Why the Eurozone needs a job guarantee on its way out of the Corona crisis
by Maurice Höfgen and Dirk Ehnts
[This article published on 7/1/2020 is translated from the German on the Internet, https://awblog.at/warum-eurozone-jobgarantie-braucht/.]
Discussions to revive the economy in line with the pandemic-conform loosening are in full swing at all levels. Since many companies have been hit hard by the corona crisis and there is a great deal of uncertainty, government stimulus is needed to relaunch the economy. In view of the depth of the recession and the impending challenges of the climate crisis, a job guarantee appears to be the reform that can provide the necessary fiscal stimulus to boost the economy, reduce involuntary unemployment as quickly as possible and support the ecological turnaround.
Unemployment as a macroeconomic problem
Since the 1980s at the latest, the economic paradigm has changed fundamentally. This also and above all affects the area of employment. Since then, responsibility for full employment has no longer been placed with the state, but at the individual level and has been declared an expression of a lack of individual competitiveness. The Corona crisis, which has brought the economy to a standstill in many parts and deprived job seekers of any prospect of employment, should have finally revealed that this view is untenable in terms of argumentation and is even irresponsible for the fates of many people.
Involuntary unemployment is first and foremost a macroeconomic problem that can be seen as evidence of insufficient overall economic demand. Just how far removed the neo-liberal view is from economic reality is probably no other example better illustrated than the wage cuts between 2010 and 2012 in Greece. There, in the course of the crisis, wages were cut across the board by 20 percent in order - according to the neoliberal understanding - to strengthen the individual competitiveness of workers and thus reduce unemployment. The crux of the matter is that if incomes are cut by 20 percent, people will be forced to cut spending by 20 percent and companies will make correspondingly less turnover. However, if turnover is lower, companies will need fewer and not more staff, resulting in redundancies and the unemployment rate in Greece skyrocketing from 11 percent (Q1 2010) to 28 percent (Q3 2013). The lesson is that to combat involuntary unemployment, higher demand is needed. This is where the economic policy of the state is called for.
Unemployment in the Eurozone: a stocktaking
Involuntary unemployment, youth unemployment, and underemployment were already a central problem in the euro area before the corona crisis, and the corona crisis has further exacerbated this problem. The official unemployment rate for the eurozone was 7.3 percent before the Corona crisis. The May figures for Germany, Spain, and Austria, in which the unemployment rate rose by 1.2 percentage points and 4 and 4.7 percentage points respectively compared to the previous year's level, illustrate the effects of the crisis.
Similar orders of magnitude can be assumed for the other countries in the eurozone. Added to this is the expansion of short-time work as a result of the pandemic. To put it in perspective: at the end of May, around 7.3 million jobs were affected by short-time working in Germany, 3 million in Spain and 1.3 million in Austria. In addition, the lack of consideration of underemployment in the statistics must be taken into account, so that a significantly higher number of people who work less than you would like to work can be assumed.
Involuntary unemployment as a burden on society and the individual
From a macroeconomic perspective, involuntary unemployment is evidence of the under-utilization of available resources. As a result, potential gains in prosperity remain unrealized, which usually comes disproportionately at the expense of those at the lower end of the income distribution. It is simply not possible to save labor. Those who do not work at all in one year cannot work twice as much in the next year and thus reinvest the "saved" labor.
In the eurozone, however, there is a massive need for work in order to expand public services of general interest or to correct social and ecological grievances. At the same time, a large number of people are looking for work. This is a contradiction, which Keynes illustrates in the following quotation in a pointed way.
"There is work to do; there are men to do it. Why not bring them together?" - John Maynard Keynes
In addition to macroeconomic reasons, however, involuntary unemployment is also associated with various social problems. There is a broad consensus among sociologists that the social costs of unemployment go far beyond the mere loss of income.
For example, involuntary unemployment is associated with social exclusion, frustration, insecurity, feelings of inferiority and reduced self-esteem, and is associated with social phenomena such as crime, regional disparities in development, health problems, family problems, and early school leaving.
What might a job guarantee look like?
The state makes an unconditional job offer to anyone who wants to work for a socially acceptable wage including social benefits. The job guarantee is based on the basic idea that it is the responsibility of the state to create the necessary employment opportunities if the private sector is not able to do so (see also "Job guarantee as an opportunity for the long-term unemployed"). The job guarantee scheme should, therefore, be understood as a buffer stock of paid jobs that expands (contracts) when private sector activity declines (increases).
Ideally, the program is organized as a bottom-up approach that combines the individual desire for continued employment with the needs of cities and municipalities. Therefore, the majority of administration is at the city or community level and aims to create local jobs that serve the common good. In this way, the participants in the job guarantee scheme can be involved in the choice of projects to be funded and the welfare state can be experienced as a community project in the sense of the common good. A survey of participants in the temporary and limited Job Guarantee Program, which was implemented in Argentina in the early 2000s, found that satisfaction with the job was primarily linked to the opportunity to contribute to the community.
The benefits of a job guarantee
In addition to the obvious benefits to individuals of correcting the above-mentioned problems by utilizing existing resources and enabling continuous employment, the job guarantee scheme also acts as a counter-cyclical stabilizer, price anchor, and demand management instrument. For reasons of space, only the former will be discussed here.
In an economic downturn, the number of job guarantee participants and thus government spending increases, whereas in an economic upswing the number of job guarantee participants and thus government spending decreases. Especially during a recession, additional government spending is precisely the stimulus needed to recover from the economic low. In this respect, the job guarantee is comparable to the concept of unemployment benefit, which compensates for the loss of income in order to stabilize demand during a recession - with the crucial difference that the job guarantee compensates not only for the loss of income but also for the loss of employment. In addition, the feature of the job guarantee that expenditure is automatically adjusted in line with the business cycle helps to stabilize price levels and counteract inflationary and deflationary trends. In view of the under-utilization of capacity in the eurozone economy to date, not least as a result of the pandemic, no significant inflationary effects are to be expected from its introduction either.
The financing question in the eurozone
As the currently much-admired Modern Monetary Theory (MMT) makes clear, the original purpose of the monetary system is to enable the mobilization of available resources. At the heart of the monetary system is the national currency, which the currency issuer can theoretically produce unlimitedly and free of charge (at the push of a button). Under what circumstances and within what limits this can (should) happen is determined by political rules. These rules can make more or less sense, as the example of the eurozone shows.
In the eurozone, the European Central Bank (ECB) is the creator of the euro and could theoretically provide funds in the appropriate amount for the implementation of a job guarantee. There are a number of options for the concrete design, some of which, however, would require institutional reform. In view of the need for a rapid introduction, it is, therefore, advisable to work with the current regulatory construct.
Since the European Commission has suspended the Stability and Growth Pact and the ECB is ensuring through the Pandemic Emergency Purchasing Program (PEPP) that member states can obtain the necessary euros via the capital market at relatively favorable conditions, it would make sense in the short term for the euro countries to raise the funds needed for the job guarantee by issuing government bonds.
In the medium term, the ECB should aim to reform the fiscal rules and transform the bond purchase program into a permanent default guarantee for government bonds. For example, involuntary unemployment is associated with social exclusion, frustration, insecurity, feelings of inferiority and reduced self-esteem, and is associated with social phenomena such as crime, regional disparities in development, health problems, family problems, and early school leaving.
The economy of everyday life: renewing and transforming what supplies us
by Leonhard Plank, Richard Bärnthaler and Alexandra Strickner
[This article published on 6/22/2020 is translated from the German on the Internet, Ökonomie des Alltagslebens - Arbeit&Wirtschaft Blog.]
The COVID 19 pandemic has shown that some economic activities are more important than others. While many industries had to close, this did not apply to those areas of the economy classified as "systemically important". Tomorrow, June 23, International Public Service Day will be celebrated to highlight the achievements of the public sector and its importance for economic and social progress. A good occasion to reflect on the upgrading and development of these fundamental economic activities in the context of services of general interest and local supply.
What we need to live
This fundamental economy (foundational economy, the economy of everyday life) is the zone of the economy that guarantees the security of the basis of life and thus enables human survival: without food and health care, electricity, water, gas, garbage collection, and housing, there is no survival in civilized societies. In simple terms, fundamental economics thus includes the activities of providing services of general interest and local supply, which are always - and therefore also in times of crisis - needed every day.
The Foundational Economy Collective, an association of European scientists, has based on research work of the last few years, already in the first weeks of the COVID 19 crisis, drawn up a manifesto with a ten-point program for the time after the pandemic. The overall aim of the program is the reorientation of Europe's economic policy, based on the expansion of collective responsibility for the basic supply of essential goods and services. For this contribution, we (Leonhard Plank, Andreas Novy, Richard Bärnthaler, Alexandra Strickner) pick out three essential points from the manifesto on the occasion of Public Service Day.
Assuming joint responsibility for health and nursing care
Health is the area where it is easiest to form alliances to renew foundations. As current experience with COVID-19 shows, it is important to involve the workforce more closely in such alliances. The crisis is not only a wake-up call for collective provision but also for the necessary and lasting upgrading of the "key players" in these sectors. Furthermore, regional differences in financial resources between EU countries (the North and West of Europe and the South and East) and within countries, such as between the North and South of Italy, need to be reduced. High-tech medicine requires prudent investment in capacity to avoid scandals of being unprepared - as in the case of the underfunded UK NHS, which has reduced half of its acute care beds over the past 30 years. At the start of the crisis, the British had only 4,000 acute adult beds, 5,000 ventilators, and severely limited capacity at testing laboratories, making the strategy of "testing and tracking" impossible.
At the same time, community-oriented health and care services and preventive medicine, which focuses on well-being, need to be expanded. While the pandemic has led to a rediscovery of public health care in the form of disease control, the need for a new approach to health care has not been eliminated. However, public health care should play a much greater and more preventive role in issues such as poor nutrition, air pollution, and mental health problems. If this is not done, obesity, type 2 diabetes, and lung diseases threaten to overburden the health system, while mental health care, which would ensure holistic treatment of patients and thus their well-being, is rarely funded.
Reform the tax system to generate funds for restructuring
Without tax reform, the burden of debt service resulting from the COVID 19 crisis will put pressure on the provision of basic public services. As a result, necessary investments will be increasingly lacking, for example in affordable housing, good health care, or public transport.
The effects of the COVID 19 crisis make it necessary for governments to compensate for the loss of income, stabilize private enterprises, and put together economic stimulus packages. These higher expenditures together with lower revenues lead to higher government debt. Even before the crisis, the respective national debt as a share of national income was around 80 percent in the EU. The figures ranged from a low 34 percent in Denmark to highs of 182 percent in Greece and 134 percent in Italy. Germany, Austria, and the United Kingdom took a middle position. If no majorities can be found for an innovative monetary policy solution (keyword: public financing by the European Central Bank ECB), the debt level will rise significantly. Even with low-interest rates and the benefits of steady inflation, it will be a major challenge to refinance and repay this debt.
If the tax system is not reformed in an equitable manner, this will probably mean 10 to 20 years of cutbacks, starving basic services such as education, health, and care, as was the case in many European countries after the 2008 financial crisis. Increasing revenues through tax reform is therefore a key prerequisite for defending and expanding basic public services against a "policy of empty coffers".
Rebuilding technical and administrative capacity at all levels of government
Political science debates the post-democratic state; a state in which the democratic apparatus and its institutions continue to exist, but decisions are made by a political-economic elite. When we think about renewing the foundations, we must be on our guard against the post-administrative state. In it, administrative authorities combine management rhetoric on strategies and leadership principles with an inability to manage things effectively and efficiently.
The management of the 2008 crisis showed how post-democratic states function. COVID-19 points to the lack of effectiveness of our public administrations, which was also evident in Austria, for example, in the procurement of protective equipment. This insufficient capacity to act is rarely part of the political debate. For example, this discussion is missing in the Manifesto 2019 of the British Labor Party, which called for a Green New Deal with ambitious targets for the decarbonization of the existing building stock but without having a clear idea of how the necessary work should be planned, organized and carried out.
The problems are particularly acute in municipalities and cities, as budget cuts and the privatization and outsourcing of many activities leave them without staff and professional capacity. Not only in Great Britain are local governments massively affected by austerity policies and budget cuts of 40 percent; in Italy, too, employment in regional and local government has been cut by more than 25 percent in recent years. Even in Germany, local authorities have problems because they are not (or no longer) able to invest funds in infrastructure projects.
Without professional and administrative capacities, governments cannot take a leading role in developing investment programs and managing basic services.
Alliances for change
Instead of going back to the old agenda, we should use the lesson learned during the lockdown on the importance of fundamental economics to reorient economic policy towards a good life for all. Therefore, now more than ever it is necessary to put the renewal and transformation of the foundations at the center of the necessary construction and restructuring of our economy - and with it those people who "keep the shop running" (Angela Merkel). It is a historic opportunity to break with the undesirable developments of the past decades - above all the commercialization of public services - and at the same time to address the climate and environmental crisis and the erosion of social cohesion.
This requires measures and steps that reduce the dominance of a market-centered and competitive economy and instead strengthen a fundamental economy of the common good, an economy of everyday life, in order to provide those daily essential goods and services that guarantee the quality of life and sustainability on the ground.
To bring about this change, new and broad alliances are needed: between progressive parties (red and green), trade unions, and civil society movements, as well as with conservatives and liberals who recognize the importance of the collective provision of basic services. Especially in Germany and Austria, where the municipal provision of central services of general interest by public utilities, cooperatives, or within the framework of inter-municipal partnerships enjoys a high degree of legitimacy among citizens, there are numerous points of contact for organizing this change together.
For a new European economic order after the crisis
by Luke Hochscheidt, Judith Vorbach and Susanne Wixforth
[This article published on 6/18/2020 is translated from the German on the Internet, https://awblog.at/neue-europaeische-wirtschaftsordnung-nach-krise/.]
A fundamentally new European economic order based on solidarity is needed. This is the only way to better face future crises and address the growing inequality of wealth. Important building blocks of this "future structure" are a permanent departure from restrictive fiscal rules, the expansion of the EU's own resources, and public investment.
Life is not a monopoly game
The board game Monopoly inculcates the functional logic of the capitalist economy in children: to win, you have to have more than the others. However, the most polished rule that Monopoly gives to its players* is this: If something goes wrong, you simply "go back to the drawing of lots" - and the old game starts all over again with new luck (and money). But the possibility of restoring people's level of prosperity to the same starting level exists only on the game board. Without "back to lottery", the imbalances between the Monopoly players* will end in bankruptcy for some and wealth accumulation for others. In fact, imbalances have been rising in Europe since the 1980s. More than half of the euro area's wealth is concentrated in the hands of the richest 10%. As a result, millions of Europeans* suffer from broken health and welfare systems, unemployment, and poverty. In order to reduce the ever-widening gap within and between the member states, we must fundamentally change the rules of the European economic order.
Lessons from Corona
The COVID 19 pandemic once again demonstrates the Union's lack of crisis resilience. The crises of the future - be they economic, financial, or pandemic crises - will be European and global crises. Even if they do not affect all Member States equally, these crises weaken the EU as a whole. Europe, therefore, needs, first and foremost, more solidarity: the promise of upward social convergence between the Member States must finally be fulfilled. But also within the Member States, the Union must take precautions against existing inequalities by harmonizing minimum standards for social security systems and strengthening the state revenue side. Not only does the EU need more own resources, but its Member States must also be able to finance themselves primarily through tax revenues in order to free themselves from the dependence of the financial markets.
The architecture of economic and monetary union is still incomplete. While the monetary integration of the euro area is complete, the euro states continue to pursue their own fiscal and economic policies. These put them in competition for lower taxes, lower social protection, and more favorable wage costs in order to increase the incentives for companies to set up in business. Instead of economic and social cohesion, as required by Article 3 of the Treaty on European Union, we are seeing, especially in the eurozone, how the neglected distribution issue within the Member States is expressed in decreasing solidarity between the Member States.
A "future structure" for economic and monetary union
To counteract this dangerous development, we must create a sustainable, solidary future structure that fulfills two functions: It must stabilize the Union in times of crisis and it must consolidate the social security systems within the Member States.
This dual function could be fulfilled, among other things, by a European unemployment reinsurance scheme, which supports national unemployment insurance schemes in the event of an economic collapse and ensures that benefits continue to be paid. At the same time, reinsurance must also ensure that Member States' systems are strengthened in the long term by making payments conditional on robust and solidarity-based financing. The SURE program now adopted by the Commission and Council is the first step in this direction. However, since SURE only protects existing jobs by supporting the financing of short-time working allowances and similar measures through loans, but does not provide any economic security in the event of rapidly rising unemployment, it cannot replace the introduction of unemployment reinsurance.
Stabilization and good conditioning through European funds can also be provided by common European bonds or the perpetual bonds proposed by the Spanish government. Fair conditionalities could build a bridge to a new, important step towards integration by adding revenue-side criteria to European economic governance, for example in the fight against tax fraud and aggressive tax avoidance.
Fiscal policy restart
Fiscal policy is a particularly sensitive adjustment screw in European economic policy management. A substantial move away from restrictive budgetary rules is necessary. This makes it impossible for the Member States to react adequately to an incipient recession and thus contributes to the deepening of crises. The use of the emergency clause from the increasingly stringent budgetary requirements was the right decision. Instead of a return to the "old" fiscal rules, what is needed in the future is a reorientation of economic policy management with a focus on sustainable and inclusive growth and balanced distribution. In order to lay the foundations for this, the review of economic policy management, which was initiated before the outbreak of the Corona crisis, must be resolutely continued.
In addition, the instruments described above for cushioning crises can only develop their stabilizing effect if they overcome the different scope for action of the Member States. This means that they must be financed from European funds. How these pots are generated - whether through corona recovery bonds, perpetual bonds, or by resorting to existing mechanisms such as the ESM - is the subject of the current debate. What is often forgotten, however, is how crucial the development of European equity or European fiscal capacity is in this context. The proposals currently under discussion for the introduction of financial transaction taxes, plastic taxes, a Carbon Border Adjustment Mechanism, digital taxes, wealth taxes or even a common consolidated corporate tax base in combination with a minimum tax rate would not only curb tax evasion and avoidance in the internal market but also open up considerable financial leeway for the EU.
Public goods for Europe
Moreover, the European economic order needs a new strategy for public investment. The Corona crisis has brought our economy to a temporary standstill. However, this does not mean that the problems we had before Corona will disappear when the pandemic ends. That is why investments to overcome the crisis must also take climate change, digitalization, increasing inequality and demographic trends into account. Europe must take the current crisis as an opportunity to make substantial and transformative investments. This can only be done by exempting future investments from fiscal rules through a "golden rule". At the heart of these considerations must be the preservation of public goods for all Europeans*. This includes strengthening social infrastructure, education, training, science, and research, as well as a European agenda for health protection and combating sanitation crises.
Who shapes Europe's future?
Whether these and other visions for the future of the EU and its economic and social order will be reflected in a revision of the European economic governance, fiscal rules, and also the European Treaties will depend largely on who will be involved in the decision-making process. In the Corona crisis we can see once again that the price of serious economic crises is paid by those who suffer most from their consequences: the workers*, the young generation, and those who are currently looking for work. Their voice must also be heard more strongly at the European level. This means, among other things, a much stronger involvement of the trade unions in economic policy decisions. The Conference on the Future of Europe can be a way to achieve a more solidary, fairer, and crisis-resistant Europe through the participation of the people. Changes to the EU Treaties must not be taboo.