Contesting a ‘just transition to a low carbon economy’

Jacklyn Cock

Introduction

Recently, the South African labour federation, the Congress of South African Trade Unions (Cosatu), has expressed its commitment to a ‘just transition to a low carbon economy.’ However, at this moment the content of that commitment is unclear. Members of Cosatu affiliates could have very different understandings of the scale and nature of the changes involved. A ‘just transition’ could involve demands for shallow change focused on protecting vulnerable workers, or it could involve deep change rooted in a vision of dramatically different forms of production and consumption. In this sense, the ecological crisis represents an opportunity to not only address the unemployment crisis in our society, but to demand the redistribution of power and resources, to challenge the conventional understanding of economic growth and to mobilise for an alternative development path.

The Costs of the Financial Crisis 2008/09: Governments are Paying the Tab

Sebastian Dullien

One could almost get the impression that the storyline of the global economic and financial crisis of 2008/9 is forgotten. Questions of bank regulation and financial sector oversight are hardly discussed in public anymore and legislative efforts to rein in speculative and highly risky activities seem to have petered out. Instead, the public debt crisis has taken center-stage. Around the world, discussion focuses on cut-ting public deficits, with a strong focus on cutting public expenditure and a secondary focus on raising general direct and indirect taxes. The debate has turned from one about obvious market failures, especially in financial markets, to one about alleged government failure. That is, governments spending much more than they take in as revenue and hence piling up increasingly unsustainable public debts.

However, if one looks into the details of the development of the public debt in many of today’s crisis countries, it becomes clear that it is precisely the economic and financial crisis of 2008/9 which has put the debt levels onto an unsustainable path. Prior to the crisis, countries such as Spain or Ireland and probably even the United States were on a path of (or at least close to) fiscal sustainability. After the crisis, markets now question public finance sustainability even in countries such as France.

In a study commissioned by the Friedrich-Ebert-Foundation, we calculated the costs of the global financial and economic crisis for Germany, a country which is not a core crisis country, but is often revered for its resilience in the crisis and its rapid recovery afterwards. In this study, we tried to pin down the costs of the crisis for the economy as a whole as well as for different groups in the country such as wealth owners, wage earners and the government. Germany is an important case study here as it did not experience a real estate bubble prior to the crisis. One can thus argue that the crisis costs can be seen as being completely exogenous to the crisis.

Computing the costs of the crisis is not as simple as one might think. It starts with the government sector. One cannot simply use the headline figures presented in the mainstream media on bank rescue packages and stimulus packages and add them up. Firstly large parts of the bank rescue packages have not been real costs to the governments. If a government gives a guarantee to a bank and the bank continues business without the government ever having to pitch in, this is not a real cost in the end. If a government injects capital in private banks and later sells off the shares again, only the net loss can be counted as a cost. If the government sells the shares for more than it has injected earlier (as has been the case for the Swiss measures to support the country’s large banks), there are no costs, but even profits. Only if the government has to inject money into the financial system in a way that it cannot recoup later, the injection has to be counted as a cost. Similarly, if a publicly owned financial institution has inferred losses, these are clearly net losses for the government. For these costs stemming either from direct losses of public banks or non-recoverable injections of public funds, we use the term direct costs of the crisis.

Secondly, stimulus packages cannot completely be seen as net costs. If a government builds new highways or repairs public buildings in the crisis as a stimulus measure, it incurs expenditure, but at the same time the value of the public’s assets increases. Again, as long as the government does not overpay and does not build useless gimmicks such as pyramids, this spending is not a net cost.

In contrast, tax cuts used to stimulate private spending might at least be net costs to the government; yet, if we are interested in the macroeconomic costs, we need to keep in mind that these tax cuts increase the disposable income of the private sector and hence are not net costs to the economy as a whole.

Be that as it may, looking only at expenditure for stimulus packages and bank rescue packages misses an important part of the costs: The automatic fall in tax revenues caused by the recession and the automatic increases in expenditure stemming from such a crisis, that is, for unemployment compensation. We have called costs of lost government revenue or higher transfers of lost output indirect costs.

Similarly, computing the costs for the private sector is not completely straightforward. If someone defaults on her mortgage and the value of mortgage backed securities falls, this is not necessarily a net cost to the economy. While the bank loses, the person defaulting on the mortgage might increase her net wealth. As long as both the debtor and the creditor are domestic, this does not change the net wealth of the economy. Only if the debtor is foreign, a default changes the net wealth of the country in question. However, just looking at losses in the financial markets again neglects important elements of the crisis costs: The loss of output and consequently wage and profit income of the private sector through the crisis. In parallel to the terms used for the public sector, the private sector has borne both direct and indirect costs of the crisis: Direct costs are those caused by a fall in the net value of assets. Indirect costs are income flows foregone due to the crisis.

We calculated three scenarios: an optimistic rapid return to the old growth path; a slower return to the old growth path and a pessimistic scenario in which output never recovers to the pre-crisis growth path, but remains significantly below this path.

By now, at least until the summer of 2011, the German economy has developed roughly in line with our most optimistic scenario. The scenario assumes a GDP growth rate of 3.5 percent in 2010 and 2.8 percent in 2011. However, at the time of writing, there are some signs that the recovery is seriously slowing down and a risk of a new recession is emerging. Thus, it is unlikely that the most optimistic recovery scenario continues. One can probably say that the most likely real-world development will be between our most optimistic and the medium scenario.

Table 1 below presents the results of our computation. The first very interesting result is that indirect costs of the crisis dwarf direct costs. Total costs even in the most optimistic scenario are around €700bn, of which only a little less than €100bn are direct costs. In the less optimistic scenario, the ratio becomes €2154bn to €100bn. The second central result is that the government bears most of the crisis costs. Government revenue even in the most optimistic scenario (which now can be seen as the lower limit) has been hit by a total of €270bn or more than 10 percent of GDP. In the less optimistic scenario (which now can be seen as the upper limit), costs to the government even add up to about €800bn or more than 30 percent of current GDP. The third interesting element is that wage and transfer earners in Germany might not be quite as hard hit as sometimes feared. In the more optimistic scenario, their incomes are only reduced by €177bn, yet in the less optimistic scenario by €755bn. The low value for the optimistic scenario is probably a special feature only to be found in Germany and might be explained by the labour market policies during the crisis when the German government paid firms to keep workers on reduced hours instead of firing them (“Kurzarbeit”) which in turn led to a very low increase in unemployment in Germany during the crisis.

In international comparisons, the costs in Germany can probably be seen as rather modest. Germany has experienced one of the most vigorous recoveries after the crisis. Yet, already in Germany, the crisis can be seen to have been responsible for a significant deterioration of public finances. Wealth owners, who can be seen of the main beneficiaries of a deregulated financial sector which has finally wreaked havoc with the economies of most advanced countries, in contrast, have only borne a comparatively modest part of the crisis costs.

Table 1: Crisis costs for wage and transfer recipients, wealth owners and government in Germany

This imbalance in bearing the crisis burden should be kept in mind when measures to rebalance the public accounts in the OECD countries are discussed. Wealth owners here should at least pay a fair share of the burden. Specifically, this means that the balance between spending cuts and tax increases and the specific changes to the tax codes which have been part of many austerity packages need to be re-thought. The first point here is that budgets should rather be balanced by tax increases than cuts in social security spending.

Second, when taxes are increased, a focus should be on those types of taxes which are borne by people who have in the decades before benefited the most from deregulated financial markets: This would mean a focus on increasing taxes on interest and dividend income, capital gains and wealth. In addition, one should also increase the income tax rates in the top tax brackets as these individuals disproportionately benefit from the investment opportunities in deregulated financial markets. Last but not least, these numbers support a financial transaction tax as well as a financial activities tax: Both make financial transactions and financial intermediation slightly more expensive and will secure that society at least gets a small share back of the costs that irresponsible financial markets and financial institutions have incurred.

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Sebastian Dullien is Professor at HTW — University of Applied Science, Berlin. His extensive work on the financial crisis has recently been summarized in his book Decent Capitalism (published by Pluto Press in 2011, written with Hansjörg Herr and Christian Kellermann).

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Summer days on Utøya

Dan Gallin

I shall never forget the summer days I spent in 1955 on Utøya, the small island near Oslo that the Norwegian trade unions had given to the Labour Youth League as a study and leisure centre.

I had arrived in Europe in March 1953, back from the United States where, as a student, I had discovered socialism in the shape of a Trotskyist dissidence. The brilliant explanation of the world, the heroic and tragic story of the “Old Man” and his movement, had taken hold of my imagination and my emotions. So much so that I drew the attention of the authorities who gave me one month to leave the country.

So there we were, my companion and I, in Europe and needing to find our bearings. She was a member of the same group. By the summer of 1955, we were ready to discover Scandinavia, the bastion of a social democracy that we viewed with suspicion.

In Oslo, we found the Labour Youth League in the phone book. We turned up unannounced at the office of the man in charge, who was the General Secretary, and told him we were members of the American Socialist Youth League and we were looking for Norwegian socialists to discuss socialism with. The Norwegian comrade looked at us for what seemed quite a while and then said, “You’ve timed it nicely. Our summer course has just started. Later on, we can take you over there. You can spend a week with us. It’s on Utøya, a little island near Oslo. You’ll see.”

On Utøya, there is a central building for the logistics (meals, showers, course rooms) and the participants were living in tents pitched all over the place, but mainly in a meadow in front of the building. We were assigned a tent, but we spent most of our time with the young Norwegians. I spent a whole night discussing with Reiulf Steen, who was later to become the Minister of Foreign Affairs and the Prime Minister, very much involved in assisting the resistance movements against the dictatorships in Latin America. We discussed the USSR, its social and political nature, and Stalinism. One night was not enough.

We met many of the hundreds of young socialists who were full of energy, joy, humour and determination, sons and daughters of the midnight sun which, during the Norwegian summer, never sets. They were ordinary young people, citizens like all others in a social democracy. No professional revolutionaries, but they were out to change the world. There were as many of them on this little island, maybe even more, than in the whole of our American grouplet. The American comrades whom we had left behind were no less committed and courageous, but we had now discovered something we had not experienced before – a mass movement of young socialists.

This was the movement that Anders Behring Breivik, a fascist activist, attacked on 22 July 2011. After setting off a bomb in the government quarter of Oslo, killing eight people, he landed on the island disguised as a policeman, called together the young people there and started gunning down defenceless youngsters who had not had the slightest inkling of what was about to happen to them. On Utøya, Breivik killed 69 people in the space of an hour and a half.

Norway’s Prime Minister Jens Stoltenberg, who is also the leader of the Labour Party, declared that the massacre was an assault on democracy and the open society, and he pledged that Norway would not cave in to it. More precisely, though, it was an attack on the Norwegian labour movement. Breivik was quite explicit: the labour movement, guilty of “cultural Marxism”, had to be targeted – and what had to be hit was labour’s most precious asset, its youth, to punish it for betraying the nation by promoting its “islamisation”. If the shooting had happened just a few hours earlier, Stoltenberg himself and former Prime Minister Gro Harlem Brundtland might well have been among the victims. They had visited Utøya that day, to take part in the debates.

We socialists ought to be more concerned about what is happening to us in Northern Europe. On 28 February 1986, Sweden’s Prime Minister Olof Palme was assassinated. He had been to the cinema with his wife Lisbet, and as usual they had no bodyguards. At 11.20 p.m., while they were walking home, a man stepped up from behind and fired two pistol shots. The first one mortally wounded Palme. The second one injured Lisbet, who survived. The assassin fled and was never found. A man was arrested and sentenced, but was later released upon appeal. The motives for the assassination, and those who may have ordered it, were never identified. The police investigation, which went on for years, led nowhere.

Stemming from the upper reaches of the bourgeoisie, Palme was a “traitor to his class” and the Swedish Right harboured an intense hatred for him. In government since 1965, twice Prime Minister (1969-1976 and 1982-1986), and Chairman of the Social Democratic Workers' Party(SAP) from 1969 to 1986, he strengthened the Social State even further, as well as the trade unions’ power vis-à-vis the employers. As regards foreign policy, he was the only leader of a western government to oppose the Vietnam War. He also opposed the invasion of Czechoslovakia in 1968, the Pinochet coup in 1973 and more generally, throughout his career, the military dictatorships in Latin America, the fascist dictatorships in Europe and the apartheid regime in South Africa. Although never really on the Left of the Party, he has often been described as a “revolutionary reformist”.

Palme’s assassination was a turning point in the history of our movement. None of his successors have had his charisma, political intelligence and daring. The SAP lowered its profile. In fact, its moderation probably pushed it out of office. It has lost two parliamentary elections in a row since 2006. It has less of an international presence now, and as a result the Socialist International has lost some more of what little influence remained to it. Had Palme lived, the capitulation of social democracy to neoliberalism and the “third way” buffoonery of Blair and Schröder would have been more difficult. If Palme’s assassination had been the result of a right-wing conspiracy, that plot would have achieved its aims.

It could all have gone differently. In 1998, Swedish Social-Democracy had somewhat recovered. It had a rising star: born in 1957, Anna Lindh was the brilliant chairperson of the Social-Democratic Youth League from 1984 to 1990, a Member of Parliament from 1982 onwards, Environment Minister in 1994, and Foreign Minister in 1998. She was cast in the Palme mould, and the intention was that she would succeed the dull bureaucrat Göran Persson as head of government and of the Party.

But the assassin was lying in wait. On the afternoon of 10 September 2003, Anna Lindh was shopping in a Stockholm department store, without any bodyguards of course, when a man knifed her in the chest, stomach and arm. Despite the doctors’ efforts, at 5.29 the next morning she was dead.

The assassin was caught on 24 September. He was Mihailo Mihailovič, born in Sweden of Serb parents, angry with the Swedish government because it had supported NATO in Kosovo. Following various judicial bouts, and his certification as psychologically deranged, he was sentenced to life imprisonment.

After Sweden, that historical bastion of Nordic socialism, it is now the turn of Norway, the only remaining Nordic country with a social democratic government that defends progressive causes at the international level as well as defending the social State. Yet again, a lone madman has struck.

A lone madman? That claim is made mainly by the extreme Right. Because, of course, if the ideas of the extreme Right are to be safeguarded, it is vital to put as much distance as possible between the ideology vehiculated by its parties and the criminal acts their ideology inspires. The belief has to be fostered that fascism is an opinion, not a crime, and that the organisations of the extreme right are made up of normal, ordinary citizens. Whereas in fact, they are nurseries for Breiviks who can emerge anytime, anywhere, armed to the teeth and ready to sow death.

Shortly after the Norwegian drama, Oskar Freysinger, an extreme right-wing Swiss politician famous for opposing the construction of minarets and for stating that abortion has caused an “invisible genocide”, gave the following reply to a journalist who pointed out that a number of Breivik’s standpoints matched Freysinger’s own and those of his party, the Swiss People’s Party: "Do you think there will be fewer terrorist attacks and madmen if I’m forced into silence? It will be worse!” That answer should be taken as a threat.

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Dan Gallin is currently chair of the Global Labour Institute (GLI). Prior to this, Dan worked for the IUF (International Union of Food workers) from August 1960 until April 1997, since 1968 as General Secretary. He is currently researching union organization of women workers in the informal economy, labour movement history and issues of policy and organization in the international trade union movement.

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