is supposed to be critical of capitalism. If it isn’t critical of capitalism it has no reason to exist. Why not be a Tory, a compassionate one-nation Tory, if you have no problem with capitalism? So they lost the capacity to be critical of capitalism. And being critical of capitalism does not mean saying that capitalism is a bad thing. Being critical of capitalism means being critical in the Marxist sense of looking at it as a system that produces crises and knowing that the greater the growth rate, the harder the fall around the corner. They had a duty to maintain this critical attitude towards capitalism while at the same time doing as you said: trying to find ways of escaping the defeatism of the Left, of embracing what Thatcher offered people. It’s against my aesthetic, but Thatcher offered them a vision of new vistas of pleasure and commercial endeavour. That we should take account of. You can’t say to people: it’s wrong to aspire to buying a new car, a new television set, a new computer or whatever. So yes, you should go along with this. But not lose sight of the fact that growth cannot be consistently fuelled by the proliferation of these financial products. It cannot be consistently fuelled by selling off council houses, by selling British Gas shares for a pittance to ensure that those who take the shares experience a 100% return the next day. At some point you “run out of other people’s money.”
Indeed… [Laughs]
[Laughs] Well, that’s also a criticism of liberalism, of neoliberalism.
To return to your point about that traditional social democratic demeanour towards capitalism, towards profit. Is it possible for that basic principle, in whatever evolved form, to coexist with globalisation?
That’s the trillion dollar question, isn’t it? Globalisation is not an exogenous force. It is not something that comes from Mars. It is what we allowed to happen on planet Earth. And in the same way that social democratic forces shaped the global financial system under Bretton Woods, they had a historic duty to shape what followed Bretton Woods, once Bretton Woods collapsed. But they didn't do that. They simply lost sight, firstly of the global financial system. They were far more interested in: “What can we do today to win the next election here?” Whereas the forces of neoliberalism had a global, almost Marxist perspective, an internationalist perspective which used to be typical of the Left.
A dialectical one!
A dialectical one. So no, I am not letting us off the hook by saying: “Oh, this was inevitable."
When you say “us”, you mean the Left?
The Left, broadly defined. From Blair to anarchists. Syriza and Greece
Turning to the Greek situation, to what extent can we say that Syriza has moved into that space vacated by the collapse of Pasok?
Completely.
Really?
Of course. [Laughs]
Were you surprised by that?
No. I wasn’t surprised. I was impressed but not surprised.
Impressed in what sense?
Impressed that what I was predicting happened. Often what I predict doesn’t happen. [Both laugh] What I find interesting, from the Greek perspective was not so much the January [2015] election that brought us to power. That was expected. PASOK had been so totally delegitimised. I joined PASOK as a very young person in 1974-5, when it was first inaugurated by Andreas Papandreou. It was a very radical party. Papandreou’s thinking back then was very impressive.
Really? You helped put his party out of business.
You’ve got to remember that Papandreou [senior] was an excellent mathematical economist. He was head of the department at Berkeley University (not to be scoffed at). He mathematised economics with Kenneth Arrow and others in the 1950s. He wasn’t radical back then. He became radical because of the Greek experience here, seeing how the CIA was manipulating politics here. Now, in the early 1970s he brought to Greece a very interesting mixture of good quality economic thinking—Nobel-prize winning levels of economic thinking—with an anti-colonial mentality. A kind of Gandhi narrative against Empire, where Greece was also part of the colonial periphery of the Empire.
A forerunner of the Latin American “pink wave” in some respects.
Yes, indeed. So many of us had joined PASOK back then, on that basis. It was a clean party, because it was new and it wasn’t corrupt. And then it became exactly the opposite. It became completely “establishment”, dirty, and subservient to the colonial logic of the Troika. So it was only a matter of time before the people who had joined it—people like my parents, for example, who joined it with enthusiasm—would abandon it for something like Syriza which was reclaiming the ground that PASOK had forfeited.
You’re talking about the post-crisis period.
Between 2011 and 2015. When the party went from 4% to 40%. A magnificent rise. And now it’s going to go back down to 4%, the way it’s going.
You think?
Oh yes. There’s no doubt about that.
It’s behind New Democracy, but…
It will collapse. It’s a new PASOK. And it’s going down that way. I don’t know what will replace it but it has no future. The referendum [on the EU bailout offer in July 2015] was unique in Greek history, and in European history. Why? I’m not going to go into the issues, but will only refer to the social-class composition of the vote. Usually the working class is divided between conservatives, social democrats, communists and so on. So you have working-class Tories, social-democratic working class people and you have the Left. The 62% No vote at the referendum consisted of the under-privileged Greeks across party lines. Poor Greeks that may normally vote for New Democracy voted No. And a considerable number of bourgeois leftists, with money in the closed banks, voted Yes. This is something impossible to fathom if you don’t live here. I noticed that some of my MPs who were quite well to do voted Yes. And New Democracy supporters who have nothing to lose voted No. The working-class New Democracy voters did not go with their leadership. And well to-do, bourgeois Syriza voters voted Yes.
Is that so unexpected? Those who have less to lose are more radical.
Sure, it all boils down to: do you have money in the bank? If you have a lot and you think that No means you will never get it out, you vote for Yes. But I wasn’t expecting such an alignment around self-interest. Because it doesn’t happen nowadays.
It’s Thatcherism in reverse. Thatcher’s priority was to give people capital—the “property owning democracy”—to give them a stake in the status quo.
Maybe it’s exactly the same. But it wasn’t capital, it was bank deposits. I was just struck by that: that there were Syriza supporters who live near here, in very nice penthouses, who voted Yes.
But presumably in Piraeus the Syriza supporters backed No.
Absolutely. Actually the No side won every constituency in Greece; the first time that there was such uniformity.
That begs the question: isn’t Syriza’s fate the fate of every party that tries to bend the rules of globalisation?
Oh no, that’s not why Syriza is collapsing. The reason why Syriza is collapsing is because it has been co-opted to an unworkable fiscal policy. Greece went bankrupt in 2010 and we have had a “pretend and extend” programme since then. So it is just like a company that has totally failed and is given another loan by a banker who feels that if he declares the bankruptcy his books will be in trouble, so keeps extending loans and pretends that the loan is performing. That’s Greece, with our creditors (the infamous Troika) in the role of rogue banker. Any government that adopts this stance and is co-opted in this project fails and disappears from the political map. And this is what it is. It has nothing to do with globalisation. It is Europe remaining in denial about the bankruptcy of the Greek state and the inability of the Eurozone to function according to rules that were not up to standard.
What would a different path have looked like?
Well, what we tried to do. To say this: we’re not playing games, this is what we are proposing. It’s very moderate and we are open to discussing the details. The basis of our position is that we will not have any more fiscal deficits but our primary surplus will be modest, at around 1%. Forget the surplus targets of 3.5% and 4.5% of GDP. These are simply impossible. And if you declare that this is your target nobody will invest in this country because they interpret such targets as a signal that you’re going to tax them through the nose. The problem in Greece is investment. The only way to recover is investment and everything beyond a 1% primary surplus target is inconsistent with recovery. So we’re not going to sign on the dotted line any agreement which involves 3-3.5% primary surpluses. It’s very simple. And in order to make our debt sustainable with only 1% we want a debt restructure that is based on simple financial engineering, no haircuts or anything like that are necessary. We even told them what needs to be done in a way which Wall Street functionaries understand and with which they agree. And then let’s come to an agreement on the question of reforms. Instead of hitting small-time pharmacists and pensioners, let’s hit the oligarchy, where we really need reform. So that is what I went to Brussels with: “This is it. Take it or leave it. If you want to crush us, crush us.”
But you are saying it wasn’t Brussels, it was choices made by legislators and leaders in Athens.
No, that was 2010. We were elected in 2015. We could have changed all that. We could have gone—and I did go—to the Eurogroup and said just that: “Help us reform Greece, but to reform Greece we need to stop the debt-deflationary cycle. And to stop that we need targets which are reachable, credible and which do not deter investment. Within that everything is negotiable.” But they didn’t want that. They didn’t even want to consider this possibility. Because, for them, the recovery of Greece was not the issue. The issue was not to give a signal to the Spanish, the Irish, the Portuguese that a government can be elected which goes to them with ideas of its own. My idea was to stand our ground and make it public that we were flexible and reasonable. (This is not a left-wing agenda, this is what any sensible policy-maker would recommend and was not far from what the IMF was saying; there were moments when the IMF was saying things more radical than me, but then for political reasons [Christine] Lagarde, to maintain her relations with Schäuble, went back on it.) You want to throw us out of the euro zone? Do it. I’m not leaving the euro zone. You throw me out. You have no way of doing it, except by violating the rules of the EU. Good. Be my guest. That was what I was elected to say. That was why I was so desperately disliked in Brussels. But if we had done that and stood our ground, that would have had a €1 trillion cost. I don’t believe Draghi would have been able to keep things calm; not only because €1 trillion is a lot of money but because his QE would have been wrecked. Because if we had restructured the €27 billion that we owed the ECB, Jens Weidmann [the President of the Bundesbank] would have attacked him on the basis of: “See, you purchase government paper? A chunk of it defaulted or was restructured. And therefore you have violated the charter of the ECB which prohibits any public debt financing.” This is why I stand convinced that Draghi would have never done this, if we remained resolute.
Because they would have had to pull QE?
Yes, and the Euro would be finished. So I think we had good leverage. But I was not allowed to use it.
That brings me back to my point: that the fault lies with those in your former party, in Athens.
Not even my party. Just three or four people in the inner cabinet.
What motives possessed them?
Really, I don’t know. I dislike interpreting other people’s motives. I had not seen it coming. If I had I would not have entered government. I watched it happen in front of me. The banal explanation is fear and a relative ignorance of basic economics. There were some people there who thought, like the previous government: “we can go to a 3.5% primary surplus; it’s not going to kill us if we grant this, that and the other.” If this was their genuine thinking, they were badly mistaken. You announce that silly surplus target, investment doesn’t happen and then you’re dead in the water. As we are now.
On Spain
You have links with Podemos in Spain. They are saying no to government options with PSOE and Ciudadanos. Do you think that’s the right move?
Yes. Look, government is a chore. And all good people should see office as a chore. If you crave to be in office, you are dangerous. We should all be reluctant ministers. So why should you do it? You should do it only if you think you can change something for the better. If, even before you enter the ministry, you have to accept policies you know don’t work, what is the point? And also, it is a terrible thing for democracy. Imagine if Pablo Iglesias [the leader of Podemos] entered office tomorrow and implemented the same policies as before. Why was there a change of government? Why did the people make the courageous choice of jettisoning the previous government? If people change governments but policy remains the same, and is equally ineffective, this undermines the democratic process.
On Germany
Is that a problem more broadly? Is it the case that the SPD in Germany is just too indistinguishable from the CDU?
The SPD, under its current leadership, is much worse than the CDU. Much worse. I’d much rather deal with Merkel and Schäuble than the SPD’s leaders.
They have been quite obstructive on the migrant question.
They have been appalling. I grew up in awe of the SPD, because we lived in a dictatorship here in Greece and Willy Brandt was a great supporter of Greek democrats. The SPD showed immense leadership. For me, the SPD is part of my milieu. When I saw them and I met the dearth of honesty, the lack of ideas, the 19th century shenanigans that they were engaged in…
19th century in what way?
(19th century as in power relations rather than political relations.) …their manipulation, their twisting of what you said. Whereas with Schäuble, compared with my dealings with the SPD, I knew what I was dealing with. And I also had interesting conversations with him. I could not have had an interesting conversation with [Sigmar] Gabriel. So you can see the decrepitude of the social democratic tradition. They are the least interesting, the least innovative, the least sincere of the whole political spectrum.
Why?
They sold themselves to Mephisto, and then at some point even he didn’t care for them.
It seems astonishing that a political family with such an heritage, with so many clever people on board, could accept its defeat.
Yes. But there is something else which went along with that. The same process of financialisation that depleted the analytical and moral authority of the social democrats was precisely the process that diminished the value of political goods more generally and turned talented people away from politics.
Because you could achieve less from a position of power.
Yes. If Harold Wilson was an 18-year-old today, he probably wouldn’t want to go into politics. If Willy Brandt was an 18-year-old today, he wouldn’t want to go into politics. And this is why politicians aren’t what they used to be. It’s not because our DNA is degenerating. It’s that there is a natural Darwinian process, a natural selection process. Politics attracts the least well-meaning and least talented people because the political sphere has been devalued.
On the Labour Party
It has been in the news that you are helping the Labour Party. What can you say about what you are working on with them? Or is it under the hat?
It isn’t under the hat. I believe in full transparency! I have had a number of conversations with them and I think it is fair to say my engagement with the Labour Party concentrates on two issues. Firstly investment. And secondly Brexit. Now, my view—not just about Britain but about the whole of Europe—is that investment is the key. We have a major discrepancy between savings and investment.
Especially in Britain.
Even in Germany. Germany has the lowest level of investment since 1945. This is absurd, given that they have negative interest rates. It actually reveals the depth of the deflationary spiral in which we are. Same in Britain, France, Spain. Here [in Greece] we have negative investment, and we don’t have negative savings so the excess of savings over investment is proportionately huge. So my advice to the Labour Party is: don’t focus on austerity. Austerity is the symptom. What matters is the low level of investment. And if the Labour Party is going to push ahead and escape this constant bickering between Blairites and Corbynistas, escape the trap set up for it by the toxic right-wing press, escape the attempt by the BBC to play on the divisions within the Labour Party, my message to them is: you have to do what Harold Wilson did in the 1960s, which is to recast the Labour Party as the political force behind renewal through investment in modern technologies. Back then it was the “white head of technology”. Now it should be the “cool breeze of sustainable technology”. And this should be the mantra. Because if that investment happens, the whole austerity debate becomes secondary. At the moment Osborne is caught in a trap of his own making. With every week that goes by the rising PSBR [public sector borrowing requirement] is a problem because the tax take is always lower due to greater cuts. And he has nothing to say about that. Labour should say something about that. And it shouldn’t simply say to the Brits: we will tax and spend more. Because this doesn’t wash. You’ve got to talk about how to crowd in private investment through a public investment bank which operates like the European Investment Bank, like the World Bank; that is, at arm’s length from government and whose purpose is not to tax in order to spend, but to issue bonds that are assisted through QE (I had a piece in The Economist about this some time ago, about how QE could be utilised to keep the yields of a public investment bank low) in order to mop up savings and hand them over to private sector firms; to start ups, this that and the other. So this is one thing I’m discussing with Labour: investment. No-one can accuse me of being an austerian. But I say: “austerity is a boring issue, don’t keep telling people you are anti-austerity”.
On Brexit
It really killed them in the last parliament, even though they weren’t that anti-austerity.
The first one [happened] on March 21st to 23rd in Rome, on transparency. The second one will be in Barcelona on the EU constitution and the process we are proposing. There will be an event in London on sovereignty. But primarily we will stage six large “assemblies”, beginning with transparency, then moving onto investment, migration, currency, monetary policies and so on. It will take 18-24 months for all six to convene. These are our markers in the calendar and before each Assembly —this is our ambition—there will be hundreds of small town hall meetings in the run-up to each. The purpose is to produce a white paper for each one of these six pivotal issues. If that works, and we have this sequence of town hall meetings culminating in large Assemblies where a substantial policy paper is approved, then within 18-24 months we will have a fully fledged Programme for Europe, a European Agenda. This is the conversation we want to have and the consensus we want to come up with. And if we do that, and if this consensus is interesting, then this consensus will find a way of expressing itself.
Will you be working with political parties?
We are already doing so. But we do not co-opt political parties. We do not say: the Labour Party is part of DiEM25. Anybody from the Labour Party who wants to be part of this process can come and have this conversation, without co-opting the whole party. Because there are people in the Labour Party that are not even Europeanists. Same with Die Linke. Die Linke is split between those who are with us and those who want return to the Deutschmark, for instance.
And the idea is that this programme will provide a touchstone for campaigners and politicians?
We don’t know yet. My hope is that this consensus is powerful enough and revitalises the conversation in Europe, then it could even find electoral expression and could even stand for European Parliament or local government elections or in association with parties that adopt this programme, this consensus. But this is completely open-ended. As Brian Eno said in Berlin: “Start cooking, recipe to follow!”
You have some big names on board. Zizek?
Zizek is a great supporter, indeed an active DiEM25 member. In Berlin we had a video message from Zizek rather than Zizek himself. As Eno said, it was the shortest speech he had ever heard Slavoj give!
On the future of social democracy
Returning to where we started, do you think social democracy has a future? Has it run its course? Or is it just that “social democrats” by name have run their course.
The truth is, I don’t know. “Social democracy” as a label is finished, because it has been tainted. Just like “communist”. Communism died in 1991 because it was associated with a particular manifestation which killed off an original idea, from back in 1848, that I think was good. Similarly “social democracy” has been too tainted as a term. But I also do believe that social democracy is very 20th century. Now, what we are facing is a major technological upheaval within global capitalism, in which the old-fashioned way of thinking about capital and labour and their tussle - which is central to social democracy, or ought to be if it is to be revived - is becoming disrupted, as they say, by the third or fourth machine age. Very soon we are going to have to be thinking in different terms. And as Gramsci used to say, “the old is dying but the new is struggling to be born.”
We’re in an “interregnum”, then?
Yes. Which is always a very dangerous period.
Of course we do not know exactly what the impetus for government and politicians will be in the coming years but what do you think this shift means for how the compassionate state should look in 50 to 100 years?
Look, it’s not a question so much of “compassionate” as one of a state capable of regulating social conflicts. Because that is what the state always did, beginning with Magna Carta. It was all about regulating conflicts between the barons and the King and the merchants and the trades unions and so forth. Today we are facing a serious danger of large masses of people who have low economic value. This is a powder keg in the foundations of society. Making sure that the great wealth-creation which capital is capable of does not light this dynamite—the basic income approach—is absolutely essential, but it is not part of the social democratic tradition. Think about it. The post-war consensus was all about national insurance, it was not about basic income. Now, either we are going to have a basic income that regulates this new society of ours, or we are going to have very substantial social conflicts that get far worse with xenophobia and refugees and migration and so forth. But I do not think that social democracy has the analytical skills to come to terms with this. Even Keynes…
He was a liberal.
The working class was one lump for him, and consumption was one thing. Now we have gradations, different qualities, lots of conflicts and possibilities that emanate from this multi-layered, multi-dimensional evolution of the old categories. And I don’t think social democracy is up to this. I don’t know what is.
It used to be a lot easier to pull together a sufficiently large coalition of voters to win an election, when you had clear class distinctions. You could add one to one and make two quite easily, whereas now the arithmetic has got a lot more complicated. The question is: what sort of political force has the right “glue” to build a coalition on the scale needed?
I am still under the influence of last year, when we had a 75% approval rating. So I cannot agree it is impossible. We didn’t put out a very radical package. Hope is what is in deficit. Britain, the British public, has no hope. When they voted for Cameron last year it was not hopefully. It was reluctantly and because they did not like Ed [Miliband] and they did not trust the Labour Party. Now they will vote to stay in Europe out of fear, not out of hope. So what do we need to do to capture hope? That is the issue. In the 50s and 60s the dream of shared prosperity was that which gave hope. Even the Tories latched onto it: Ted Heath, the one nation Tories and so on. So I think the basic income approach is capable of doing this as long as (and this is what I emphasise when I talk to the Corbynistas) you can explain to them where the money will come from, that it will not be simply debt, that we are going to generate a lot more income and a chunk of it is going to fund this. But we, the Left, must not be fearful. I gave a talk some time ago in the United States and said: yes, surfers in California must be fed by the rest of us. We may not like that, we may feel they are bums, but they deserve a basic income too.
[Laughs]
OK, they don’t “deserve”, but they should have a basic income, because this is the way to stabilise society. But you need politicians that are capable of going out there and saying: “You see that lazy bum over there that you hate? We should feed him. And we should make sure he has a house. Because if he does not have a house and he gets sick and so on, he is a greater burden for all of us. And if there are lots of them and technological innovation produces a lot more of them, that would be macro-economically unsustainable. Those of us who want to work—because we enjoy it and have the opportunity—have the technology to produce so much wealth that we can feed the surfers.” But who says that?
That can be your slogan: “feed the surfers”. Yanis Varoufakis, thank you.
Thank you.
YANIS VAROUFAKIS is a Greek economist who served as finance minister in his country's Syriza government from January to September last year. After this approved the third bailout package, which he described as a surrender, he declined to stand in fresh elections and set about founding DiEM25, an international "movement" committed to overhauling the European Union's institutions and agenda. Recently he gave a wide-ranging interview to The Economist at his flat in Athens. This concentrated primarily on the poor state of social democratic parties across the continent (the subject of a briefing in this week’s issue) but also ranged across events in Greece last year, DiEM25 and politics in Spain, Germany and Britain, where it was recently revealed that he is advising Jeremy Corbyn, the Labour Party leader.
The Economist: We’ve gone through a crisis in which the limitations of untrammelled capitalism were made clear. Back in 2008-09 the social democrats thought they were living through a social democratic moment. But here we are a few years later and they have tanked. What’s your explanation for that?
Yanis Varoufakis: A few years ago I was invited to Vienna to address the Kreisky Forum [a social democratic Austrian think-tank]. That’s where I first articulated what I am going to tell you now. Social democracy is the result of the split of the Second International, between the traditional Marxist-Communist line that capitalism could not be civilised and the social democratic path of proposing change through the ballot box and some accommodation—the mixed economy. When I was a young man the dominant theme was pretty social democratic (even the Tories had accepted it). It was the idea of a mixed economy, i.e. that certain areas of the economy need to be left to the market and others that have to be dominated by the state. Behind that was this notion that started in Germany with Kautsky and the social democratic tradition that began in the 1910s, -20s, -30s with the SPD, which spread out and influenced the Labour Party and so forth. The main idea was that yes, there is class conflict, there is a tug of war between profit and the wage bill, but the role of the state is to regulate this, to forge a social contract, to press capital to deliver part of its return to the state so the state can provide the welfare net and some redistribution of profits towards wages. That was the social democratic project. During the Bretton Woods era, the post-1950 period, it was put in practice. It was dominant. You had the government mediating between trades unions and employers (primarily the industrial sector) to effect this transfer, and to convince industrialists to give up a percentage of their profits to the state to fund welfare institutions. Harold Wilson did it in Britain. Willy Brandt did it in Germany. Bruno Kreisky did it in Austria.
That was the electoral high point as well. That is what social democracy was about. But then Bretton Woods died in the 1970s and all hell broke loose. My next book will be about that (it’s out in April). And we entered the era of financialisation. How it came about is a long story. It has to do with American global dominance. But for the purposes of our conversation what matters is financialisation. The most potent moment in this phenomenon was the shift from options to sell to options to buy. This transition was critical. You have an option to sell as an insurance when you are buying. If you buy shares, you buy an option to sell at a minimum price; you’re hedging in case the share you purchased tanks.
But an option to buy is speculation?
Yes. So by moving from one to the other we licensed the financial sector to print its own money. And to make a great deal of profit on the upside. It was at that point that various social democratic parties cottoned on to this. Put simply, being the prime minister in Britain—Callaghan, or Blair later, or Schröder in Germany—and constantly having to fight with industrialists to keep taxing them more, being badmouthed by them, by the press they influence, is not pleasant. Much easier to say: “OK, stuff that. I’m going to have a Faustian bargain with the bankers, with the financial sector. I will turn a blind eye to your shenanigans and you will give me a cut.”
That bargain was struck out of electoral necessity.
No. It was the path of least resistance. It was much easier to do that than to continue mediating between industrial capital and labour… OK, you are right in a sense: the industrial sector was suffering in places like Britain. So there was not much you could squeeze out of it. In Germany it wasn’t declining but it was still easier to turn a blind eye to what Deutsche Bank does and fund, through its super-profits (paper profits but nonetheless profits) part of the expansion of the social welfare system in Germany, than to keep pressing Siemens for greater transfers to the state and to wages.
Well the Third Way was all about redistribution instead of fiddling with wage levels and profit levels.
Redistribution on the basis of what? On the basis of taxing the City. If you depend on tax from the City you cannot at the same time regulate the City. This is why I call it a Faustian bargain. You turn a blind eye to everything they were doing and then finance the NHS from a cut of this pyramidic pseudo-value production. The moment social democrats stopped playing the role of mediators between capital and labour, the moment they turned their back on the class struggle (which social democracy always accepted but tried to regulate) it was the end for social democracy. Because all it took was the 2008 implosion and suddenly, the same people that they were in bed with had all gone bankrupt.
So you’re saying the Third Way sowed the seeds of the current crisis of social democracy.
The Third Way everywhere, not just Labour. And when those same bankers that (instead of industrial profits) were bankrolling the welfare state picked up the phone and said to Schröder, or to Blair or to Brown or whoever, “we need a few hundred billion or there will be no functioning ATMs tomorrow”, at that point the social democrats in power lacked both the analytical power to understand what was going on and the moral courage to oppose their bid to be bailed out along with their institutions. Their analytical power was “blown” the moment they bought all the rubbish about riskless risk and all that. Thus, when 2008 happened, they had no idea how that had happened. They had believed the rhetoric about boom and bust having been ended. And they lacked the moral authority to say to the bankers: “Sorry, you’re out. We’re salvaging the banks but not you.”
When you study the decline in support for social democrats across Europe, you notice the remarkable uniformity of that trend in a continent that still contains myriad sorts of capitalism ranging from the Nordic model to southern Europe. Why is that the case?
That’s financialisation for you.
It transcended borders?
It penetrated everything. It was like a colony of termites that had eaten the foundations from within.
So it undermined that social democratic formula.
Yes, for example the social democratic model in Sweden was severely bruised after the banks there had gone crazy as well.
1994.
Yes. In 1992-93 the Swedes, the Finns, dealt very well with the banking collapse. But then once they privatised them again, they set them free of proper regulation. And the wall of money that was coming from Wall Street, which was all being manufactured in the financialisation machine, was so large that these people had no resistance. The bankers themselves didn’t even know what was going on.
At the time of the crisis?
No, before the crisis. Between 1993 and 2007. They had no idea. They just knew that all the other bankers around the world were making all this dough. And if they couldn’t show similar returns they were goners, their shareholders would have got rid of them. So they started mimicking. And I don’t believe they even knew what they were buying.
The Swedes?
The Swedes, Deutsche Bank, Societé Générale… I don’t think they understood what they were doing. Because they were not creating the stuff, they were just buying it. The people at Goldman Sachs always knew what they were doing, because they were manufacturing it. Their European “clients” did not have a clue.
Weren’t the ratings agencies the ones that were really in the dark?
It’s one thing to be in the dark. It’s another to have your salary depend on you being in the dark.
Let me play devil’s advocate. The case for Blair, Schröder, even Persson in Sweden was: the right is in power in a way it has not been before (in Britain and Germany it had been almost hegemonic), we are in despair, the working class is fragmenting and the electorate is evolving in a more consumerist, more market-liberal direction. The party has to move with that. Notwithstanding what has happened since, is there any part of you that sympathises with that impetus in the 1990s to make what you call this “Faustian pact”?
Look, I sympathise with Faust when I read Goethe, or even Marlowe for that matter. I completely sympathise with Faust. Don’t you? It’s a very compelling story. You can see things from his perspective. You can see why he was lured. So yes, I do. But this does not change anything: Faust erred badly.
I can see you there, in Auerbach’s Cellar, cheering Faust on.
[Laughs] Look, take the Labour Party in Britain. And that’s self-criticism too because I was part of the demonstrations from 1978 to 1988. We were defending a model that was finished. We were defending coal-powered electricity generation. That wasn’t going to end well. Of course, that is not to say it was right to jettison hundreds of thousands of people—whole communities—without any period of transition to some other model. But we were fighting a losing battle. You have a point. People like Blair saw this. In that sense: yes, to that extent I’m sympathetic. Where I’m not sympathetic is where they lost sight of capitalism. The Left is supposed to be critical of capitalism. If it isn’t critical of capitalism it has no reason to exist. Why not be a Tory, a compassionate one-nation Tory, if you have no problem with capitalism? So they lost the capacity to be critical of capitalism. And being critical of capitalism does not mean saying that capitalism is a bad thing. Being critical of capitalism means being critical in the Marxist sense of looking at it as a system that produces crises and knowing that the greater the growth rate, the harder the fall around the corner. They had a duty to maintain this critical attitude towards capitalism while at the same time doing as you said: trying to find ways of escaping the defeatism of the Left, of embracing what Thatcher offered people. It’s against my aesthetic, but Thatcher offered them a vision of new vistas of pleasure and commercial endeavour. That we should take account of. You can’t say to people: it’s wrong to aspire to buying a new car, a new television set, a new computer or whatever. So yes, you should go along with this. But not lose sight of the fact that growth cannot be consistently fuelled by the proliferation of these financial products. It cannot be consistently fuelled by selling off council houses, by selling British Gas shares for a pittance to ensure that those who take the shares experience a 100% return the next day. At some point you “run out of other people’s money.”
Indeed… [Laughs]
[Laughs] Well, that’s also a criticism of liberalism, of neoliberalism.
To return to your point about that traditional social democratic demeanour towards capitalism, towards profit. Is it possible for that basic principle, in whatever evolved form, to coexist with globalisation?
That’s the trillion dollar question, isn’t it? Globalisation is not an exogenous force. It is not something that comes from Mars. It is what we allowed to happen on planet Earth. And in the same way that social democratic forces shaped the global financial system under Bretton Woods, they had a historic duty to shape what followed Bretton Woods, once Bretton Woods collapsed. But they didn't do that. They simply lost sight, firstly of the global financial system. They were far more interested in: “What can we do today to win the next election here?” Whereas the forces of neoliberalism had a global, almost Marxist perspective, an internationalist perspective which used to be typical of the Left.
A dialectical one!
A dialectical one. So no, I am not letting us off the hook by saying: “Oh, this was inevitable."
When you say “us”, you mean the Left?
The Left, broadly defined. From Blair to anarchists. Syriza and Greece
Turning to the Greek situation, to what extent can we say that Syriza has moved into that space vacated by the collapse of Pasok?
Completely.
Really?
Of course. [Laughs]
Were you surprised by that?
No. I wasn’t surprised. I was impressed but not surprised.
Impressed in what sense?
Impressed that what I was predicting happened. Often what I predict doesn’t happen. [Both laugh] What I find interesting, from the Greek perspective was not so much the January [2015] election that brought us to power. That was expected. PASOK had been so totally delegitimised. I joined PASOK as a very young person in 1974-5, when it was first inaugurated by Andreas Papandreou. It was a very radical party. Papandreou’s thinking back then was very impressive.
Really? You helped put his party out of business.
You’ve got to remember that Papandreou [senior] was an excellent mathematical economist. He was head of the department at Berkeley University (not to be scoffed at). He mathematised economics with Kenneth Arrow and others in the 1950s. He wasn’t radical back then. He became radical because of the Greek experience here, seeing how the CIA was manipulating politics here. Now, in the early 1970s he brought to Greece a very interesting mixture of good quality economic thinking—Nobel-prize winning levels of economic thinking—with an anti-colonial mentality. A kind of Gandhi narrative against Empire, where Greece was also part of the colonial periphery of the Empire.
A forerunner of the Latin American “pink wave” in some respects.
Yes, indeed. So many of us had joined PASOK back then, on that basis. It was a clean party, because it was new and it wasn’t corrupt. And then it became exactly the opposite. It became completely “establishment”, dirty, and subservient to the colonial logic of the Troika. So it was only a matter of time before the people who had joined it—people like my parents, for example, who joined it with enthusiasm—would abandon it for something like Syriza which was reclaiming the ground that PASOK had forfeited.
You’re talking about the post-crisis period.
Between 2011 and 2015. When the party went from 4% to 40%. A magnificent rise. And now it’s going to go back down to 4%, the way it’s going.
You think?
Oh yes. There’s no doubt about that.
It’s behind New Democracy, but…
It will collapse. It’s a new PASOK. And it’s going down that way. I don’t know what will replace it but it has no future. The referendum [on the EU bailout offer in July 2015] was unique in Greek history, and in European history. Why? I’m not going to go into the issues, but will only refer to the social-class composition of the vote. Usually the working class is divided between conservatives, social democrats, communists and so on. So you have working-class Tories, social-democratic working class people and you have the Left. The 62% No vote at the referendum consisted of the under-privileged Greeks across party lines. Poor Greeks that may normally vote for New Democracy voted No. And a considerable number of bourgeois leftists, with money in the closed banks, voted Yes. This is something impossible to fathom if you don’t live here. I noticed that some of my MPs who were quite well to do voted Yes. And New Democracy supporters who have nothing to lose voted No. The working-class New Democracy voters did not go with their leadership. And well to-do, bourgeois Syriza voters voted Yes.
Is that so unexpected? Those who have less to lose are more radical.
Sure, it all boils down to: do you have money in the bank? If you have a lot and you think that No means you will never get it out, you vote for Yes. But I wasn’t expecting such an alignment around self-interest. Because it doesn’t happen nowadays.
It’s Thatcherism in reverse. Thatcher’s priority was to give people capital—the “property owning democracy”—to give them a stake in the status quo.
Maybe it’s exactly the same. But it wasn’t capital, it was bank deposits. I was just struck by that: that there were Syriza supporters who live near here, in very nice penthouses, who voted Yes.
But presumably in Piraeus the Syriza supporters backed No.
Absolutely. Actually the No side won every constituency in Greece; the first time that there was such uniformity.
That begs the question: isn’t Syriza’s fate the fate of every party that tries to bend the rules of globalisation?
Oh no, that’s not why Syriza is collapsing. The reason why Syriza is collapsing is because it has been co-opted to an unworkable fiscal policy. Greece went bankrupt in 2010 and we have had a “pretend and extend” programme since then. So it is just like a company that has totally failed and is given another loan by a banker who feels that if he declares the bankruptcy his books will be in trouble, so keeps extending loans and pretends that the loan is performing. That’s Greece, with our creditors (the infamous Troika) in the role of rogue banker. Any government that adopts this stance and is co-opted in this project fails and disappears from the political map. And this is what it is. It has nothing to do with globalisation. It is Europe remaining in denial about the bankruptcy of the Greek state and the inability of the Eurozone to function according to rules that were not up to standard.
What would a different path have looked like?
Well, what we tried to do. To say this: we’re not playing games, this is what we are proposing. It’s very moderate and we are open to discussing the details. The basis of our position is that we will not have any more fiscal deficits but our primary surplus will be modest, at around 1%. Forget the surplus targets of 3.5% and 4.5% of GDP. These are simply impossible. And if you declare that this is your target nobody will invest in this country because they interpret such targets as a signal that you’re going to tax them through the nose. The problem in Greece is investment. The only way to recover is investment and everything beyond a 1% primary surplus target is inconsistent with recovery. So we’re not going to sign on the dotted line any agreement which involves 3-3.5% primary surpluses. It’s very simple. And in order to make our debt sustainable with only 1% we want a debt restructure that is based on simple financial engineering, no haircuts or anything like that are necessary. We even told them what needs to be done in a way which Wall Street functionaries understand and with which they agree. And then let’s come to an agreement on the question of reforms. Instead of hitting small-time pharmacists and pensioners, let’s hit the oligarchy, where we really need reform. So that is what I went to Brussels with: “This is it. Take it or leave it. If you want to crush us, crush us.”
But you are saying it wasn’t Brussels, it was choices made by legislators and leaders in Athens.
No, that was 2010. We were elected in 2015. We could have changed all that. We could have gone—and I did go—to the Eurogroup and said just that: “Help us reform Greece, but to reform Greece we need to stop the debt-deflationary cycle. And to stop that we need targets which are reachable, credible and which do not deter investment. Within that everything is negotiable.” But they didn’t want that. They didn’t even want to consider this possibility. Because, for them, the recovery of Greece was not the issue. The issue was not to give a signal to the Spanish, the Irish, the Portuguese that a government can be elected which goes to them with ideas of its own. My idea was to stand our ground and make it public that we were flexible and reasonable. (This is not a left-wing agenda, this is what any sensible policy-maker would recommend and was not far from what the IMF was saying; there were moments when the IMF was saying things more radical than me, but then for political reasons [Christine] Lagarde, to maintain her relations with Schäuble, went back on it.) You want to throw us out of the euro zone? Do it. I’m not leaving the euro zone. You throw me out. You have no way of doing it, except by violating the rules of the EU. Good. Be my guest. That was what I was elected to say. That was why I was so desperately disliked in Brussels. But if we had done that and stood our ground, that would have had a €1 trillion cost. I don’t believe Draghi would have been able to keep things calm; not only because €1 trillion is a lot of money but because his QE would have been wrecked. Because if we had restructured the €27 billion that we owed the ECB, Jens Weidmann [the President of the Bundesbank] would have attacked him on the basis of: “See, you purchase government paper? A chunk of it defaulted or was restructured. And therefore you have violated the charter of the ECB which prohibits any public debt financing.” This is why I stand convinced that Draghi would have never done this, if we remained resolute.
Because they would have had to pull QE?
Yes, and the Euro would be finished. So I think we had good leverage. But I was not allowed to use it.
That brings me back to my point: that the fault lies with those in your former party, in Athens.
Not even my party. Just three or four people in the inner cabinet.
What motives possessed them?
Really, I don’t know. I dislike interpreting other people’s motives. I had not seen it coming. If I had I would not have entered government. I watched it happen in front of me. The banal explanation is fear and a relative ignorance of basic economics. There were some people there who thought, like the previous government: “we can go to a 3.5% primary surplus; it’s not going to kill us if we grant this, that and the other.” If this was their genuine thinking, they were badly mistaken. You announce that silly surplus target, investment doesn’t happen and then you’re dead in the water. As we are now.
On Spain
You have links with Podemos in Spain. They are saying no to government options with PSOE and Ciudadanos. Do you think that’s the right move?
Yes. Look, government is a chore. And all good people should see office as a chore. If you crave to be in office, you are dangerous. We should all be reluctant ministers. So why should you do it? You should do it only if you think you can change something for the better. If, even before you enter the ministry, you have to accept policies you know don’t work, what is the point? And also, it is a terrible thing for democracy. Imagine if Pablo Iglesias [the leader of Podemos] entered office tomorrow and implemented the same policies as before. Why was there a change of government? Why did the people make the courageous choice of jettisoning the previous government? If people change governments but policy remains the same, and is equally ineffective, this undermines the democratic process.
On Germany
Is that a problem more broadly? Is it the case that the SPD in Germany is just too indistinguishable from the CDU?
The SPD, under its current leadership, is much worse than the CDU. Much worse. I’d much rather deal with Merkel and Schäuble than the SPD’s leaders.
They have been quite obstructive on the migrant question.
They have been appalling. I grew up in awe of the SPD, because we lived in a dictatorship here in Greece and Willy Brandt was a great supporter of Greek democrats. The SPD showed immense leadership. For me, the SPD is part of my milieu. When I saw them and I met the dearth of honesty, the lack of ideas, the 19th century shenanigans that they were engaged in…
19th century in what way?
(19th century as in power relations rather than political relations.) …their manipulation, their twisting of what you said. Whereas with Schäuble, compared with my dealings with the SPD, I knew what I was dealing with. And I also had interesting conversations with him. I could not have had an interesting conversation with [Sigmar] Gabriel. So you can see the decrepitude of the social democratic tradition. They are the least interesting, the least innovative, the least sincere of the whole political spectrum.
Why?
They sold themselves to Mephisto, and then at some point even he didn’t care for them.
It seems astonishing that a political family with such an heritage, with so many clever people on board, could accept its defeat.
Yes. But there is something else which went along with that. The same process of financialisation that depleted the analytical and moral authority of the social democrats was precisely the process that diminished the value of political goods more generally and turned talented people away from politics.
Because you could achieve less from a position of power.
Yes. If Harold Wilson was an 18-year-old today, he probably wouldn’t want to go into politics. If Willy Brandt was an 18-year-old today, he wouldn’t want to go into politics. And this is why politicians aren’t what they used to be. It’s not because our DNA is degenerating. It’s that there is a natural Darwinian process, a natural selection process. Politics attracts the least well-meaning and least talented people because the political sphere has been devalued.
On the Labour Party
It has been in the news that you are helping the Labour Party. What can you say about what you are working on with them? Or is it under the hat?
It isn’t under the hat. I believe in full transparency! I have had a number of conversations with them and I think it is fair to say my engagement with the Labour Party concentrates on two issues. Firstly investment. And secondly Brexit. Now, my view—not just about Britain but about the whole of Europe—is that investment is the key. We have a major discrepancy between savings and investment.
Especially in Britain.
Even in Germany. Germany has the lowest level of investment since 1945. This is absurd, given that they have negative interest rates. It actually reveals the depth of the deflationary spiral in which we are. Same in Britain, France, Spain. Here [in Greece] we have negative investment, and we don’t have negative savings so the excess of savings over investment is proportionately huge. So my advice to the Labour Party is: don’t focus on austerity. Austerity is the symptom. What matters is the low level of investment. And if the Labour Party is going to push ahead and escape this constant bickering between Blairites and Corbynistas, escape the trap set up for it by the toxic right-wing press, escape the attempt by the BBC to play on the divisions within the Labour Party, my message to them is: you have to do what Harold Wilson did in the 1960s, which is to recast the Labour Party as the political force behind renewal through investment in modern technologies. Back then it was the “white head of technology”. Now it should be the “cool breeze of sustainable technology”. And this should be the mantra. Because if that investment happens, the whole austerity debate becomes secondary. At the moment Osborne is caught in a trap of his own making. With every week that goes by the rising PSBR [public sector borrowing requirement] is a problem because the tax take is always lower due to greater cuts. And he has nothing to say about that. Labour should say something about that. And it shouldn’t simply say to the Brits: we will tax and spend more. Because this doesn’t wash. You’ve got to talk about how to crowd in private investment through a public investment bank which operates like the European Investment Bank, like the World Bank; that is, at arm’s length from government and whose purpose is not to tax in order to spend, but to issue bonds that are assisted through QE (I had a piece in The Economist about this some time ago, about how QE could be utilised to keep the yields of a public investment bank low) in order to mop up savings and hand them over to private sector firms; to start ups, this that and the other. So this is one thing I’m discussing with Labour: investment. No-one can accuse me of being an austerian. But I say: “austerity is a boring issue, don’t keep telling people you are anti-austerity”.
On Brexit
It really killed them in the last parliament, even though they weren’t that anti-austerity.
Yes. Talk about something positive. Investment. On Brexit, I lament the fact that the Labour Party is not leading the debate. It has been cornered. The main debate now is between different factions of the Tory Party (and they are both wrong). For me the great calamity is that the more intellectually interesting and solid view comes out of the Brexiters. They have a Burkean argument about sovereignty (with which I disagree, but nevertheless is philosophically interesting). Cameron has nothing to say of any interest whatsoever. He brought the worst kind of fudge back from Brussels and is simply banking on fear and small-c conservatism: no change because change is dangerous. This is not a reason to be in the European Union. We at DiEM25, the Democracy in Europe Movement, are planning an event in May, a month before the election in Britain, to bring together people who would not otherwise come together; from the Labour Party, Caroline Lucas and the Green Party, the Scottish National Party, people who are not party-aligned, to argue the radical case for staying, which is: Britain needs to reclaim its democracy and to do this it must stay in Brussels and fight for the democratisation of Europe. Because you can’t say you’re going to stay in the Single Market and opt out of the European Union. That way you are effectively forfeiting even what you have left in terms of sovereignty to an alien power. So we are going to be working on this. And what DiEM25 can offer the Labour Party, the Greens and other progressives in Britain is an answer to a pressing question. I was in the House of Commons recently and I heard MPs tell me: “Our constituents are writing to us that they hate the EU, that they want to get out. They asked us: Why are you recommending that we stay?” And: “Look at what happened to the Greeks—shouldn’t we get out?” Now, no one can accuse me of being an austerian or being pro-EU. So when it comes from me that Britain should stay and join forces with us within the European Union, that carries some weight among a certain section of the British political scene.
On DiEM25
Nixon goes to China. That brings me on to what you call the “movement”. I have read the manifesto. What does the practical plan for the next year look like? You’ve set yourself these milestones; how do you get there?
On DiEM25
Nixon goes to China. That brings me on to what you call the “movement”. I have read the manifesto. What does the practical plan for the next year look like? You’ve set yourself these milestones; how do you get there?
The first one [happened] on March 21st to 23rd in Rome, on transparency. The second one will be in Barcelona on the EU constitution and the process we are proposing. There will be an event in London on sovereignty. But primarily we will stage six large “assemblies”, beginning with transparency, then moving onto investment, migration, currency, monetary policies and so on. It will take 18-24 months for all six to convene. These are our markers in the calendar and before each Assembly —this is our ambition—there will be hundreds of small town hall meetings in the run-up to each. The purpose is to produce a white paper for each one of these six pivotal issues. If that works, and we have this sequence of town hall meetings culminating in large Assemblies where a substantial policy paper is approved, then within 18-24 months we will have a fully fledged Programme for Europe, a European Agenda. This is the conversation we want to have and the consensus we want to come up with. And if we do that, and if this consensus is interesting, then this consensus will find a way of expressing itself.
Will you be working with political parties?
We are already doing so. But we do not co-opt political parties. We do not say: the Labour Party is part of DiEM25. Anybody from the Labour Party who wants to be part of this process can come and have this conversation, without co-opting the whole party. Because there are people in the Labour Party that are not even Europeanists. Same with Die Linke. Die Linke is split between those who are with us and those who want return to the Deutschmark, for instance.
And the idea is that this programme will provide a touchstone for campaigners and politicians?
We don’t know yet. My hope is that this consensus is powerful enough and revitalises the conversation in Europe, then it could even find electoral expression and could even stand for European Parliament or local government elections or in association with parties that adopt this programme, this consensus. But this is completely open-ended. As Brian Eno said in Berlin: “Start cooking, recipe to follow!”
You have some big names on board. Zizek?
Zizek is a great supporter, indeed an active DiEM25 member. In Berlin we had a video message from Zizek rather than Zizek himself. As Eno said, it was the shortest speech he had ever heard Slavoj give!
On the future of social democracy
Returning to where we started, do you think social democracy has a future? Has it run its course? Or is it just that “social democrats” by name have run their course.
The truth is, I don’t know. “Social democracy” as a label is finished, because it has been tainted. Just like “communist”. Communism died in 1991 because it was associated with a particular manifestation which killed off an original idea, from back in 1848, that I think was good. Similarly “social democracy” has been too tainted as a term. But I also do believe that social democracy is very 20th century. Now, what we are facing is a major technological upheaval within global capitalism, in which the old-fashioned way of thinking about capital and labour and their tussle - which is central to social democracy, or ought to be if it is to be revived - is becoming disrupted, as they say, by the third or fourth machine age. Very soon we are going to have to be thinking in different terms. And as Gramsci used to say, “the old is dying but the new is struggling to be born.”
We’re in an “interregnum”, then?
Yes. Which is always a very dangerous period.
Of course we do not know exactly what the impetus for government and politicians will be in the coming years but what do you think this shift means for how the compassionate state should look in 50 to 100 years?
Look, it’s not a question so much of “compassionate” as one of a state capable of regulating social conflicts. Because that is what the state always did, beginning with Magna Carta. It was all about regulating conflicts between the barons and the King and the merchants and the trades unions and so forth. Today we are facing a serious danger of large masses of people who have low economic value. This is a powder keg in the foundations of society. Making sure that the great wealth-creation which capital is capable of does not light this dynamite—the basic income approach—is absolutely essential, but it is not part of the social democratic tradition. Think about it. The post-war consensus was all about national insurance, it was not about basic income. Now, either we are going to have a basic income that regulates this new society of ours, or we are going to have very substantial social conflicts that get far worse with xenophobia and refugees and migration and so forth. But I do not think that social democracy has the analytical skills to come to terms with this. Even Keynes…
He was a liberal.
The working class was one lump for him, and consumption was one thing. Now we have gradations, different qualities, lots of conflicts and possibilities that emanate from this multi-layered, multi-dimensional evolution of the old categories. And I don’t think social democracy is up to this. I don’t know what is.
It used to be a lot easier to pull together a sufficiently large coalition of voters to win an election, when you had clear class distinctions. You could add one to one and make two quite easily, whereas now the arithmetic has got a lot more complicated. The question is: what sort of political force has the right “glue” to build a coalition on the scale needed?
That’s right. Mind you, it was large minorities that ruled.
But 20 years ago it was parties like Labour, the SPD getting 40% where now they get 20%. It changes the character of the political family.
But 20 years ago it was parties like Labour, the SPD getting 40% where now they get 20%. It changes the character of the political family.
I am still under the influence of last year, when we had a 75% approval rating. So I cannot agree it is impossible. We didn’t put out a very radical package. Hope is what is in deficit. Britain, the British public, has no hope. When they voted for Cameron last year it was not hopefully. It was reluctantly and because they did not like Ed [Miliband] and they did not trust the Labour Party. Now they will vote to stay in Europe out of fear, not out of hope. So what do we need to do to capture hope? That is the issue. In the 50s and 60s the dream of shared prosperity was that which gave hope. Even the Tories latched onto it: Ted Heath, the one nation Tories and so on. So I think the basic income approach is capable of doing this as long as (and this is what I emphasise when I talk to the Corbynistas) you can explain to them where the money will come from, that it will not be simply debt, that we are going to generate a lot more income and a chunk of it is going to fund this. But we, the Left, must not be fearful. I gave a talk some time ago in the United States and said: yes, surfers in California must be fed by the rest of us. We may not like that, we may feel they are bums, but they deserve a basic income too.
[Laughs]
OK, they don’t “deserve”, but they should have a basic income, because this is the way to stabilise society. But you need politicians that are capable of going out there and saying: “You see that lazy bum over there that you hate? We should feed him. And we should make sure he has a house. Because if he does not have a house and he gets sick and so on, he is a greater burden for all of us. And if there are lots of them and technological innovation produces a lot more of them, that would be macro-economically unsustainable. Those of us who want to work—because we enjoy it and have the opportunity—have the technology to produce so much wealth that we can feed the surfers.” But who says that?
That can be your slogan: “feed the surfers”. Yanis Varoufakis, thank you.
Thank you.
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