The prevailing topic of discussion around Europe has been the evolution and future prospects of the global financial situation. Talk has revolved around the specter of a deep recession, a second valley in the W-shaped economic model, following the first crisis (once considered to be merely a “V”) that began in 2008 and has affected the lives of men and women all over the Old Continent. The financial and sovereign debt crisis is now being compounded by a downturn of the real economy. Brought about in part by shortsighted government policies, the contraction of consumer spending and industrial production, lack of investments, and double digit unemployment resulting in falling tax revenues during a time when most governments are being forced to implement stringent tax policies has become a vicious cycle from which there is no easy exit.
Germany may define itself as righteous, but sometimes we are quick to forget that in today’s interconnected world, one country’s debts are another country’s credits, and if the debtors begin to die off in the recession, the creditors will soon follow as their assets turn out to be nothing more than the lack of funds in countries that have gone bankrupt and will never be able to repay. Neither developing countries in sustained growth like the BRICS, nor the United States themselves should feel immune to this next recession. The 2008 financial crisis, which indeed originated in the US, was a clear indication that we are all swimming in the same ocean, and the waves are breaking on every shore. Some beaches are hit harder than others, and at different times, but the storm is washing over everyone and nobody will escape its negative effects.
The economic problems of the past two years have long been debated as though they were a technical or fiscal issue, and not a political choice. We have forgotten that while an economic position in itself is not necessarily politically relevant, when faced with a decision and taking one direction rather than another, the result is a political choice and not an economic one. This point should be reminded to those who staunchly support deficit reduction; if its true that you can’t live without debt, it must also be true that you can be killed by austerity.
What to do then?
If on the one hand the socialization of production factors (including capital) proved to be a failure in the 1900’s, the market’s capacity for absolute self-regulation has failed just as miserably today. A paradox can be seen in a peculiarity of the two systems: if the single-party model of totalitarian regimes ended up denying liberty and democratic principles to the entire society, so too does a supranational financial institution, completely removed from social and economic realities (i.e. markets, people, citizens, and workers), begin to dictate and impose political decisions on a democratic government. The Greek situation is a grim example that national and international democratic systems have been, and still are, unable to solve a crisis that, at least at the beginning, could have been prevented.
It may be time to dust off some economic theories that may have been dismissed as antiquated and not for today’s world. English economist Hobsbawn, providing a Marxist analysis of the current crisis of capitalism, has called for deep reforms of the global economy and the way it interacts with every nation. A greater involvement of government, says Hobsbawn, is necessary to safeguard the social cohesion of the economic classes within society itself. Therefore the state ought to guarantee a better distribution of wealth and economic means, within the constraints of each particular nation. Considering the global situation, one might say that the effects of the crisis are on a converging path with the possibility of a major societal change.
The concept of globalization by producing in low-cost countries to then sell in high-cost countries is no longer the basis for the phenomenon. The industrial impoverishment of rich developed nations, in favor of certain growing economies, at the end has failed to generate the kind of demand that can justify the globalization of product manufacturing and production. We are returning to a regional production model where manufacturing occurs closer to the end market in a faster process for the entire production and distribution cycle. Time and distance, when not managing production locally, can completely erase any efforts to satisfy demand, which today is more flexible and volatile than ever
And so, parallel to the financial crisis runs the possibility of a recovery in manufacturing. At first glance it may seem like a parallel convergence, an impossible term coined during discussions about Italian politics, but it could also be a beacon, signaling a change in course for the economic policy that governments would be wise to take advantage of. Financial recovery is welcome, but it can’t be a yoke around the daily lives of entire nations. You don’t need to be a Hunkpapa Sioux to forecast the disastrous effects of a herd of wild buffalo that, gripped by the fear of its current predicament, doesn’t know the direction of its own future.