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Forward thinking

27 January 2015 By Edward Hadas

Outsider parties are disrupting the political system in many developed economies. Greece is leading the way, with Syriza’s victory in the Jan. 25 election on a platform of radical economic change. Spain, where the new Podemos party leads the polls, could follow later this year. Fringe movements are also gaining traction in France, Italy and the UK. Something similar is happening even in the United States, where the Tea Party movement is shaking things up from within one of the established parties.

The simple explanation is that the political establishment has run out of good ideas. Economic performance is disappointing, but the policy differences among the leading mainstream parties are minimal. No wonder citizens are looking to new parties for genuine innovations.

Markets typically – and understandably – get scared by such movements. The likelihood of Syriza taking power after elections were triggered in December led to a widening of the spreads on Greek debt. And some of the anti-establishment movements could inflict real harm. The UK Independence Party and the French National Front offer a retrograde economic nationalism which ignores not only the benefits of the unified European economy but the constraints of globalisation. The Tea Party simply denies the central role of governments in any modern economy.

However, some of the new left-wing parties that have sprung up – Syriza included – espouse a convincing critique of the problems and inherent injustices of the neoclassical economic model. Syriza’s new finance minister, economics professor Yanis Varoufakis, has provided a persuasive account of the 2008 financial crisis and its aftermath, including the punitive Greek restructuring programme. He focuses on the political and social forces at play behind the moralist rhetoric of the debates on debt and structural reform.

Of course, it is much easier to pontificate as an academic and a blogger than to enact effective policies, especially in a country which depends on the reluctant financial support of euro zone creditors. Those creditors promote a different, and largely self-serving, economic model. Syriza can reform the domestic tax system, but it cannot simply mandate the government-funded job-creation and investment programmes or the massive debt restructuring that Varoufakis identifies as the keys to a lasting recovery.

If the former and current outsiders from the left do not have all the answers, Syriza’s presence in the halls of European power could still do some good. The post-crisis political consensus has prioritised fiscal austerity, labour market reform and monetary policy in restoring growth. The resulting policies have left far too many people without jobs. The United States, which is also struggling with inadequate employment, could also benefit from more questioning of the accepted wisdom.

This is where the left’s intellectual background is helpful. Its traditional enthusiasm for ever bigger government was dangerously simplistic, but some of the underlying ideas were sound: governments are uniquely well placed to act on behalf of the entire society, and shared effort and sacrifices are required to face many economic challenges.

In developed economies, the maintenance of a healthy labour market cannot be left to blind market forces. Individual employers can be good at improving efficiency, but that tends to destroy jobs. Their ability to create decently paid new positions is constrained by uncertain demand, high taxes and a financial system which rewards speculation and thrift more than expansion. It takes a concerted effort to overcome these disadvantages. Government clearly has a role to play. Syriza, Podemos and their peers are not afraid of mobilising its resources.

The left’s traditional distrust of conventional finance is also useful right now. Thinkers like Varoufakis are likely to use their voice to remind finance professionals that while they gain from leverage and speculation, society as a whole usually loses out. Creditors can be reminded that debts should serve the common good of lenders and borrowers. If they do not – and many of the sovereign and private debts built up over the last decade probably don’t – some sort of forgiveness is in order.

Most incumbent European politicians, even from centre-left parties, have been reluctant to get too close to Syriza and its popular leader Alexis Tsipras. They could look on the bright side. Tsipras says he wants to mend the Greek part of the tattered social contract which supports the European project. He has a point, and not just in his homeland. Around the developed world, there is too much finance and not enough solidarity.

 

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