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The extent of market regulation and social protection differed from one country to the next, but governments in all advanced democracies took an active and strategic role in the stabilisation of the economy and the distribution of post-war prosperity. The lessons of mass unemployment and debt deflation from the Great Depression were taken to heart. Social protection came to be firmly anchored in an explicit normative commitment to granting social rights to citizens, protected by the nation-state. An impressive set of welfare programs was developed: The mixed social and market economy was based on the axial principle of full employment for male breadwinners, and promoted a growth-oriented industrial policy to achieve this end.
In trying to understand what went wrong in the Great Depression, Keynes introduced a completely new brand of economics focusing on the study of the behaviour of the economic system as whole, rather than the behaviour of individual actors. Depression gave rise to Keynesian economics, the s and s vindicated Keynesian demand management as a standard tool of economic policy.
Keynesian macroeconomists in academia and public office proclaimed that enduring recessions would be a thing of the past. On the one hand, governments encouraged the liberalisation of the economy through successive rounds of GATT negotiations that slowly broke down the regulatory regimes and trade barriers put in place during the Depression and the Second World War. On the other hand, the expansion of social programs compensated for the risks inherent in economic liberalisation. Western governments embraced the change and dislocation that comes with liberalisation in exchange for containing and socialising the costs of adjustment6.
Against the backdrop of the Cold War, the goal of price stability was sacrificed when this was deemed necessary to maintain an open international economy7. The Bretton Woods monetary system of stable exchange rates laid the groundwork for the regime of embedded liberalism, allowing national policymakers freedom to pursue relatively independent social and employment policies without undermining international economic stability. It should be emphasised that the compromise of embedded liberalism was tailored to a world in which international competition remained limited and foreign investment was conspicuously based on a regime of capital controls.
The era of embedded liberalism was an era of institution building. The post-war domestic and international communities were resolved to contain the economic and political instabilities of the s and s. Together, the Bretton Woods institutions, the national welfare state, and the European Community were all launched with an eye to avoiding the crises of the early 20th century. During the Golden Age of economic growth between and the early s, each of the advanced industrial societies developed their own country-specific brands of mixed economy and welfare capitalism. What came out of the post-war era was therefore an international system of national capitalisms, not a global economic system8.
Despite the historically unprecedented achievements of the post-war mixed economies in promoting civil liberty, economic prosperity, social solidarity, and public well-being, there. In the late s, the post-war celebration of unprecedented growth and social solidarity through democratic politics was already giving way to doubts.
Rising inflation as a result of wage explosion and the resurgence of worker militancy and social protest confronted the sober and consensual political economies of the post-war era with a new political context, reflecting the new levels of economic prosperity and social expectations. The era of embedded liberalism came to end in the mids as the two oil shocks of the s revealed contradictions in the mixed economy and welfare-friendly regime of embedded liberalism; specifically, its inability to contain inflation under conditions of near-full employment.
Furthermore, increasing international competition and de-industrialisation came to undermine the effectiveness of domestic Keynesian demand management. This led to a massive surge in unemployment, not seen since the s. As Keynesian economists continued to analyse macroeconomic performance in terms of a trade-off between employment and inflation, they lost their intellectual edge.
After the second oil shock in led to tightened fiscal and monetary policies in the early s, the world economy entered its most severe slump since the s. The crisis of stagflation thus set the stage for a political return to more unfettered market economies, away from public ownership, excessive regulation, and generous levels of social protection. The election of Margaret Thatcher and Ronald Reagan, in and respectively, brought the belief in the primacy of self-regulating markets and a minimal state back into the limelight.
The state was identified as the source of the problem of stagflation, as it was believed to distort the natural workings of the market. Beginning in the s and gathering momentum in the s, neoliberal doctrines of fiscal discipline, low inflation, financial liberalisation, labour market deregulation, privatisation, and the marketisation of welfare provision from regulatory constraints, gained precedence in the management of advanced market economies. However, it should be remembered that neo-liberalism did not spell the waning of state activism, but instead the redeployment of government initiatives to the new mission of liberalisation, deregulation and privatisation.
State authorities shifted from a market-steering orientation to a market-supporting orientation. Neo-liberalism lasted until the onslaught of the current crisis. What neo-liberalism stands for exactly is far from unanimously accepted. At a very general level, I associate neo-liberalism9 with the secular expansion of market relations inside and across the borders of national political. The key goal of neo-liberalism was to free up markets, institutions, rules and regulations, which under the post-war settlement of embedded liberalism were reserved for collective political decision-making.
If the era of embedded liberalism was a time of institution building, then the era of neo-liberalism is best understood as a time of institutional disembedding. Important qualifications notwithstanding, the neo-liberal transformation in the s and s made modern capitalism more market-driven and market-accommodationist, releasing ever more economic transactions from public-political control, and turning them over to private actors and contracts.
Throughout the advanced world, price stability rather than full employment became the principle objective of macroeconomic policy. If Keynesian economics was the intellectual product of the s, the s crisis of stagflation brought Keynesian paradigmatic hegemony10 to an end. In rational expectation models of macroeconomics, it is the combination of exogenous shocks and slow transmission that creates cyclical movements in the economy. In this vein, Blanchard and Summers11 suggested a reason why wages did not fall when unemployment was high in Europe in the s.
In these mainstream models there is no place for endogenously generated business cycles.
Likewise, the preoccupation of business-cycle macroeconomists had been to prevent inflation by keeping interest rates up, just below the level that would risk precipitating a recession. Modern macroeconomics, especially within central banks, became excessively fixated on taming inflation and much too benign about housing price and asset bubbles.
As the global economy started to pick up in the second half of the s, European economies were behind the curve compared to the stronger rebound in countries like the US and Japan. The European Commission, under Jacques Delors, rose to the occasion by introducing the concept of the Single Market, promoting privatisation and deregulation in an attempt to open up national markets. The Single European Market Act of was. The OECD economists singled out the accumulation of perverse labour-market rigidities that impeded flexible adjustment, blocked technological innovation, and hampered employment and economic growth.
Downward wage rigidity was once more seen as the principle obstacle to full employment. The fundamental European dilemma was conceived of in terms of a trade-off between economic efficiency and equality, growth and redistribution, competitiveness and solidarity. The policy recommendations that followed this analysis included retrenchment, deregulation, decentralisation, and privatisation. To its credit, in strengthening competition, neo-liberalism did help to lower prices and sober up public finances. It permitted higher rates of non-inflationary growth, and thus promoted prosperity in the US and the EU.
Neoliberalism and the European Welfare State In the final analysis, however, neo-liberalism did not completely undermine the institutions of embedded liberalism. Government ownership has been reduced through privatisation, and domestic and international market expansion has been encouraged through deregulation. However, neo-liberal politicians of various colours have been far less successful in retrenching the welfare state, especially in Europe. The distributive aspects of the welfare state have remained popular. In this respect, the neo-liberal program of institutional liberalisation and destruction was incomplete, more so in Europe than in the US.
From the early s to , total social spending as a proportion of GDP has generally hovered between 27 and 28 percent This does not mean, however, that welfare policies have not profoundly changed over the last few decades. In substantive ways, the majority of Member States of. Moreover, cleavage conflicts over issues like childcare and leave arrangements, employment protection legislation and active aging, are being fought out within mainstream social democratic and Christian democratic parties, rather than between left and right If we interpret the welfare state more broadly than aggregate social spending, a finer grained qualitative analysis of long term policy evolution reveals a process of profound yet gradual transformation across several related policy areas Limiting ourselves to the more critical reform measures, in a wide array of countries, at least seven key reform trends can be identified — each briefly introduced here.
In macroeconomic policy, up until the late s, Keynesian priorities, geared toward full employment as a principal goal of economic management, prevailed. In the face of stagflation the Keynesian order gave way to a stricter macroeconomic policy framework centred on economic stability, hard currencies, low inflation, sound budgets, and debt reduction, culminating in the introduction of the European Monetary Union EMU.
Also countries that have decided to stay out of EMU have moved towards hard currency regimes with increasingly independent central banks, modelled after the ECB. In the field of wage policy, a reorientation took place in the s in favour of marketbased wage restraint in order to facilitate competitiveness, profitability, and employment under conditions of growing economic internationalization. The rediscovery of a jobs-intensive growth path in Denmark, Finland, Ireland and the Netherlands, by way of a first generation of new social pacts, has also allowed the social partners to strike deals over productivity, training, and job opportunities for less productive workers.
In the s, the. Stiller ; Korthouwer EMU entrance exam has played a critical role for a second generation of national social pacts in the so-called hard-currency latecomer countries, like Greece, Italy and Portugal In the area of labour market policy, in the s, the new objective became maximising employment rather than inducing labour market exit.
The main policy trend here is a shift from passive financial transfers for those participating in the labour market towards activating measures in order to reduce dependency rates and increase the tax base. In the process, we witness notable increases in spending on active labour market policies, mobilizing women, youth, older workers, less productive workers, based on early intervention, case management and conditional benefits With respect to labour market regulation, several European countries have moved towards greater acceptance of flexible labour markets on the condition of strong matching social guarantees.
Together with active labour market policies for the unemployed, flexicurity is intended to help bridge the gap between insiders and outsiders in mature welfare states and permit more flexible family models and individual life courses, with a view to preventing long-term dependency on income support In the s, both the Danes and the Dutch critically deregulated their labour markets and strengthened job seeking with a series of active labour market policy measures.
Classical measures of job security for labour insiders have been reformed only at the margin. Within the sphere of social insurance, we can observe how benefits generosity has been curtailed: At the same time, most countries have been strengthening a basic non-contributory safety net, such as the French RMI. Different strategies, based on national preferences, have experimented with constraints and opportunities, such as traditional means-testing,.
Great Britain, where income guarantees and unemployment benefits are modest, has, over the past decades, shifted to work conditional tax credits to support low-wage workers and their families. In Continental Europe, the main problem is that heavy social contributions price less productive workers out of the market. In the face of the relative weakening of traditional male breadwinner social insurance programs, policy makers in these countries have turned towards strengthening minimum income protection functions of the welfare state, coupled with strong activation and reintegration measures.
This is also captured by the shift from out-of-work benefits to in-work benefits in many European countries. Access to benefits has been generally made more restrictive and conditional, but at the same time new networks of public and private employment services have been set up in order to promote and facilitate the labour market re-integration of workers without jobs.
The Hartz IV reforms in Germany stand out as a case in point, involving a drastic shortening duration of benefits, tighter requirements to accept suitable jobs, simplification of insurance regulations, wage insurance for elderly unemployed, and the merger of unemployment assistance and social assistance. In the area of old-age pensions, the most important trend is the development of multipillar systems, combining PAYGO and fully funded methods with a tight actuarial link between pension benefits and contributions.
The common thread is the shift toward defined contributions and changes in the assessment of pension accruals, together with postponing the retirement age. PAYGO and funding as methods of financing. Virtually all other European countries have also introduced fiscal incentives to encourage people to take up supplementary private pension insurance, fairly successfully in Austria and Spain. In the s, a number of countries, notably Belgium, France, Ireland, the Netherlands and Portugal, have started to build up reserve funds in order to maintain adequate pension provision when the baby-boom generation retires.
Also changes in indexation rules have helped to reduce future pension reliabilities. In Austria, Germany, Italy and Spain restrictions have gone hand in hand with attempts to upgrade minimum retirement guarantees. Measures to combine work and retirement via partial pension benefits have been introduced in Austria, Belgium, Denmark and Germany.
In Western Europe, one of the most profound reforms was enacted by Sweden in the mids, which introduced a small mandatory funded element and transferred an important part of the risk associated with aging to retirees. The latter was done by indexing future benefits to the life expectancy of the retiring cohort and by linking future benefits to net wages.
Benefits will be lower if life expectancy continues to increase and net wages continue to grow slow, but the reform also continued to ensure a universal guaranteed pension for low-income pensioners The Swedish legislation has also heavily influenced reforms in other countries, like Italy, Latvia and Poland And while Germany and the United Kingdom are about to raise the retirement age, Finland has developed policy approaches to improve occupational health, work ability and well-being of aging workers, in order to keep older workers in the workforce as long as possible Social services have experienced a comeback lately.
Spending on childcare, education, health, and elderly care, alongside training and employment services, has increased practically everywhere in Western Europe over the past decade. Almost a fifth of all jobs created in the EU between and occurred in the health and social services sector as aging and longevity make demands on professional care that working families can no longer meet. Social services and family policies have also witnessed some innovation in both substantive and organizational terms, with a view to responding to the rising needs of the elderly population, the changing gender division of labour and new forms of poverty and exclusion All welfare states have indisputably been weakening their traditional male breadwinner bias.
In Scandinavia the expansion of services to families began in the s in tandem with the rise in female labour supply. It was in large part this policy of socializing caring responsibilities that catalysed the dual-earner norm. In most other European countries,.
In Southern Europe it is only during the past decade that we have seen a sharp rise. Throughout the EU, leave arrangements for working parents have also been expanded, both in terms of time and in the scope of coverage, to include care for the frail elderly and sick children. Here, governments have pushed for increased spending and more flexible opening hours in order to spur the number of available and affordable childcare places A final reform trend involves financing welfare provision. We have already mentioned the promotion of funding as opposed to PAYGO in the area of pensions, with a double purpose: Another important development on the financing front has been the attempt at reducing charges on business and labour, particularly those in the form of non-wage labour.
Over the past two decades, as the above inventory of reform shows, many European welfare states have — with varying success, but also failure — pushed through adjustments in macroeconomic policy, industrial relations, social security, labour market policy, employment protection legislation, pensions and social services. In the process, these policy areas have been brought into a new relationship with each other.
The character of the relationship changed from loosely coupled policy responsibilities in the shadow of Keynesian macroeconomic policy, to one of tightly coupled interdependencies between employment and social policy repertoires under more austere macroeconomic conditions. In terms of performance, it became evident that active service-oriented welfare states were in a stronger position than passive, transfer-oriented systems to achieve employment growth.
In the process towards activation, the avoidance of early retirement, the promotion of part-time work, lifelong learning, gender mainstreaming, balancing flexibility with security and reconciling work and family life, practically all European welfare states are. Moreover, most welfare reform endeavours have remained deeply embedded in normative notions of equity and solidarity, shared cognitive understandings of the efficiency-enhancing effects of well-designed social and labour market policies.
And while many reforms were unpopular, it is important to highlight that a fair amount occurred with the consent of parties in opposition, trade unions and employer organizations. Conjecturing Regime Change under Low Growth Prospects In democratic systems, it is ultimately politics that decides over matters of social and economic governance.
Once again, the current economic crisis is fundamentally redrawing the boundaries between states and markets, calling into question many issues of economic policy, ranging from central banking, fiscal policy, financial regulation, global trade, welfare provision, economic governance and assumptions about human behaviour and rationality.
Many observers, experts, and policymakers are seeking new answers, and looking for solutions to the new questions posed by the crisis.
Thus far, intellectual and policy attention has focused on immediate crisis management, especially with respect to financial sector risk management. Little systematic thinking has been devoted to the question of whether and to what extent the crisis creates momentum for more fundamental welfare regime change. To be sure, it is still too soon to draw conclusions about the future economic, social, cultural, and political consequences of this momentous economic shock.
On the other hand, these questions are among the most politically and intellectually pressing of our times. Any tentative exploration of these questions has to start with a diagnosis of the crisis. Does the current credit crunch bear any similarity to the Great Depression or is it more similar to the s crisis of stagflation? Barry Eichengreen and Kevin H. In , industrial production, trade, and stock markets plummeted even faster than in However, whereas after the crash, the world economy continued to shrink for three successive years, in the wake of the crisis, policy responses were much better, and led to a swift upswing in trade and stock markets in the first half of This suggests that the biggest difference between this crisis and the one in the s was timely, effective and coordinated crisis management to arrest economic collapse.
In short, policymakers today have been able to avoid the deflationary, protectionist, and nationalistic policy responses that aggravated the decline in the s. This can in part be attributed to the fact that policymakers in developed countries learned from the mistakes of the s, and are now firmly committed to open economies. A second related factor, perhaps is that international economic interdependence has progressed so far especially in the EU that protectionism is simply no longer a viable option.
The crisis indeed revealed how much the world economy has fundamentally transformed over the past three decades, and this makes the crisis circumstantially different from any historical precedent. The swift global fallout after the US sub-prime mortgage crisis demonstrates the stark reality of 21st century global economic interdependence — hardly any country in the world has remained unaffected. The fast response of public authorities, national governments and central banks in concert attests to effective crisis management, which was so sorely lacking in the s.
Of course, earlier crises may offer interesting analogies but the present circumstances are radically different to previous crisis situations. But conspicuous consumption and greed are not new. As such, they cannot explain the speed or the depth of the global crisis after What then are the deeper, more structural and systemic causes of the crisis? Why did academic economists fail to anticipate the coming crisis?
In retrospect, three factors can be identified that began to merge in the early years of the 21st century, and eventually created an unforeseen but lethal combination: In addition to these, a fourth contributing factor was the theoretical bias that developed in the academic profession towards the economics of market efficiency and human rationality.
When the Fed realised that US aggregate demand was falling sharply and had the potential to throw the entire economy into a full-blown recession, it responded by radically lowering interest rates to one percent. Initially, as the US housing sector remained stable, there were no signs of overheating.
However, after another interest rate cut by the Fed, a housing bubble began to expand. With lower interest rates, people could afford much larger home mortgages. This cheap money created a very competitive environment for financial institutions, which could only get high returns if they made ever-riskier investments. Global imbalances Macro imbalance in trade has accelerated dramatically over the past ten to fifteen years, partly as a result of loose US monetary policy.
Asian emerging economies and the oil-exporting countries accumulated large current account surpluses, and these were matched by large current account deficits in the US, as well as the UK, Ireland, and Spain. A key driver of these imbalances was the high savings rates in countries like China. The run-up to the crisis should actually be traced back to the Asian financial market crash.
Following this disaster, Asian governments and citizens felt increasingly insecure and ramped up their reserves — primarily in US dollars — in order to avoid becoming vulnerable to such a scenario in the future. This exacerbated the US debt burden, further perpetuating the trade imbalance. Lax financial regulation Loose monetary policy and the international trade imbalance were compounded by a third factor: With the liberalisation of capital markets, finance became global, but regulation remained national.
In addition, throughout the neo-liberal epoch, even domestic financial markets were systematically deregulated, allowing financial innovations to evolve unchecked. As the financial sector grew and became truly global, insufficient latitude was reserved for domestic government regulation and international supervision Financial sector deregulation allowed the macro-imbalances in savings rates to stimulate a massive wave of financial innovation, focused on the origination, packaging, trading and distribution of derivatives, credit default swaps, and other securitised credit instruments.
Since the mids there has been huge growth in the value of credit securities, an explosion in the complexity of the securities sold, and a related explosion of the volume of credit derivatives, enabling investors and traders to hedge underlying credit exposures. As securitisation grew in importance from the s on, this development was lauded as a means to reducing banking system risks and to cutting the total cost of credit intermediation. The politics of international deregulation, together with computer-based finance mathematics, finally extricated the capacity to produce money by credit from public control — which to some extent at least had tied it to production and consumption.
The financial industry thus acquired the capacity and the licence to make money out of money, generate claims to resources at a rate so rapid that the real economy cannot possibly follow. It could even be argued, that money ceased to a public institution directing economic activities into productive endeavours. Instead, it was reduced to being a commercial commodity itself, decoupled from its previous function for the real economy, no longer bounded by any national base or interest or regulation, or by any other direct or indirect requirement to commit itself to any other productive function beyond itself Why were so many economists so blind?
To be sure, a small minority of eminent members of the economics profession, notably Robert Shiller, Raghuram Rajan and Nuriel Roubini37, did point to the great risks of an unchecked housing bubble. Dani Rodrik and Barry Eichengreen warned against the negative fallout potential of the global imbalances Yet the majority of mainstream economists failed to recognise what was going on. Intellectual inertia and mathematic sophistication has adversely affected both academia and economic institutions, as this led to significant blind spots for deeper structural economic problems in the run-up to the crisis.
If nothing else, economists will be going through a long period of sobering up. The theory of efficient markets operated by rational actors was the dominant intellectual economic paradigm from the early nineteen eighties onward. It led to a refinement of macro-economic models and gave economics the aura and authority of an exact science. It yielded a spectacular series of Nobel Prize winners who performed pioneering work in the mathematization of economic behaviour. The crisis has disposed of this dogma. Human behaviour, informational inconsistencies, and irrationality must be reintroduced to economic.
Shiller ; ; Rajan ; Roubini Rodrik ; Eichengreen It will have to become more modest too. But this is easier said than done — an entire generation has been brought up to believe in the concept of the efficient market. Institutions will continue to cling to this concept, and a paradigm shift will be more difficult than recent revelations would justify, especially since alternative constructs are not readily available.
Paul de Grauwe intimates that perhaps the root cause of this academic oversight was the error of modern mainstream economics in believing that the economy is simply the sum of microeconomic decisions of rational agents. The profession of economics was so caught up in this rational actor and market efficiency paradigm that it completely forgot some of the most elementary dynamics of economic crises: Fundamental to Keynesian economics is the idea that instead of rational actors, much economic activity is governed by animal spirits, best understood as waves of optimism and pessimism Left to their own devices, capitalist economies will experience manias, followed by panics.
It is the function of the modern state to sail into the wind of these excesses: In the evolution of the paradigm shift from Keynesianism to monetarism and rational expectation macroeconomics, the study of animal spirits has almost completely disappeared from mainstream macroeconomics, and the economics of finance. When expectations are assumed to be rational, intellectual models little room for waves of pessimism and optimism to exert an independent influence on economic activity.
As time went on, more and more professional economists were drawn onto the bandwagon of passive acceptance of the dominant intellectual paradigm. Most academic economists shied away from probing the underlying vulnerabilities of loose macroeconomics, financial deregulation, mortgage and pension markets, and distorted incentives and bonus schemes in the big financial institutions that exacerbated economic instabilities.
Moreover, the high level of sub-disciplinary specialisation in the field of economics made it difficult for any single academic to put together all the pieces.
This intellectual inertia and sub-specialisation blinded academic economists to the underlying causes of the crisis. In this respect, the current crisis is a wakeup call, re-introducing the concepts of animal spirits, imperfect information, cognitive limitation, and heterogeneity in the use of information, back into macroeconomic and financial market modelling and analysis. The above three features of loose monetary policy, the savings and trade imbalance, and lax regulation ultimately exacerbated the pro-cyclical and self-reinforcing nature of the downturn.
For the past two decades, increase in US debt came from the financial innovation, rather than the real economy. Once, a home owner took out a mortgage, and household debt increased. But since the late s, mortgages could be used to secure mortgagebacked securities, and those securities could in turn be used to secure a collateralised debt obligation. The end result was more borrowing, but no more real economy activity.
Moreover, when assets, driven by cheap money, came to be bought not because of the rate of return on investment but in anticipation that such assets and securities can be sold at a higher price, the stage was set for an asset bubble of overvalued stocks in relation to real economy fundamentals. The history of the current crisis is therefore perhaps less a tale of greed or improvident borrowing than it is a tale of profligate lending.
Examining the supply of credit provides a far more telling analysis than looking at its demand by ordinary consumers. Maier40 claims that while governments adopted the imperatives of balanced budgets, inflation targeting, deregulation, and privatisation thus constraining the money supply , the private financial sector was allowed to use financial innovation to create as much money as it saw fit. It was thus not greed, but rather the necessity and availability of credit that led to the overwhelming indebtedness of American citizens.
In retrospect, it can be argued that the compression of incomes in the US throughout the neo-liberal period was compensated by a reduction in household savings and mounting private indebtedness, which allowed spending patterns to be kept virtually unchanged. At the same time, limited social safety nets forced the government to pursue active macroeconomic policies to fight unemployment, which increased government indebtedness as well. Thus, growth was maintained at the price of increasing public and private indebtedness, adding to the already existing macro imbalance.
Privatized money production on a hitherto unknown scale can be understood as a response to the general stagnation of growth and profitability after the s. In the era of neo-liberalism, structural inequalities were allowed to persist and widen further, both within and between countries. In macroeconomic parlance, increased inequality implies weak domestic demand: In addition, global demand contracted even further in the wake of Asian financial crisis, when Asian emerging economies started to hoard reserves so as not to become dependent on IMF loans in hard economic times.
Fitoussi42 argues that the crisis is rooted in the problem of reverse income distribution, both in the United States and Europe, fatally depressing global demand. Looking beyond the aftermath of the crisis, he proposes new indicators of social and economic progress and prosperity, considerably expanding the narrow focus on GDP as the foremost figure of economic vitality. The Contours of Embedded Globalization The core lesson that has emerged from the crisis is that economic markets are not selfcreating, self-regulating, self-stabilising, and self-legitimising.
While this important lesson is certainly not new, in the past decades of neo-liberalism policymakers do seem to have forgotten the fundamental truth that the benefits of global economic interdependence rely heavily on robust domestic and supranational, social and political institutions, reminiscent of the era of embedded liberalism. Domestic and supranational institutions must be able to bind, bond, and bridge advanced polities, economies, and societies.
Unfortunately, however, once the genie is out of the bottle, it is far more difficult to re-regulate an economy than to deregulate it. And as deregulation brought concentrated wealth to sectors that benefited from even further deregulation, accumulated wealth was efficiently translated into a strong financial lobby in London, New York, and Washington.
The financial sector effectively bought political power. Therefore, the failure of politics lies in part in its inability to resist being hijacked by financial interests. The excesses of deregulation have hit society hard. Public institutions and authorities matter, in fact, they have proven to be indispensable. This ideology elevated the free market to the status of an ultimate goal and an enlightened ideal, rather than one of many possible means by which society can increase its prosperity and well-being.
The crisis seems to have debunked this ideology: Re-establishing the rules of the game and the relationship between the market and the public authorities has. Even free market zealots have been forced to concede that if not government than at least governance has a role to play in the economy. The neo-liberal era may have come to an end, but whether the crisis indeed marks the ascendance of a new regime is an open question.
Some of the rules of economic regulation and policymaking will be rewritten. The economic crisis has brought the world to a new policy crossroads, but it also needs to be acknowledged that the room for manoeuvre and institutional innovation may be fairly restricted, not only because of the likelihood of low economic growth, but also because of domestic and international political constraints. As a consequence, some policy recipes that were successful before including currency devaluations and trade protectionism are no longer available to national policymakers, in part due to European and WTO economic integration.
In this respect, concerted coordinated action at the international level is essential to effectively governing the global economy. The question of institutional choice and regime change, for present purposes, encompasses two key dimensions. Internationally, the task will be to devise a stable and sustainable system for international cooperation and regulation, which addresses the diverse needs of advanced, developing, and the least-developed economies.
At the domestic level, institutional change requires recalibrating the role of the state in shaping a stable economy by combining economic dynamism with a more equitable distribution of life chances. Walking the fine line between protectionism and protecting domestic policy space will be difficult under the likelihood of low growth. Discussion is ongoing when and how to withdraw anti-recession spending programs that are expected to increase the EU public debt by 20 percentage points in the three years from and But the biggest problem consists of rising long-term pension costs and other age-related expenditure.
Though the debt and deficit increases are by themselves quite impressive, the projected impact on public finances of ageing populations is anticipated to dwarf the effect of the crisis many times over. The fiscal cost of the crisis and of projected demographic development compound each other and make fiscal sustainability an acute challenge.
In principle, this adjustment could take place via both an increase in revenues and cuts in expenditures. Effective solutions to the current global crisis require international cooperation, but no government is able to go ahead with an internationally coordinated plan without taking into account issues of domestic legitimacy. Any solution to the crisis has to be both effective and legitimate at level of supranational economic institutions as well as at the level of the nation-state.
Most markets must remain primarily embedded at the level of the nation-state, as long as democratic governance and political identities remain nationally embedded. Economic relations between states should be structured with the aim of opening up trade and investment flows subject to the proviso of maintaining heterogeneous national arrangements.
Meanwhile, poor nations should be enabled to position themselves to benefit from globalisation through economic restructuring. All nations must be given the space to create financial systems and regulatory structures attuned to their own conditions and needs. To this effect, substantive policy concerns would be brought to the table of international economic negotiations.
The global crisis has laid bare important changes in the global distribution of wealth and power. The power of the US is on the wane, and emerging economies such as India and China have meanwhile become key global economic players. However, their economic prowess is not yet reflected by their share in international bodies. At the same time, the EU is faced with a plethora of internal problems in the wake of Eastern enlargement. Quite surprisingly, the international community is already adjusting to this new multilateral reality. Whereas existing institutions usually continue to reflect the international distribution of power of the status quo ex ante, the IMF and the World Bank have recently allowed for far more domestic heterodoxy than ever before.
The crisis has changed these institutions practically overnight. In terms of substance, the Washington Consensus rules no longer govern, and Dominique Strauss-Kahn, director of the IMF, realised that without change, China and other emerging economies would not stay engaged and therefore demonstrated flexibility in reform. In order for these global organisations to recover, they must reform by, firstly, fully integrating the emerging countries, and secondly, promoting equitable and sustainable models of globalisation. By , in institutional terms, the elite club of rich industrial nations, known as the G7 — Britain, Canada, France, Germany, Italy, Japan and the United States, has been permanently, replaced by the group of 20, including China, Brazil, India and other fast growing developing countries, as a global forum for economic policy.
The rise of the G20 marks an instance of profound institutional change. It is not clear why these 20 specific countries were appointed to represent the world. From a social justice perspective as well, G20 insufficiently represents the poorest countries. One way of rationalising these arrangements would be by moving to a Group of 24, based on representation in the International Monetary and Financial Committee of the IMF.
Of the twenty-four representatives in this committee, five represent individual countries, whereas the others represent groups of countries. All this makes it a far more effective structure to supersede the G The EU should come to recognise that two seats — one for the euro area and one for the rest of the EU — is sufficient.
This would streamline decision-making, both within the G20 and the IMF, while freeing up seats at the table for currently underrepresented developing economies and regions. A final geopolitical international challenge is that this economic crisis coincides with a major environmental crisis, whose solution requires a complete transformation of our modes of production and ways of living. Regardless of the institutional changes following the crisis, the imperative to act on issues such as climate change, energy insecurity, and water scarcity will remain paramount Climate change policies can play an important role in revitalising economic growth.
Averting climate change should be an important policy goal when prioritising stimulus spending.
Investments should go towards clean energy and the adaptation of green technologies should be given prominence. Thanks to the crisis, substantive global issues, such as climate control, water management, renewable energy, and other long-term concerns of sustainable development are now high on the world political agenda. This is a welcome correction. The crisis has affected different economies differently, as a result of their relative vulnerability to endogenous and external economic shocks and also because of the differing institutional capacities they were able to mobilise to address the economic duress.
The smaller economies of Western Europe, which have been unable or unwilling to muster fiscal stimulus packages on par with those of Germany and France — for example Belgium, the Netherlands, and Sweden — are behind the curve of recovery. Ballooning budget deficits in Ireland, Greece, and Spain raise severe doubts about recovery. In August , the Bank of England surprised everybody with another round of quantitative easing of 50 billion British pounds, admitting that the recession appears to have been deeper than previously thought.
Many of the new member states of Eastern and Central Europe have been disproportionately damaged by the crisis. Wade Jacoby44 argued that former communist countries made the transition to the market economy at the height of the neo-liberal era,. Now they are suffering more than other countries, as a result of this irrational exuberance.
Die Kinderarmutsquote erlaubt, wie bei der Armutsquote insgesamt dargelegt, keine Aussage zur Lebenslage der Kinder selbst. As politics defines and qualifies property rights, it demarcates boundaries between the political and the economic realms of society. Solche Entscheidungen werden aber nicht aufgrund der Steuern allein getroffen. Emerging issues and patterns. Domestic and supranational institutions must be able to bind, bond, and bridge advanced polities, economies, and societies.
The Baltic states, which predicted GDP declines between 13 and 17 per cent in , have already been forced to introduce tough retrenchment programs in public finances. Emerging economies, specifically Brazil and India, are expected to do much better in the post-crisis period. According to Nancy Birdsall45, this is partly due to the extent to which they were able to decouple themselves from financial globalisation.
By contrast, lower-income developing countries, which traditionally have relied heavily on trade, will suffer severely from the crisis. Sub-Saharan countries surely and sorely lack the economic resources and institutional capacities to implement counter-cyclical fiscal policies. The temptation to focus on the incipient recovery of the more advanced OECD countries, as well as on the so-called emerging BRIC — Brazil, Russia, India, China — runs the risk of glossing over the far more devastating effects the crisis has had on developing countries, which cannot muster the resources for a counter-cyclical fiscal stimulus.
Even gas- and resource-rich Russia is likely to suffer a steep fall in GDP. Compared to the US, European countries were slow in recognising the severity of the crisis. As a consequence, monetary easing and fiscal stimulus measures were implemented less aggressively than in the US. One reason why fiscal stimulus programs were less expansive in Europe is due to the fact that the EU is made up of many small open economies.
This creates free-rider problems, with the benefits of fiscal stimulus spilling over into neighbouring economies. While the US is more indebted, it has the advantage of being an immigrant economy with flexible labour markets, which will make it relatively easier to mobilise labour and other resources than in the ageing European and Japanese economies. Under conditions of low growth, China as well as European export-oriented economies will no longer be able to rely primarily on industrial exports to drive their economies.
As much as we can anticipate the policy debate about competing models to reach new levels of intensity in the near future, it is our contention that it is useless to couch policy responses to the current crisis in terms of a battle between warring alternatives. Moreover, models come and go.
Europe at a Crossroads Political factors play a key independent role in the selection of policy responses and domestic institutional adjustments. Previous crisis episodes have revealed how hard times exacerbate existing tensions, invariably decreasing satisfaction with existing governments.
If the crisis results in an extended period of high unemployment, the voting public may grow disenchanted with the prevailing policy regime, which they identify with economic liberalisation. Facing the likelihood of relatively low growth, the key challenge that political leaders will face is therefore not so much how to manage growth, but how to manage expectations. Even before the economic crisis there was no evidence that citizens were shifting allegiances away from the nation-state.
In Europe, the referenda on ratification of the European constitution demonstrated the strength of nationalism. Various public opinion polls overwhelmingly reaffirmed that citizens held their national governments accountable for their security and wellbeing, and felt betrayed by the globalising ambitions of the EU. The economic crisis intensified these sentiments, thus bringing the centrality of the role of the nation-state back into the limelight. The European welfare state, following this line of reasoning, was introduced as a way of re-establishing this legitimacy and rebuilding the capacities of the state.
Whereas in good times the hand of the state may have been hidden, in hard times it re-emerged visibly and powerfully. A new welfare edifice custom-tailored to the realities of economic internationalization, post-industrial social change, post-crisis austerity, and intensified European integration is needed. Is the new social policy agenda — the social investment paradigm — the best safeguard for social progress, delivering on the promise of equality of opportunity, in combination with a strong commitment to basic social citizenship?
Will the strong emphasis on social promotion in the recent literature produce a satisfactory response to the current global economic downturn? Or, should traditional social protection come back into the equation? The need for resilient employment and social policy is greater than ever today.
Now is the time to modernize social services, safeguard pensions, and narrow the gap between rich and poor, while simultaneously consolidating state revenue. This precarious juncture, as we teeter on the verge of recession, creates a number of policy temptations. There is the obvious temptation of completely abandoning fiscal discipline to save jobs and maintain, as much as possible, the welfare status quo. Strengthening the social dimension of domestic Then there is the short-sighted seduction of retrenching current welfare commitments to foster financial and budgetary stability.
Equally ineffective is the alluring strategy to fight unemployment by reducing labour supply through early retirement schemes, which many European governments fell for in the s and s. Worse still is the nationalist and protectionist temptation that proved so disastrous in the s, which could be revived today if governments pay direct subsidies to failing domestic industries.
There is a real danger of adopting incoherent policy combinations that may actually deepen the economic downturn, worsening job losses, reducing state revenue, eroding pensions, and widening the gap between rich and poor. Historical mistakes, like deflationary contraction in the s, and labour supply reduction in the s and s, should not be repeated. In these uncertain times, we must not lose sight of the overall aim of creating employment-friendly, fair and efficient, welfare systems. Short- to medium-term macroeconomic measures are necessary to respond to immediate needs, but such measures should be consistent with the ongoing recalibration efforts to prepare domestic welfare states and EU social policy for the 21st century challenges that lie ahead.
Here are our prescriptions for the major policy priorities at stake: Let automatic stabilizers work To prevent a global economic abyss, it is necessary to let automatic stabilizers work, to protect citizens from the harshest effects of rising unemployment, while at the same time serving to safeguard economic demand. In the longer run, confidence in the economy relies on sound public finances. Today we can observe, in sharp contrast to the Great Depression, how a fierce anti-deflationary macroeconomic policy response has rapidly come to fruition in the OECD area.
There is a clear policy consensus that a Keynesian crisis should be met by an expansionary policy of anti-cyclical macroeconomic management across Europe. This kind of European policy coherence was surely lacking in the s and 80s era of stagflation. The global nature of the crisis triggered a co-operative, albeit timid, response from the 15 countries of the eurozone plus the UK, in the fall of Subsequently, 27 EU leaders agreed on an economic stimulus package of about billion euros, or 1.
The ECB is cutting interest rates. And the stability of the euro should not be underestimated, in that a common currency forestalls any policy of competitive devaluation. The internal market, enhanced in scope and strength by the addition to the EU of ten new member states from Central and. Eastern Europe, surely puts a break on competitive protectionism. The switch to public spending in order to re-inflate the economy is likely to generate additional fiscal pressures in the foreseeable future, which should not be forgotten.
We have to find a way to prioritize social investments without undermining the principles of sound public financing. Taking social investments out of SGP rules could be a step in the right direction. Strengthen long-term attachment to the labour market The overriding policy lesson in our advanced economies is that in the face of demographic aging and a declining work force, nobody can be left inactive for long.
The present economic crisis is likely to incur new forms of labour market segmentation to the detriment of more vulnerable workers, such temporary agency workers, fixed term employees and the unemployed, while labour market insiders have less to fear. Hence, risks and capabilities to adapt are distributed unequally across the work force.
Impending layoffs should be mitigated by temporary and short-term unemployment benefits, combined with additional training measures. Any kind of job, be it short term, part-time or subsidized, is better than no job at all at forestalling unemployment hysteresis and deskilling. With demographic aging, labour markets will be tight in the long run. Relaxed hiring and firing legislation is best combined with generous social protection, active training and labour market policies to maximize employment.
The ability to balance careers and family-life is also crucial for removing gender biases in the labour market. Constricted female labour market participation widens the gender gap, hampers economic growth, and reduces fertility. Policy makers tasked with writing a new gender contract should look to generous parental leave, employment security, and above all else, high quality childcare.
These provisions can positively affect long term productivity by boosting female earnings,. Since life chances are so strongly determined by what happens in childhood, a comprehensive child investment strategy is imperative. Inaccessible childcare provokes low fertility, while low quality care is harmful to children, and low female employment raises child poverty.
Increasing opportunities for women to be gainfully employed is a key step. But the concept of early childhood development needs to go beyond the idea that childcare simply allows parents to reconcile work and family life. Rather, we must adopt the position that early childhood development is the best way to ensure that children will be lifelong learners and meaningful contributors to their societies. Invest in human capital In the new, knowledge-based economies, there is an urgent need to invest in human capital throughout the life of the individual.
Considering the looming demographic imbalances in Europe, we cannot afford large skill deficits and elevated school dropout rates. Education systems design makes a difference. Inequality and extreme educational differentiation reinforce cognitive poverty, early stratification, and social segregation. Delay retirement and increase its flexibility As life expectancy increases and health indices improve, it will be necessary to keep older workers in the labour market for longer.
Sustainable pensions will be difficult to achieve unless we increase employment rates of older workers and raise the retirement age to at least 67 years. Delaying retirement is both efficient and equitable. It is efficient because it implies more revenue intake and less spending at the same time. It is also intergenerationally fair because retirees and workers both sacrifice in equal proportions.
In the future, older workers will be much better positioned to adapt to new labour market conditions, with the aid of retraining, lifelong learning, quality jobs, and flexible retirement. Integrate migrants through participation Priority should be given to problems of participation and integration of migrant groups, whose rates of unemployment in the EU are, on average, twice that of nationals.
Economic exclusion and physical concentration ghettoization reinforce educational underperformance, excessive segregation and self-destructive spirals of marginalization. Maintain minimum income support We cannot assume that the measures described above will remedy current and future welfare deficiencies. Hence, it is impossible to avoid some form of passive minimum income support. It is, therefore, necessary to have an even more tightly woven net below the welfare net for the truly needy to meet minimum standards of self-reliance.
The key lesson of the Great Depression of the s eventually ushered in Keynesian demand-side policies and, after a devastating World War, firmly established the need for some sort of safety net in every major industrial democracy. This lesson to match social promotion with social protection continues to stand tall. Reach a globalization compromise We should take an activist approach to social policy beyond the borders of the member states of the European Union, not just for the coordination of a timely global fiscal stimulus and an agreement on financial markets regulation, but also to establish some minimum levels of protection without protectionism for vulnerable citizens everywhere.
In the interests of fairness and political sustainability, we need a new sort of embedded globalization compromise at the supranational level, something analogous to the embedded liberalism compromise of the post-war era, with the EU acting as a unified player. The new embedded globalization compromise should not only account for issues of fair trade, work and welfare, but also include substantive agreements on sustainable development, climate change, energy, food and biodiversity.
Regime Change without the Punctuated Pendulum Swing People make history by constructing and transforming institutions that both constrain and constitute their social action. New institutions are hardly ever designed from a tabula rasa. Just as institutions shape the conduct of human actions, human conduct, in turn, reshapes institutions. Crisis management today may be critically informed by previous crisis experiences.
Just as neo-liberalism did not lead to a return to the roaring Twenties of unfettered capitalism, the current crisis is equally unlikely to bring about a restoration of the post-war regime of the embedded liberalism of national political economies. Just as the current crisis is unlikely to trigger a swift pendulum swing of institutional design, it should be noted that neo-liberalism also did not attain institutional hegemony overnight. While the elections of Margaret Thatcher and Ronald Reagan may retrospectively have marked the beginning of the neo-liberal era, it was only with the fall of the Berlin Wall that this doctrine achieved global influence.
The neo-liberal rise to dominance was largely evolutionary; it emerged gradually through a series of institutional transformations and policy changes over a long period of time. In contrast to the traditional belief that institutional changes are always marked by rapid changes at critical junctures, it can be expected that future institutional shifts are likely to follow the logic of incremental transformative change through institutional evolution. By comparison, the rise of embedded liberalism indeed represented a far more punctuated process of institution building.
With this in mind, it is interesting to speculate about how the observed policy changes in the wake of the crisis will contribute to such a scenario of gradual institutional evolution. Specifically, five key policy changes warrant such an examination: The crisis has pushed central banks into a broad range of new interventions, aimed at safeguarding financial stability. One intellectual lesson that has emerged from this crisis is that economists have to redefine what global and domestic financial macroeconomic stability means. Macroeconomic and financial stability is a much wider concept than price stability, and sometimes the two even conflict.
Stephen Roach47 advocates a new mandate for the Federal Reserve; it should lean against the winds of financial excess and asset bubbles. Similarly, Willem Buiter, Paul De Grauwe, and Barry Eichengreen48 all argue that the ECB will in the near future be required to perform a variety of new functions, including undertaking liquidity and credit enhancing measures, becoming a lender of last resort, and.
However, in order to achieve financial stability, the ECB must be allowed to deploy new instruments, such as counter-cyclical adjustment of capital ratios for banks and minimum reserve requirements, which should be used to limit excessive credit creation by banks. However, if the ECB is to play a significant financial stability role, it cannot retain the degree of operational independence it was granted in the Treaty over monetary policy in the pursuit of price stability.
Changing this will be difficult, because the ECB is based on the European Treaty, which is extraordinarily tough to amend all twenty-seven member countries must agree to any changes. As the crisis lengthens and deepens, the absence of close cooperation between the European fiscal authorities on the one hand, and the ECB bankers on the other, will make both groups progressively less effective.
The ultimate litmus test of effective macroeconomic regime change lies in the establishment of a new systemic risk regulator. Banking should be subject to a capital regime entailing more and higher capital requirements, more capital against trading book risk-taking, and a counter-cyclical framework with capital buffers built up in periods of strong economic growth that would be available in downturns.
Ultimately, Europe must establish a powerful EU-level authority to which national supervisors report and whose instructions they carry out, in a manner analogous to the relations between the ECB and national euro area central banks Nonetheless, at the Pittsburgh summit of the G20 on September 25, some agreement was reached on timetable for regulatory reform, serving to reign in executive compensation, to raise capital requirements and leverage ratios for financial institutions, and to reduce the imbalances between consuming countries like the US and export-dependent China, Germany and Japan.
Moreover, the G20 came together on new IMF voting rules with more power and authority of the developing economies. In many advanced economies, welfare policies are being re-assessed and re-calibrated. In Europe, the crisis has been, in many ways, a stress test for the welfare state. Although the crisis may put a strain on many redistributive institutions, this can also have positive consequences, as Tony Atkinson50 acknowledges.
For one, social policy has resurfaced at the centre of the political debate. The crisis has reminded many Europeans of the importance of social programs to support the unemployed, the disabled, and the others most negatively affected by the crisis. In this respect, the economic crisis may reinforce, rather than undermine, the legitimacy of the welfare state.
In China, the government has recently realised that internal consumption could be a new driver of growth, but they have yet to. In the US, on the other hand, the social debate since the onset of the crisis has focused almost exclusively on healthcare reform. There are significant political hurdles to achieving such reform, as the bitter and even violent debates on the issue in the US demonstrate. Future productivity growth is likely to come from sources like green energy and low carbon path investments.
Going beyond welfare state recalibration and sustainable development as separate phenomena, Jacques Delors, Tony Atkinson, and Jean-Paul Fitoussi52 underscore the need for different set of indicators of social and economic progress exceeding the traditional measure of GDP growth.
In fact, the crisis is partially the result of the exclusive focus on economic growth. The formulation of a new portfolio of social and economic indicators including, for example, various dimensions of adult numeracy and literacy, access to public services, poverty, and environmental health and climate control is especially politically opportune in the face of a period of lethargic and drawn-out recovery.
To address this issue, in early , Nicolas Sarkozy put together a committee of leading economists, chaired by Joseph Stiglitz, Amartya Sen and Jean-Paul Fitoussi, to rethink GDP as an indicator of economic performance and to consider alternative indicators of social progress. In other words, the Commission renders more prominence to the distribution of income, consumption and wealth, in correspondence with sustainability indicators Delors ; Atkinson et al. Delors ; Fitoussi ; Atkinson et al. Periods of unsettled beliefs can thus inspire new politics.
This we have learnt from the experience of the Great Depression in the s, as well as the crisis of stagflation in the s and s. After two decades of neo-liberalism, a critical re-imagining of economy and society, including the role of public authority and political sovereignty, is underway. Even in the realm of international coordination, any sustainable solution to the global crisis continues to rely heavily on domestic legitimacy.
Jugendarmut unter Hartz IV (German Edition) [Silke Nottebohm] on www.farmersmarketmusic.com *FREE* shipping on qualifying offers. Diplomarbeit aus dem Jahr im. Ina Clauhs's Essstörungen in der Pubertät (German Edition) PDF (German Edition) · Jugendarmut unter Hartz IV (German Edition).
Nowhere is this political challenge more apparent than in Europe. Princeton University Press, Princeton. Adapting post-war social policies to new social risks. The EU and Social Inclusion. Oxford University Press, Oxford. Is Social Europe Fit for Globalisation? A study of the social impact of globalisation in the European Union.
National Diversity and Global Capitalism. European Economic Review, Vol. Would you like to shrink the welfare state? A survey of European citizens. Economic Policy 32, April , pp. Structural Reforms without Prejudices. Past Developments and Reforms. Lessons from the global crisis for social democrats. During the postwar period, a number of researchers found that despite years of rising affluence many West Germans continued to live in poverty.
In , a study by the SPES estimated that between 1 and 1. As the opening sentence of the report put it,. A study carried out by the EC Poverty Programme derived a figure for of 6. Poor people in Germany are less likely to be healthy than well-off people.
This correlates with statistics about the life style of this group that indicate higher prevalence to smoking cigarettes, being overweight, and exercising less. Consequently, they run a higher risk of experiencing lung cancer, hypertension, heart attacks, diabetes, and a number of other illnesses. Poor couples are more likely to argue, while being less supportive for each other and their children.
Poor children face limited educational opportunities. They are more likely to be raised by a teenage-parent. They are more likely to have multiple young siblings, are more likely to be raised in crime-ridden neighbourhoods and more likely to live in substandard apartments which are often overcrowded. Their parents are likely to be less educated and they are more likely to have emotional problems. Children growing up poor are more likely to get involved in accidents than their non-poor peers. In poor neighborhoods many children suffer from speech impairments and stunted motoric development.
Poor children are more likely to get involved in criminal activities and are more likely to take drugs. Working-class families from ethnic minorities with multiple children are the group most likely to be poor. Poverty rates are high among people who did not graduate from school and did not learn a trade. From Wikipedia, the free encyclopedia.