Dev Raj Dahal, Head, FES Nepal
Nepal’s post war politics and economy in these days is characterized by political crisis, poisonous mistrust between rulers and citizens, interference by foreign forces, deepening inequality, and economic stagnation as a result of state weakness, brain drain and capital flight.
From the vantage points of toiling workers in the still swelling informal urban and rural agricultural and non-agricultural sectors, of somewhat better-off unionized workers or the small class of stone-rich industrialists, the unfolding crisis in the European Union(EU) may seem distant from these ground realties in Nepal. Perhaps the affluent aid intermediaries in the government and NGOs are the only in Nepalese who so far are alarmed. Indeed, there are good reasons for worry that assistance from important donors like Denmark, the UK and Germany may shrink - if the crisis persists. Reduction in Nepal’s aid volume is one probable outcome, which arguably might be far from wholly negative from a sustainability perspective. Europe’s woes and prospects of recovery may expose both Europe’s and Nepal’s integration in a capitalist system which places exploitation of labor and nature above human dignity, welfare, democracy and a sustainable future for coming generations. Europe is no longer a bastion of prosperity and stability, where steady growth is a means of redistributed welfare from cradle to grave. Even super-affluent Norway, is likely to soon face painful crisis management dilemma.
Labor Rights under Attack
Europe’s political mandarins are cutting minimum wages, pensions and social safety nets to save private banks and the euro, the European common currency. The saying goes that populations have lived too opulently, the welfare systems are irresponsibly generous and need to be drastically reduced. The labor movements in the Germany, France and Greece, for example, have to variable degree forged compromise or mobilized on the streets against the onslaught on workers’ welfare. Huge groups of workers and pensioners find their entitlements and incomes slashed. Importantly, in reality, this recent rapid declines in real wages is a last spurt, following decades of only moderate wage rises or stagnant wages, as the relative wage proportion of the Gross Domestic Product has fallen steadily. The differences behind this development inside and outside of EU (in Norway the high profits from oil and gas production have to be factored in) the overall trend of decline is similar. When workers and households earn less they have in recent decades borrowed for consumption and investment (i.e. housing and enterprise). For long, the banks profited greatly, while ordinary citizen got indebted. When the borrowing party came to a crash landing, commercial banks faced massive losses.
Nevertheless, leading political players in EU and the finance executives – in spite of evidence to the contrary - continue to argue that too powerful labor unions, overgenerous safety nets and high wages “damage” economic growth. The reality is that in many European countries the percentage of workers being unionized have declined dramatically since the rise of Thatcherism in the late 1970s and early 1980s, which has led to a depression of workers’ real wages. What is under communicated in public debates is that most governments in EU, and even Norway’s center-left government, gave enormous financial support to the commercial banking sector in the crisis years 2007-2008. Some EU states like Spain got huge cheap loans from the European Central Bank and the International Monetary Fund, many others borrowed massively at higher interests from private banks.
These loans had to be paid the following fiscal years, creating deficits in public budgets and unleashing an escalating crisis which sought to be handled “responsibly”. What happens if the current crisis management is not only insufficient, but also out rightly flawed?
Blinkered Capitalism at Play
We see a dramatic development of austerity measures and erosion of popular power, which is potentially self-destructive for the capitalist economy. This development is characterized by the EU politicians’ generosity towards private banks, and acceptance of the conditionality that the states have to cut their public budgets dramatically. Spain is an illustrative example with massive downsizing of allocations to education and health. In Greece and Portugal, the size of pensions for workers and public employers make basic necessities of life increasingly unaffordable. Elderly and unemployed of all ages flock to street clinics and kitchens run by charity-based and voluntary associations. The unemployment rates among youths are soaring to over 50 percent in the worst affected countries such as Spain and Greece. Hard hit are also university graduates who can’t repay their back-breaking debt, and are desperate to grab opportunities to migrate to relatively unaffected EU countries such as the Netherlands and Germany, or to super-affluent Norway. It is no longer the welfare or faith of the electorate or citizens which characterizes political rhetoric, but the important “trust in the free market.” Another effect is declining tax incomes, which make debt repayment harder and subsidy to social security measures weak.
The current trends of imposed conditionality on the state for approval of loans to private banks, tacit acceptance of soaring unemployment, service cuts, shifts of the reproductive burden to civil society organizations and the family (and women in particular), are not very dissimilar to the neo-liberal monetary policies imposed on Nepal and most other developing countries since the last 20-25 years that bred unemployment, poverty, inequality and increasing social crises. In the EU states (as indeed in the US) the real economy and labor have become “gold mines” for the overblown finance capital sector.
This Fiscal Stability Treaty signed by all EU countries except the UK and Czech Republic on 2 March 2012, seems to secure its ratification by January 2013 from at least 12 countries for its legitimacy. This treaty sets a so-called “golden rule” for the budgets of all member countries. This rule implies that structural deficits (budget deficit adjusted for fluctuations) have to be corrected by decision of Supreme Courts, not by parliaments. The reforms will have to be cuts in social services and labor markets reforms. The crisis fund (to be led by finance ministers) is authorized to mobilize funds from the member countries and the finance markets (subject to the ratings of the rather non-transparent credit bureaus). A member is irrevocably and without conditions obliged to provide financial contributions. If a country needs financial help, it is the EU Commission and the European Central Bank, together with IMF, which decide if the public debt to an applicant country is “sustainable” and what “the real need” for financing is. What seems to be underway is a non-reversible transfer of sovereignty (from parliaments and treasuries) to these institutions. The Treaty undermines the sovereignty of parliamentarians in the EU to decide the incomes and expenditures, and transfer powers to the EU Commission, the EU Court and the managers of the crisis fund.
What appears to be unfolding is a new phase of building down Europe’s democratic institutions and welfare systems, a process which got kick-started with the Maastricht treaty in 1992 and has been notably reinforced in various EU Summits since the early 2000s.
Norway’s Exceptionalism – Will it Last?
Norway is a non-EU country, known worldwide for trust and closeness between elected politicians, bureaucrats and citizenry, a well-functioning social democracy and a high level of development aid. It’s this week 40 years since the first of two popular referendums with a No-majority vote against membership in the EU. The popular skepticism against the weak democratic foundations of the union and the intractability and unaccountability of the EUs powerful technocrats and bureaucrats have oscillated, but is currently again getting very strong. The pro-EU camp is currently conspicuously silent. It is a small nation of five million citizens and its progress is mainly attributable to its governance models for harnessing of its white (water) and black (oil and gas) “gold.” While the thriving off-shore industry provides the state coffer with vast daily income, it is just a matter of time before the mainland-based economy will be affected by the crisis. Many Norwegians have accumulated debts about double of their annual gross income and risk facing severe payment problems if the rent level on loans rise and the inflated housing market face a down-turn. Norwegians might right now be Europe’s most optimistic citizens, having a low unemployment rate and continuing a lavish consumerist lifestyle, aided by very low bank rents and decent income rises, due to a largely intact corporate negotiation system(between the state and the labor organizations).
This system has withstood the otherwise strong influence of liberalist management models in the public sector. The per cent of GDP which goes to development cooperation remains one of the highest in the world. With a predominantly public education system, including a free university education, the universities are attractive study destination for youths from crisis-affected Europe and developing countries like Nepal. If student fees are adapted to Swedish universities’ standards, there are proponents arguing that Norway cannot remain “an odd outpost” in a globalized world of market-driven education. Should the upcoming parliamentary election result (as it look in opinion polls right now) in a shift of government and the new coalition government include the populist Progress Party (Framskrittpartiet), the era of fee university education might be over and Norway may no longer be a world champion of development assistance. A recent evaluation of Norwegian development cooperation with Afghanistan 2001-2011 concludes that the effects on sustainable peace and security are at best elusive. This conclusion fits conveniently the Progress Party’s rhetoric that development cooperation is a waste of public funds. Both these not unlikely developments should be noticed in Nepal.
The question today for Nepal is to how best forge its own model of governance, which incorporates basic dimensions of democratic qualities, such as transparency, accountability and inclusion of a diverse citizenry, learning from its own mistakes and from the unfolding crisis management in both EU and non-EU countries. The “medicine” being applied in EU is not only “too little too late”, but a flawed liberalist solution. It stimulates only the –supply-side of the economy –putting several European democracies, welfare states and peoples under dramatic strains, not the demand side Keynesianism. The EU members with strong legacies of social democracy, such as Germany, Sweden, Denmark and Finland play separate roles in the unfolding political drama and pursue different coping strategies balancing sovereignty and integration. Norway has so far escaped the crisis. With a legacy of people’s sovereignty and referendums ending in majority votes against EU membership, the country is nevertheless integrated in EU’s inner market through a comprehensive trade agreement and will increasingly face pressure against its painstakingly built social democratic institutions. A least developed country like Nepal is still far more vulnerable, because of its weak public institutions, personalized party system and civil society and misuse of economic resources. The crisis has hit the “old social contract,” while the recent political in-fighting over state control and erosion of legitimacy of the old state edifice, have hindered a new convergence into a genuine national system of an accommodative state, real economy and full citizenship. The warning message from the European scene is that unilateral adjustment of labor and poor citizens can incubate a model for authoritarian cannibalistic capitalism, political extremism, a weakened state and defective democracies.
Nepalese crisis management must reorient the economy to production of basic needs to stem the impending food crisis, modernize informal sectors (as an entry point for agro-based industries) and look at areas of competitive and comparative advantages for the production and export of goods. The unfolding failure of the neo-liberal experience requires more reflection and analysis by Nepalese planners and policy makers of the cost of deviating from “the golden mean” and to understand the limits of external conditionality to its indigenous development and post-liberal constitutionalism. A more self-reflective learning from the still stable, but not flawless social democracies of Europe, tells us how democratic values, institutions and a demand-driven economy need to balance better private profits and public goods. Our ultimate concern should be how to enhance the self-dignity of a diverse citizenry and to improve the conditions of majority of poor adults and children - making them the real owners and beneficiaries of a rule-governed regime led by true and humble democrats. Crisis fluctuations seem to be an inbuilt feature of the capitalist system. But its current destructive character even in the Euro-Atlantic so-called advanced countries should make us realize it soon no longer business as usual.
Source: The Reporter Weekly, October 1, 2012