Das populist, Schroeder
TNR's business writer Clay Risen wrote an interesting column last week about tommorrow's German Land election in North Rhein-Westphalia where the ruling Social Democratic Party (SPD) will probably go down to the centre-right Christian Democrats (CDU) for the first time in 39 years; the most recent poll has the CDU leading by 43-36, with the Greens (SPD's coaltion partners) at 7%. Risen echoes a common complaint from the German centre-right and business community about recent anti-capitalist rhetoric adopted by Schroeder and SPD Chair Franz Müntefering pontentially scaring off much-needed foreign investment from Germany where unemployment currently stands around 12%. Critics argue that Schroeder's left turn makes his SPD look unpredictable -- Schroeder backing off his own commitment to reform -- and that it may represent a genuine shift in the SPD line back to its left-nationalist "roots", or at least to its early 90s pre-neoliberal incarnation under Oskar Lafontaine.
Since taking power nationally in 1998, Schroeder's party has been enduring increasing political difficulties. When Schroeder (a fomer Marxist turned militant centrist) defeated the CDU's four-termer, Helmet Kohl, in the September 1998 election, it marked the first time since WWII that an incumbant chancellor had lost his position. At the time, Schroder's ascendency was widely seen as yet another victory for the emerging global Third Way -- another important spoke in the Clinton-Jospin-Blair wheel. Blair welcomed Schroeder's election as heralding "a new era for Europe" while Europe's rightwing governments played their parts worrying about the "re-emergence of [European] socialism". Even the symbolism was familiar: the proxy defeats of the traditional left-liberal consensus that Clinton played out against Jerry Brown in the 1992 primary and over welfare reform in his 1996 reelction bid, Schroeder in turn played out with then-SPD Chairman Oskar Lafontaine, a longstanding foe of the anti-Keynesian free-capital European Union, who resigned in protest in 1999.
Since 1998, though, things have gotten increasingly rocky for Schroeder as his SPD has repeatedly suffered setbacks in Land elections, losing vote-share both to the CPU and to smaller far-right (NDP) and far-left (PDS) parties. Tommorrow's election will likely be the 6th of seven Land elections since 2003 that the SPD has lost, and will put the Bundestrat (the upper house, whose members are appointed by the Land assemblies) opposition within two seats of being able to block the SPD-Green agenda. At the core of the discontent with the "New SPD" is Schroeder's neoliberal "Agenda 2010" reforms. These reforms, the first of which were implemented in Junuary 2005, combine a broad across-the-board income tax cut with changes in the the tax-and-transfer regime, including more money in block grants to the German cities and more fee-for-service provisions in the public health care system. Most controversially, they reduce compensation for the long-term unemployed and cut pension benefits to discourage early retirement at a time when Germany's unemployment rate has hit a post-WWII high and economic growth is close to zero. The criticism of the plan has spanned the spectrum, with voters defecting to the right and the left -- arguing in some cases that market liberalization has not gone far enough to revitalize industry (the CDU's pitch) and in others that the pension and unemployment insurance cuts represent a betrayal of the SPD's working class base.
Schroeder's political reaction to his own and his party's woes is instructive. In the run up to the 2002 German national election, Schroeder took the opposite tack to his friend Tony Blair. After supporting the US-led attack on Afghanistan in 2001 (causing some friction with his coalition partner Greens), Schroeder voreciously opposed the prospect of a US-led war on Iraq -- a position shared by most Germans but not by the CDU. Most commentaters believe Schroeder's full-throated critique of U.S. foreign policy led to the brief spike in his popularity that narrowly took him into his second term as Chancellor. But with Iraq less of an issue and the national and European economies more of an issue since 2004, and with the SPD far behind the CDU in the national polls, the SPD leadership has reversed course to embrace a form of economic populism focussing on criticism of economic and corporate elites. The highlight of this new tack was Müntefering's description last month of foreign capital as "swarms of locusts" descending on Germany's economy.
Germany's centre-left paper Der Spiegel recently weighed in on the Schroeder govnerment's new tactics:
In public, Schroeder has carefully fostered two personas. The first supports Muentefering by peppering speeches with pledges to fight "wage dumping and exploitation." He's also said that "responsible businesses don't seek short-term maximization of profits at any price" and he's warned against the emergence of an "unfettered neoliberal system." The second Schoeder has one ear constantly turned to Germany's important top businessmen, including consultant Roland Berger, who has warned the chancellor that his statements are "not a game, but rather irresponsible and cheap propaganda."The role Schroeder is playing here might best be described as that of a "participating observer" -- he's a proven tactician and expert in difficult situations like this. He's constantly assessing the opportunities and risks posed by Müntefering's capitalism critique.
In other words, Schroeder is a classic triangulator. Nevertheless, there is good evidence that the SPD's leftward tack is not strictly a cynical bluff. To begin with, "the locust debate" has been overplayed in the international (particularly the right wing) media: Müntefering's attack was not a "Marxist" attack on capitalism per se but a critque of certain international financial firms who buy and sell struggling German businesses (the rhetoric really not amounting to much more than a hyperbolic version of Kerry's attacks in the 2004 Democratic primary on "Benedict Arnold CEOs" -- criticism of specific deviants who destablize the economy). Moreover, SPD has been willing to back this rhetoric with specifics -- Müntefering has proposed new capital control measures, particularly on speculation and hedge funds. And last week, the Bundestag passed legislation regulating CEO pay.
Perhaps more important is Germany's changing position vis-a-vis the European Union and its anti-Keynesian Growth and Stability Pact. The 1997 Pact forbade member countries from running successive budget deficits in excess of 3% of GDP except in response to severe shocks (output reductions in excess of 2% of GDP). Kohl's government had been strong backers of the Pact, but more recently, Schroeder's government has called for greater flexibility in determining member governments' rights to combat recessions independent of the European Central Bank -- provoking the expected outrage in the European business community. (That Germany has been a serial violator of the Pact since Schroeder came to power is of course the prime mover behind the change in stance; but their lobbying for changing the rules still represents a revised view of Keynenism and the role of fiscal sovereignty at the expense of the strict monetarism that has defined the EU's often harsh neoliberal agenda.)
Whether Agenda 2010, and the other reforms Schroeder is backing, like his recently unveiled 6% corporate tax cut and increased transportation funding, will really help modernize and improve the German economy in the long run is unknowable to me, but one thing is obvious: if Schroeder's coalition loses next year or loses control of the Bundestrat next March, Germany's economic policy regime will grow more, not less, austere under Angela Merkel's CDU. At the same time, recent showings by the far-right NDP in Saxony (after Schroeder's government attempted to ban the party for inciting hate crimes) and of the post-communist PDS in Brandenburg in 2004 Land elections -- both cleared the 5% hurdle that would be needed for representation in the Bundestade (lower house) if attained at the national level -- indicate the need for a strong center-left counterveiling force in poor economic times that neither a pre-Schroeder-style SPD nor the (increasingly centrist) Greens look able to provide.
But what does Schroeder's and the SPD's current predicament say about the Third Way in general? Certainly, the center-left coaltion in Europe has suffered in the Age of Bush -- with Jospin's defeat in 2002 and Blair's war-created unpopularity even as his Labour Party looks increasingly default in Britain. Schroeder's woes may be structural and beyond his control, but it's worth noting that simply avoiding the pitfall of backing Bush on Iraq (or American international policy in general) hasn't saved the SPD.
A more alarming conclusion is that late 90s-style neoliberal governments succeed only when fronted by charismatic, politically shrewd and/or ruthless politicians (Bill Clinton; Tony Blair and, surprisingly enough for those who have been following recent Canadian developments, Paul Martin) but aren't stable enough to withstand pressure from the right when headed by less overtly talented politicians (the electoral defeats of Al Gore and Leonid Jospin being the obvious examples in the West). But even the giants of the movement, Blair and Schroeder, who revived centre-left politics in their countries, may not be able to sustain the sort of trust that their movements require to hold together a coalition of left and right-leaning voters while pushing through the sort of economic reforms that are (in the neoliberal view) conducive to the post-industrial economies. Such reforms invariably entail pain -- not least in old industrial centres like North Rhine-Westphalia -- and they too often look to the casual observer like a betrayal of workers in deference to the international corporate order.
On the other hand, it's also possible that Schroeder's embrace of a targetted economic populism will make for effective politics and policy. There is -- in fact there should be -- ceterus parabus, no contradiction between a verbal and regulatory attack on the worst abuses of corporate capitalism -- such as unregulated international speculation and corporate welfare -- backed by policy, and the less directly worker- and interest-group friendly policies that have defined the Third Way; no reason why labour market reforms that force citizens to make tough employment decisions shouldn't be compatable with policies that limit the pay of "fat cat" (Muntefering's phrase) CEOs. Most liberal economists, for example, including the enthusiastically pro-globalist Jagdish Baghwati, favour the sovereign use of short-run capital controls. And while there certainly is a fine line between responsible politicking in the public interest and anti-business demagoguery, it's entirely arguable that Third Way politicians have been too reluctant to approach this line either in substance or rhetoric. There's certainly no evidence yet that Schroeder and Muntefering have crossed it.
So there's some hope in Germany that Schroeder's SPD might still have something to offer the international Third Way. Whether they can save it -- and themselves -- tomorrow and in 2006 remains to be seen.
Since taking power nationally in 1998, Schroeder's party has been enduring increasing political difficulties. When Schroeder (a fomer Marxist turned militant centrist) defeated the CDU's four-termer, Helmet Kohl, in the September 1998 election, it marked the first time since WWII that an incumbant chancellor had lost his position. At the time, Schroder's ascendency was widely seen as yet another victory for the emerging global Third Way -- another important spoke in the Clinton-Jospin-Blair wheel. Blair welcomed Schroeder's election as heralding "a new era for Europe" while Europe's rightwing governments played their parts worrying about the "re-emergence of [European] socialism". Even the symbolism was familiar: the proxy defeats of the traditional left-liberal consensus that Clinton played out against Jerry Brown in the 1992 primary and over welfare reform in his 1996 reelction bid, Schroeder in turn played out with then-SPD Chairman Oskar Lafontaine, a longstanding foe of the anti-Keynesian free-capital European Union, who resigned in protest in 1999.
Since 1998, though, things have gotten increasingly rocky for Schroeder as his SPD has repeatedly suffered setbacks in Land elections, losing vote-share both to the CPU and to smaller far-right (NDP) and far-left (PDS) parties. Tommorrow's election will likely be the 6th of seven Land elections since 2003 that the SPD has lost, and will put the Bundestrat (the upper house, whose members are appointed by the Land assemblies) opposition within two seats of being able to block the SPD-Green agenda. At the core of the discontent with the "New SPD" is Schroeder's neoliberal "Agenda 2010" reforms. These reforms, the first of which were implemented in Junuary 2005, combine a broad across-the-board income tax cut with changes in the the tax-and-transfer regime, including more money in block grants to the German cities and more fee-for-service provisions in the public health care system. Most controversially, they reduce compensation for the long-term unemployed and cut pension benefits to discourage early retirement at a time when Germany's unemployment rate has hit a post-WWII high and economic growth is close to zero. The criticism of the plan has spanned the spectrum, with voters defecting to the right and the left -- arguing in some cases that market liberalization has not gone far enough to revitalize industry (the CDU's pitch) and in others that the pension and unemployment insurance cuts represent a betrayal of the SPD's working class base.
Schroeder's political reaction to his own and his party's woes is instructive. In the run up to the 2002 German national election, Schroeder took the opposite tack to his friend Tony Blair. After supporting the US-led attack on Afghanistan in 2001 (causing some friction with his coalition partner Greens), Schroeder voreciously opposed the prospect of a US-led war on Iraq -- a position shared by most Germans but not by the CDU. Most commentaters believe Schroeder's full-throated critique of U.S. foreign policy led to the brief spike in his popularity that narrowly took him into his second term as Chancellor. But with Iraq less of an issue and the national and European economies more of an issue since 2004, and with the SPD far behind the CDU in the national polls, the SPD leadership has reversed course to embrace a form of economic populism focussing on criticism of economic and corporate elites. The highlight of this new tack was Müntefering's description last month of foreign capital as "swarms of locusts" descending on Germany's economy.
Germany's centre-left paper Der Spiegel recently weighed in on the Schroeder govnerment's new tactics:
In public, Schroeder has carefully fostered two personas. The first supports Muentefering by peppering speeches with pledges to fight "wage dumping and exploitation." He's also said that "responsible businesses don't seek short-term maximization of profits at any price" and he's warned against the emergence of an "unfettered neoliberal system." The second Schoeder has one ear constantly turned to Germany's important top businessmen, including consultant Roland Berger, who has warned the chancellor that his statements are "not a game, but rather irresponsible and cheap propaganda."The role Schroeder is playing here might best be described as that of a "participating observer" -- he's a proven tactician and expert in difficult situations like this. He's constantly assessing the opportunities and risks posed by Müntefering's capitalism critique.
In other words, Schroeder is a classic triangulator. Nevertheless, there is good evidence that the SPD's leftward tack is not strictly a cynical bluff. To begin with, "the locust debate" has been overplayed in the international (particularly the right wing) media: Müntefering's attack was not a "Marxist" attack on capitalism per se but a critque of certain international financial firms who buy and sell struggling German businesses (the rhetoric really not amounting to much more than a hyperbolic version of Kerry's attacks in the 2004 Democratic primary on "Benedict Arnold CEOs" -- criticism of specific deviants who destablize the economy). Moreover, SPD has been willing to back this rhetoric with specifics -- Müntefering has proposed new capital control measures, particularly on speculation and hedge funds. And last week, the Bundestag passed legislation regulating CEO pay.
Perhaps more important is Germany's changing position vis-a-vis the European Union and its anti-Keynesian Growth and Stability Pact. The 1997 Pact forbade member countries from running successive budget deficits in excess of 3% of GDP except in response to severe shocks (output reductions in excess of 2% of GDP). Kohl's government had been strong backers of the Pact, but more recently, Schroeder's government has called for greater flexibility in determining member governments' rights to combat recessions independent of the European Central Bank -- provoking the expected outrage in the European business community. (That Germany has been a serial violator of the Pact since Schroeder came to power is of course the prime mover behind the change in stance; but their lobbying for changing the rules still represents a revised view of Keynenism and the role of fiscal sovereignty at the expense of the strict monetarism that has defined the EU's often harsh neoliberal agenda.)
Whether Agenda 2010, and the other reforms Schroeder is backing, like his recently unveiled 6% corporate tax cut and increased transportation funding, will really help modernize and improve the German economy in the long run is unknowable to me, but one thing is obvious: if Schroeder's coalition loses next year or loses control of the Bundestrat next March, Germany's economic policy regime will grow more, not less, austere under Angela Merkel's CDU. At the same time, recent showings by the far-right NDP in Saxony (after Schroeder's government attempted to ban the party for inciting hate crimes) and of the post-communist PDS in Brandenburg in 2004 Land elections -- both cleared the 5% hurdle that would be needed for representation in the Bundestade (lower house) if attained at the national level -- indicate the need for a strong center-left counterveiling force in poor economic times that neither a pre-Schroeder-style SPD nor the (increasingly centrist) Greens look able to provide.
But what does Schroeder's and the SPD's current predicament say about the Third Way in general? Certainly, the center-left coaltion in Europe has suffered in the Age of Bush -- with Jospin's defeat in 2002 and Blair's war-created unpopularity even as his Labour Party looks increasingly default in Britain. Schroeder's woes may be structural and beyond his control, but it's worth noting that simply avoiding the pitfall of backing Bush on Iraq (or American international policy in general) hasn't saved the SPD.
A more alarming conclusion is that late 90s-style neoliberal governments succeed only when fronted by charismatic, politically shrewd and/or ruthless politicians (Bill Clinton; Tony Blair and, surprisingly enough for those who have been following recent Canadian developments, Paul Martin) but aren't stable enough to withstand pressure from the right when headed by less overtly talented politicians (the electoral defeats of Al Gore and Leonid Jospin being the obvious examples in the West). But even the giants of the movement, Blair and Schroeder, who revived centre-left politics in their countries, may not be able to sustain the sort of trust that their movements require to hold together a coalition of left and right-leaning voters while pushing through the sort of economic reforms that are (in the neoliberal view) conducive to the post-industrial economies. Such reforms invariably entail pain -- not least in old industrial centres like North Rhine-Westphalia -- and they too often look to the casual observer like a betrayal of workers in deference to the international corporate order.
On the other hand, it's also possible that Schroeder's embrace of a targetted economic populism will make for effective politics and policy. There is -- in fact there should be -- ceterus parabus, no contradiction between a verbal and regulatory attack on the worst abuses of corporate capitalism -- such as unregulated international speculation and corporate welfare -- backed by policy, and the less directly worker- and interest-group friendly policies that have defined the Third Way; no reason why labour market reforms that force citizens to make tough employment decisions shouldn't be compatable with policies that limit the pay of "fat cat" (Muntefering's phrase) CEOs. Most liberal economists, for example, including the enthusiastically pro-globalist Jagdish Baghwati, favour the sovereign use of short-run capital controls. And while there certainly is a fine line between responsible politicking in the public interest and anti-business demagoguery, it's entirely arguable that Third Way politicians have been too reluctant to approach this line either in substance or rhetoric. There's certainly no evidence yet that Schroeder and Muntefering have crossed it.
So there's some hope in Germany that Schroeder's SPD might still have something to offer the international Third Way. Whether they can save it -- and themselves -- tomorrow and in 2006 remains to be seen.
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