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Is The Nation-State And Its Welfare State Dead? A Critique Of Varoufakis

by Vincente Navarro, via Social Europe

I always read the writings of Mr. Varoufakis with great interest, and I frequently find myself in agreement, particularly in his criticism of the Troika (the International Monetary Fund, European Commission, and European Central Bank) and of the Eurogroup (the Ministers of Economy and Finances of the European Union).  I also concur with his call for a European-wide mobilization to force democracy upon the institutions that govern the EU, although I disagree with his proposed way to do it. He believes (wrongly, I think) that the power of nation-states has practically disappeared in the EU. They do not count any longer.  Based on his Greek experience, when he represented the Syriza government in negotiations with the Troika, he concludes that nation-states do not have any power.  According to Varoufakis, governments and parliaments in these nation-states have been transformed into mere transmission belts of whatever is decided by the Troika and associated institutions.  He writes in one of his recent publications that “European governments transmit to the Parliaments whatever is decided at the European level (the European Commission or the European Council) and the Parliaments carry out whatever instructions they received from those institutions” (Yanis Varoufakis and Gerard Pisarello, A plan for Europe, p. 89).

There are alternatives

Needless to say, parliaments are seriously constrained by these institutions.  There is no disagreement on that point.  But it is an exaggeration to say that they have lost all their power.  And it is wrong to accept that governments and parliaments applied their austerity policies (with cuts in the welfare state), claiming they do not have any other choice.  For example, the socialist government led by President Zapatero in Spain could, to reduce the public deficits, either cut public expenditures or increase taxes.  President Zapatero chose the first to avoid the latter.  He cut public pensions to obtain €1,200 million when he could have obtained even more money (€2,000 million) by reversing property taxes.  The same with President Rajoy of the conservative Popular Party. He cut €6,000 million from the National Health Service, when he could have obtained almost the same amount by reversing cuts on corporate taxes. Parliaments do still have power, including the power to question austerity policies.  We have seen how the Portuguese government has stopped the application of the austerity policies imposed by the European Commission.

The changes in the EU will have to include, besides European-wide mobilizations that Varoufakis advocates, responses by coalitions of nation-states against the policies imposed by institutions that govern the Eurozone.  It is a mistake to accept the justification that conservative, liberal and many social democratic governments give when they implement highly unpopular cuts of public and social expenditures—that there are no alternatives.  They do have alternatives that they are not willing to admit.  In reality, many of these governments (particularly the liberal and conservative ones) are achieving, through unpopular policies, what they have always wanted: reducing the power of labor and dismantling the welfare state.  What we are seeing is an alliance of the powerful and dominant economic and financial establishments in each country, in support of public policies that come down from the Troika and the EU establishment and that they could not pass in their own parliaments.  They are using the European institutions, which lack any democratic accountability, to obtain what they always wanted, justifying it by saying: “There are no alternatives.”  It is obvious there are alternatives.

Varoufakis and his proposed UBI

The second area of major disagreement has to do with Varoufakis’s dismissal of the welfare state, calling instead for a Universal Basic Income (UBI). In the conference I am linking to, he summarizes his main points of view on the current state of capitalism and why the establishment of UBI should be at the center of a strategy to resolve the major problems that this capitalism is creating.  He starts, somewhat provocatively (a style he seems to enjoy, as he uses it frequently), by saying that “social democracy (including the US version: the New Deal in the United States) and its policies are dead, are finished, and cannot be revived.”  He further adds that “the establishment of the welfare state (the public provision of transfers and public services such as health care, education, social services, and so on) is over as well.”  The welfare state, after all, cannot continue: its funding is not sustainable because the funds to pay for it come from payroll taxes that will diminish due to the reduction in the number of workers and the decrease in their wages.  He attributes this decline to revolutionary technological changes, adding his voice to the growing number of authors who believe the digital and electronic revolutions will produce a future without jobs.

Another point he makes in his speech is that the financialization of the economy (i.e., expansion of the financial sector at the cost of the productive economy) further adds to the problem of not only the funding of the welfare state but also the reproduction of capitalism per se.  According to Varoufakis, banking has substituted for manufacturing (and other elements of the productive economy).  The meaning of this is that in the US, the center of economic power has passed from Detroit to Wall Street, creating a major problem because the reduction of the productive economy means fewer jobs and a further reduction in wages, which means lower demand, causing the current crisis.  Because of these central points, the solution is to tax high-income groups and distribute it to everyone else as income, allocated as the same amount to every citizen, the main characteristic of UBI.  That money will empower citizens, enabling them to negotiate with the employer under better conditions.  UBI will create demand and consumption that will stimulate the economy back to the required rates of growth.

These, I believe, are his major points.  I hope I have summarized his views properly.

What are the problems with these theses?

There are several.  One is to inaccurately represent social democracy.  Historically, social democracy was the development of a strategy that aimed to provide transfers and public services to everyone according to his or her needs, with these to be funded according to everyone’s ability, defining needs and ability through a democratic process.  That strategy led to the establishment and expansion of the welfare state, based on progressive taxation.  What Varoufakis presents as social democracy, however, is actually Christian democracy.  It was the latter (established by Bismarck) that based the funding of the welfare state on labor market contributions.  The welfare state, rooted in the insurance system, was more a characteristic of the conservative road, rather than the social democratic one.  Based on that tradition, benefits were not universal and funding was not according to the ability of each, but rather to the type of work that each does.  The contribution was not from each one’s ability and capacity, but rather according to each one’s job.  This distinction is important.

It is this latter approach, the conservative or Christian democratic tradition (which, I repeat, is funded with labor market contributions), that Varoufakis calls the welfare state.  And it is the one that can be in trouble because public insurance revenues depend on the number of workers’ contributions and the levels of salaries and contributions.  It is this type of welfare state that faces major problems, not the social democratic one, where funding comes from general state revenues rather than from the labor market.

Capital-labor power relations are the primary ones that shape the state

In the social democratic model, the state’s revenues are related only to the political will of the state on how much to tax capital and how much to tax labor – and this depends primarily on the power relations that exist in each nation-state.  In countries like those in Scandinavia, with strong labor movements, the percentage of national income that goes to labor is much larger than the income that goes to capital.  It is in countries where labor is weak, such as in southern Europe (Spain, Greece, and Portugal), where labor’s share of national income is much lower, and capital income much greater.  How the national income is distributed and how much public revenues are obtained by taxing labor or by taxing capital is a political question.  But, as long as people support the welfare state, it will be funded.  There is enough money in the southern states to provide a developed welfare state.  The problem is that the state does not collect it, because conservative forces are extremely powerful in these Southern European countries.

The problem in developed capitalist countries, in both the EU and North America, is that income derived from capital has been winning at the cost of labor. Income derived from capital has grown enormously, while income derived from labor has been declining dramatically. That is the real problem. The domination of capital (led by financial capital) within European establishment institutions explains this situation. The lack of democracy in EU institutions is based on this. And, it has nothing to do with technological changes. What is required is to reverse these power relations and increase labor income at the cost of reducing capital income, which will also require changes in the property of capital. I would hope Varoufakis agrees with this.

What solutions are there?

But, if he agrees, then the solution is to tax capital extensively, because it has had a free lunch since the 1980s.  This is possible if there is political will, at the level of each nation-state and at the European level.  The EU’s problem is that it is fully controlled or heavily influenced by financial and export-oriented capitalism (primarily via the German state).  The problem is not where to get the money.  We know where the money is.  I believe Varoufakis and I may agree on this.  But our disagreement may not be regarding where the money comes from (because I assume we can agree that some of it should come from those who have benefited most from the current crisis), but where the money should go.  According to UBI, the same amount of money should go to each citizen; it should be a basic right for everyone.  But why the same amount to everyone?  What is the purpose?  If the objective is to reduce poverty, it can be shown that poverty can be reduced better at a cheaper cost (as countries in the social democratic tradition have done) through a whole set of transfers and public services (i.e., the welfare state).  And the same is true regarding inequalities.  If you want to reduce inequalities, then you can do this much better by giving more money to those who have less (rather than the same amount).

So, let me keep asking: Why do we need UBI?  I agree with Varoufakis that giving money to those who do not have it will empower them and that they will be more resistant to accepting lousy jobs because they do not need the money for survival purposes.  But here, again, you can reach this objective with guaranteed basic income, which is different from UBI.  You could approve a law indicating that no one in a country will get less than the basic income.  And if they receive less than that amount, the state pays for whatever is needed to reach that amount.  The poor will receive the same amount or even more than UBI, and it will be less costly.  But this is different from providing to everyone the same amount.  Moreover, I believe it is wrong for countries in southern Europe (like Greece, Spain, and Portugal) that have poor welfare states (due to the enormous power of capital over labor in those countries) to try to substitute the poorly funded welfare state with UBI.  Spain, for example, has an enormous funding deficit in all public services of the welfare state, from health care to education to child care, and the list goes on.  Asking for UBI, rather than guaranteed basic income, is just a means of distracting the public.  Trying to implement a program with the objective of reducing poverty and inequalities can be best obtained by following the principles of socialist public policies: “to each one according to their needs, and from each according to their ability to pay.”

Vicente Navarro, a political scientist and economist, is Professor of Public Policy at Pompeu Fabra University in Barcelona, Spain and also of Public Policy at Johns Hopkins University, Baltimore, Maryland, US. He has written extensively about the Spanish economy and its welfare state and about the current economic crisis. One of his books in Spanish, ‘Insufficient Welfare, Incomplete Democracy’, was awarded the Anagrama prize, equivalent to the Pulitzer Prize in Spain. His books have been translated into many different languages and he has been an advisor to many socialist governments in Europe and was a member of the White House task force on health care reform in 1993.

15 Comments

  1. rtj1211 says

    I’m afraid most discussions fail to focus on the central, crucial issue concerning how people get rich and why. There is some narrative out there that people do it by working harder, by being more brilliant, more innovative.

    In some cases that is true. But the biggest truth of all is this: people get rich through being good at one thing and one thing alone. NEGOTIATING LEGAL AND FINANCIAL CONTRACTS.

    Why did the Russian oligarchs get so rich? One simple reason. They negotiated their way into buying Russian state assets at cents to the dollar. They didn’t necessarily run them any better than previously, they just acquired them in an auction on the cheap and in the end some of them sold them on at fair market prices. In their cases, being good at avoiding bullets and ensuring their rivals didn’t avoid them seemed to be important too, particularly in the aluminium industry.

    Why do bankers get so rich? They have a strong cartel with CEOs of big companies and they charge huge fees to ‘advise’ on M+A, either defending or attacking. Do they actually add any value to shareholders through all that activity? The answer is categorically ‘if they do, then not very much, and certainly not in proportion to the fees they charge’. But because they have a very strong power to leverage in financial centres, they get very very rich. Not to mention how they get governments to bail them out when they go bust, then sell them back the company on the cheap a few years later.

    You get rich in Britain primarily through investing shrewdly in property. The vast majority of those in the middle class make far more money as their house price increases than they ever did working 50 hrs a week. It’s pretty sick, really, but it’s reality. Britain has rigged the property market for decades and now, too many people are locked in for it to be unwound. Too many powerful people anyway…..

    I don’t actually agree with most of what Varoufakis says, but I do agree with him that the Greek people have no negotiating power with the EU, the ECB or the IMF. I don’t actually think Greece being in the EU is a good thing: they are a small nation, on the edge of the EU and they weren’t as rich as Norway when they joined. So, already poorer than average, a small country and not close to the levers of power. They would do better outside, being able to devalue their currency to restore competitiveness. But the whole fiasco, from GS fiddling the figures to get Greece incorporated, to GS, Germany and EU officials buying up Greek assets at cheap prices and paying themselves exorbitant ‘fees’ in the process, just shows what can happen to a nation who goes into the EU without realising the consequences properly. The Greek people have a right to feel they were sold down the Aegean sea and they would do very well to have their own Grexit Referendum.

    The real issue with the EU is currency union and saying all new members have to join the Euro. It’s madness, as most new members are really not economically strong enough to join the Euro without destroying their own economies. Romania? Bulgaria? Croatia? Serbia? Get real. None of those would survive for long in the Euro. And as for Ukraine, LMFAO……so the key to Europe reforming and surviving is to limit the Euro to nations which have similar economic strength. And that might mean Germany leaving it because it is too strong……

    I don’t know the answer, but you could argue for a common currency region for SE Europe; another for Portugal, Spain, France and Italy. I’m not saying you’d decide to do that, people might prefer to return to their former national currencies. But Greece, Portugal and Italy in the same currency as Germany? It’s madness……

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    • ‘…most discussions fail to focus on the central, crucial issue concerning how people get rich and why.’
      The answer is that most rich people inherit their wealth and keep it growing.
      Children of the rich evolve into rich parents of the next-to-be rich.

      Like

  2. Would that the UK anti-austerity movements would truly think through and examine their almost puerile support for Varoufakis who went back to the Troika with a mandate from the Greek people ONLY to then agree even harsher and even more damaging terms even the IMF now realises( though one doubts its
    behaviour will change,when for example the Italian banks crash),has utterly failed to recognise that only Grexit can free the Greek economy from the banksters buying up Greek assets at firesale prices and wrecking generations of Greeks , never had a Plan B and indeed made no attempt at all the explain to the Greek people how their joining the Euro was a key cause of all their troubles,preferring instead to preach this new face of Europeanism codswallop he himself has admitted in moments of clarity,or is it honesty,is utterly unachievable………one huge political smokescreen…
    Would that these anti-austerity movements would recognise the potential within the fiat currency for sovereign nations and move the economic debate away from a wholly redundant “affordability” and as being necessarily tax-financed which “orthodox” number-crunchers and accountants will in due course utterly take apart….then they may see that their very language reinforces the neoliberal orthodoxies they say they are fighting,imprisoning themselves accidentally from the noble aims to which they aspire with flatulent admiration and such chestnuts as “fiscal credibility rules”

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  3. The nation state only exists to the degree that it can implement an independent and democratic fiscal and monetary policy. Otherwise it is a vassal of whatever institutions, whether private or foreign, that control the issuance of its currency.

    By the same token, it also has no real independence if it cannot transact international trade in its own currency on par with the currencies of all its trading “partners.”

    Therefore, unless a nation’s banking is a public sector institution operating in the public interest, there is in effect no ‘nation state,’ albeit perhaps the trappings.

    Sovereignty lies with whomever has the monopoly over money printing and discretion over the way in which this printed money gets into broad circulation.

    By these measures, presently some nations are technically sovereign (albeit in our capitalist context in thrall to oligarchies, so not really); and all other nations that must transact in currencies not their own either domestically or internationally are effectively indentured vassals.

    Under capitalism, the ‘nation state,’ then, is most certainly moribund. Money needs to be ‘un-privatized.’

    As for a guaranteed basic income (and as others have remarked, in a capitalist context, it cannot but become a subsidy for business.

    The solution to everything is as Marx put it long ago and as lucidly explicated by Paul Mattick in an essay he titled “What is Communism?” (1934): euthanize ‘money’ as a ‘medium of exchange’ proper (that is, as a medium by which to ‘rob’ the working class by having it circulate as a commodity in its own right); for purposes of ‘market exchange accounting,’ tally only working hours as a measure of value. Unless this happens, wage workers will never receive their collective due.

    But there is no need for me to elaborate further since Mattick’s exposition can be easily read online:

    https://www.marxists.org/archive/mattick-paul/1934/10/communism.htm

    You can tinker with ‘capital,’ but you can’t fix it.

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    • chrisb says

      ‘tally only working hours as a measure of value’

      So the baker who produces 100 loaves in an 8 hour shift should be paid the same as a baker who produces 1 loaf? The baker whose loaves are nutritious should be paid the same as the baker whose loaves are inedible? That is the way to the collapse of the economy as people lie about the number of hours worked and spend the time ‘working’ doing nothing. … Actually it’s the way to the labour camps, where the workers are forced to actually work through the threat of violence or even death. Pol Pot anyone?

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      • Clearly you have read and understood Mattick’s elaboration of why Marx believed that ‘money’ as it functions in capitalist society must be done away with. Pol Pot, indeed. Because Marx and Mattick are all about coercion, eh.

        Remedial English, anyone?

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  4. Interesting article by Martin Farley on making land value taxation the basis of taxation and how it supports and can be supported by a universal basic income:
    View story at Medium.com

    It saved me the trouble of having to plough through much of Vicente Navarro’s post.

    Like

  5. Good, thoughtful article, but I believe professor Navarro wrong about guaranteed basic income or indeed any “free” income. Anything that would need topping up by the government is an invitation to employers to pay substandard wages–exactly the same crap “welfare” system we have now. Instead why not make the UBI sufficient for a person to live comfortably on. Any income a person earns would then be taxable at a standard rate. Give people the option of working and the means to refuse crap jobs or crap wages. Make health and education free. If people are idle but have no incentive to commit crimes because they need money, then let them be idle. We’ve had four centuries of Puritan ethic and all it’s brought us is capitalist oppression and misery.

    Liked by 1 person

    • Seamus Padraig says

      Good point. We don’t need to be subsidizing employers who pay low wages, which is what the Earned Income Credit in America actually does (that’s probably why Milton Friedman was such a big fan of it). No, what we need is a guaranteed basic income good enough to live off of. That way, a certain number of people will withdraw voluntarily from the labor market, which will have the effect of creating an artificial shortage of labor, which, in turn, will have the effect of driving up wages for those who remain in the labor market.

      Liked by 2 people

  6. Jim Porter says

    Just being pragmatic – a flat rate for everyone would be cheaper to organise rather than the present mess that we have at the moment, and maybe then the attitude to people deciding not to work full-time or at all would be less damaging to society as a whole (get rid of the unemployed scrounger scum idea). Less stress from less overworking and better working conditions would also make people healthier and use the NHS less – simplistic, I know, but it’s just a starting point.

    Liked by 1 person

  7. A very interesting and thought-provoking article.
    On the question of the powers of the nation-sate, I wonder if Varoufakis formulated his ideas before or after Brexit?
    This surely does indicate that nation-states are still relevant?
    I am inclined towards the argument in favour of a guaranteed minimum income.
    Why give money to people who do not need it?
    On the other hand, the amount of intrusive bureaucracy such a scheme entails may be highly unpopular?

    Like

    • Seamus Padraig says

      “On the question of the powers of the nation-sate, I wonder if Varoufakis formulated his ideas before or after Brexit?”

      Varoufakis probably formulated his ideas on the nation-state (and much else) when he went to work for George Soros some years ago.

      “Why give money to people who do not need it?”

      In order to preserve the present class-system of wealth-stratification? Does that sound to cynical? 😉

      Liked by 1 person

  8. I dislike UBI. Perhaps if the total amount that is required to live without working, was also given to workers, I might agree with it. But it would never be that much. Consequently, those outside work will still have to find extra to survive, and everyone else will subsidise it. For example, current amount required to live is around 20k according to the government. The benefits cap was mooted to be restricted to 40k.
    I don’t earn that much, are the government going to boost my income accordingly?
    Maybe I’m just grumpy about having to get up at half 5 in the morning just to earn my UBI while others don’t.

    Like

    • Seamus Padraig says

      “Perhaps if the total amount that is required to live without working, was also given to workers, I might agree with it.”

      Yes, head, that’s the key: it has to be enough to live off of; otherwise, it’s just a subsidy for miserly employers.

      Liked by 1 person

  9. bevin says

    ” The welfare state, rooted in the insurance system, was more a characteristic of the conservative road, rather than the social democratic one.”

    This is very true. The project of ending the ‘welfare state’ which existed in one form or another until C19th capitalism-liberalism- dates back to the Utilitarians and Whigs. The 1834 Poor Law in England being the emblematic piece of legislation.

    The ‘Welfare State’ is a reaction against liberalism, replacing through state services, the characteristics of the subsistence economy: to take the place of the cow that the peasant lost through enclosure- free milk at school; to take the place of the village midwife-the District Nurse; to replace communal/family/ church schemes to maintain the impotent- pensions.

    As to the basic income, it suffers from the great problem of being another trend towards individualism/atomism. There are far better ways providing a decent maintenance for all.

    Liked by 1 person

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