A Question of Sovereignty

Written by Stefan Collignon Thursday, 17 February 2011 15:20 Print
A Question of Sovereignty Foto: Ricardo Navarro

L’economia di mercato è ormai accettata dai socialdemocratici. Rimane però aperta la questione di come riconciliarla con i diritti sociali. Soltanto un forte governo economico a livello europeo che goda di una legittimità democratica può contenerne le forze potenzialmente distruttive.

Like it or not: we live in capitalism. While Europe is tripping from crisis to crisis, even the most simple-minded can understand that this means capital markets are in charge. The equilibrium in the markets for goods and services depends on decisions made by investors who seek to maximize their financial returns under the constraint of uncertainty, and the labour market is the residual.

Socialists do not like this logic. Some, like Marx and Lenin, sought to abolish the system. Unfortunately, replacing capital markets by the Politbureau was not a great success. Grudgingly, social democrats have finally come around and accepted the market economy as the lesser evil. For a while, they were able to manage the economy successfully, but now the fundamental dilemma of capitalism has reemerged: how can we reconcile the political norms of freedom and equality with a market economy? In the context of a fully integrated European market with a single currency, this requires efficient financial supervision and macroeconomic policies at the European level.

Some old-fashioned socialists still believe national governments could rule against markets. However, national sovereignty is no longer a formula for success either. What the Greek, Irish or German governments have been doing has had disastrous consequences for all Europeans and it is therefore the fundamental right of citizens to decide how the damage is to be contained. It is misleading when the former Irish Labour leader Pat Rabbitte recently said the Irish bailout was ‘going to pauperise us and we’re now going to have to bend the knee to our European masters’. While he is right that the bailout will cause severe hardship, the collapse of the euro would pauperise millions more all over the Union. In fact, it is Irish sovereignty that made Irish crony capitalism possible. Saving the euro is not an imposition of ‘European masters’, but saving the interests of European citizens in Ireland and elsewhere. However, containing the potentially destructive forces of financial markets is not possible without a strong economic government at the European level that has full democratic legitimacy to act in the interest of all.

Such ideas are not entirely new. Social democracy has started out 150 years ago with the claim that freedom cannot exist without equality. Markets do produce freedom, not only because they give consumers choices, but also because they contribute to rapid growth that makes people more prosperous. But left to its own devices, the capitalist system will inevitably make the rich richer and the poor relatively poorer, and this is why the market needs political control in the interest of all citizens. Traditionally, social democrat reformers have followed a two-pronged approach: The trade union movement would organize workers into an effective counter-power at the level of firms and push for higher wages that reflect the growth in productivity. The political arm of the Labour movement, on the other side, would seek to conquer the state and use the power of government to impose welfare reforms by democratic legislation.

This programme became successful in the second half of the 20th century, especially in Europe, when social democracy combined political and contractual struggles with Keynesianism and thereby showed that it could integrate partial interests with policies that improved general well-being. Active macroeconomic policies enabled the nation state to stabilise the crisis-prone capitalist economy; they thereby fostered growth, which has provided the material foundation for the social welfare state. The Bretton Woods System, to which Keynes had contributed so much, prevented speculative bubbles in the international economy. It was proof that putting the common good over partial interests was producing better results than blind market competition between autonomous agents.

All that changed after Bretton Woods collapsed. Huge international capital flows generated volatility and uncertainty in financial markets. Nation states lost control. Thus, steering the macro-economy became increasingly more difficult for small governments, and the social democratic model lost its luster and legitimacy. The counter-proposal of the late 1970s was neo-liberalism: forget governments, de-regulate markets and shrink the state! This was the new agenda of Reagan and Thatcher; it became hegemonic (in the Gramscian sense), because social democrats did not have any better ideas.

One of the rare exceptions was Jacques Delors, who deregulated national markets in order to strengthen the economic base of the welfare state, but he also sought to re-regulate them at the European level. In his first endeavour, he was successful. Economies of scale in the large European market lifted productivity and preserved the economic foundations of the European welfare state when socialism in other parts of the world was losing out. European integration became the anti-neoliberal alternative. Margaret Thatcher knew it well and that is why she opposed Europe.

Delors also understood that macroeconomic policy needed to cover the whole single market. As a first step he pushed for monetary union. A single market is only sustainable, if it is complemented by a single currency, for otherwise financial speculation will always have the upper hand and the general climate of uncertainty will destroy growth, jobs and welfare. However, while European Monetary Union integrated markets, a European economic government, first demanded by French Socialists, was blocked by neoliberals and conservatives. Enterprises in the European market did not want to be constrained by rules and regulations and conservative governments could play the ‘national card’ in order to prevent the loss and transfer of power to a European government.

The neoliberal agenda claimed that markets will regulate themselves and that centralising power at the European level was not necessary. Today we pay the bill for the lack of a proper European economic government. The cacophony and inconsistencies between governments, which on the one side have lost the trust of financial markets and on the other side refuse to show European solidarity, is undermining the foundations of European Union. First the Greek crisis and Ireland now have shown that so-called ‘voluntary’ cooperation between governments leads into an impasse.

In fact, the political autonomy of national governments is precisely the source of the financial trouble we are facing in Europe today. National governments will always reflect only the partial interests of fractions of European citizens, but they can never represent the collective interest of all Europeans. The conservative government of PM Karamanlis sought to buy votes by fiscal policies that ultimately damaged millions of Europeans. The German government again and again has put the presumed interests of German taxpayers above the interests of all Europeans, including Germans, who use the euro. National governments claim to be sovereign, but financial markets are masters in playing off governments. The present crisis teaches us that we have to pose the question of sovereignty in a new light: who is sovereign – markets, states or citizens?

The concept of sovereignty describes the ultimate authority for making decisions, which are of relevance for all citizens. In the old, pre-democratic days, states were thought to be sovereign insofar the rulers (kings, autocrats, dictators) made the ultimate decisions on laws and regulations. The French and American Revolutions have transformed the concept and transferred sovereignty from governments to citizens. Citizens now exercise their ultimate authority through universal suffrage (‘We the people…!’) and they appoint governments as their agents and not as their lords. Yet, during the neoliberal age, it looks increasingly as if financial markets have become the sovereign. Governments seem no longer to be able to respond to what citizens want, but they must give markets what they ask for. The reason is, of course, that in capitalism financial markets are in command unless there is a government that can oppose them in the name of citizens’ sovereignty. Hence, Europe’s problem is the lack of a European government that is responsible for economic and financial policies at the level of the Euro Area.

Conservative and neoliberal leaders like Sarkozy, Merkel and Cameron are caught in their nationalist ideology and seem unable to understand that their policies are digging the grave not only of the European Union, but also of the stability and the prosperity which has been the basis of peace in Europe for more than half a century. However, there is an alternative. Social democracy is down and out, but it can regain its vitality if it unites to transform the European Union into a modern democracy and develops a clear European strategy. In a globalised economy, the single European market is the economic foundation for competing successfully in the world market, and the old nation states are no longer capable of ensuring the viability of the welfare state. In 10 years not even one member state of the European Union will exceed 1% of world population. Small markets hamper productivity growth and constrain the tax base, while small currencies are prey for speculation in global financial markets. Thus, the European nation state has become dysfunctional for social democratic purposes and can no longer protect citizens’ welfare.

In the neoliberal age, the biggest loser was democracy. Because the nation state was the organ by which citizens exercised their democratic rights, the shrinking of the state has reduced democracy as well. Decisions are made in the interest of those who own capital and not for those who do the work. Regulating the European Union with its single market and single currency requires the existence of a European government that governs the entire economic and monetary area; but such a government is only legitimate if it acts as the agent of citizens, who are the sovereign. This means all citizens must have the possibility to choose among policies and then charge a government to put them into action. The division of citizens, which ‘belong to’ separate nation states, prevents the emergence of a policy consensus that could reflect the interests of all Europeans. Divide and rule is the conservative idea of Europe. Angela Merkel put it succinctly: ‘The economic government is us!’

The lessons of the European crisis for social democrats must be that they have to build a European democracy that enables all European citizens to choose social policies which will contain financial crises and establish the power to regulate it. It is an old agenda for social democrats, but to become successful again, they needs new tools. Europe is the answer.


Reprinted with the permission of the Social Europe Journal


Foto di Ricardo Navarro

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