Jan Nederveen Pieterse: Structural Adjustment

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Hey Europe, What about Structural Adjustment?    


Jan Nederveen Pieterse

University of California at Santa Barbara, USA

The EU and the Troika now apply structural adjustment to Greece, a policy with a record of disaster, ‘lost decades’ in Africa and Latin America and worsening the Asian crisis of the 1990s. The Berlin/Brussels consensus has come in the place of the Washington Consensus.

The IMF and World Bank abandoned structural adjustment programs (SAP) because of massive failure and resistance. SAP was never a development program but a disciplinary regime used by creditors and hegemons. After 2008 the US opted for stimulus, not austerity. Against economic advice Germany, and the EU, press on with austerity.

Germany proclaims the motto of Ordo-liberalism—Follow the rules; Merkel’s message is ‘the EU is based on rules’. One of the rules is that debtors must pay. Along with this positon comes technocracy, self-righteousness and moral binarism—the rules über alles and one is either in or outside the rules. The Netherlands and Finland (while itself constrained in its recovery by the euro) and rightwing governments such as Poland and Spain back Germany.

Why resurrect a thoroughly defunct disciplinary mechanism—long past its sell-by date, tested in the form of the Washington consensus and repudiated even in Washington? Why reinvent 1930s Ordo-liberalism now? Applying this serves multiple purposes.

Repayment of German, French and other banks exposed to Greek debt. Debt repayment comes first, as in the Washington consensus of the 90s. ECB policies have served this purpose. Unlike the European Development Bank (EBRD) the ECB is a bankers’ bank, not a development bank.

The cost of austerity is disproportionally borne by weak social strata including the young, pensioners and minorities, so just as SAP it serves as class realignment.

In the US a major root of structural adjustment is Dixie capitalism—plantation capitalism, high-exploitation capitalism, as it existed already in the American South, turned into national policy by Reagan. The US has been slowly inching away from low wage/low tax capitalism (with Obamacare, stimulus policies, quantitative easing) while Britain has embraced it. During past years austerity policies in Britain have drastically cut social services. George Osborne’s aim is to establish a ‘low tax, low wage’ economy.

Austerity State Local authorities across Britain have scrapped access to vital services for 150,000 pensioners and cut child protection spending by 8 per cent since 2010, as cash-strapped councils scramble to cope with George Osborne’s austerity drive. Services have been abandoned and entitlements altered as the chancellor has conducted one of the developed world’s most aggressive exercises in deficit reduction. (Financial Times 27.7.15)

The cuts to British local authority budgets amount to £18bn, equivalent to 19 percent of spending. Germany is becoming more like Britain and in joining Germany’s train the EU follows. Establishing the Berlin consensus as Brussels hegemony serves to discipline France and Mediterranean economies, thus curtailing unruly varieties of European capitalism under a single umbrella—the outline of which was already set in the 1991 Maastricht Treaty.

Thus, Nordic countries and firms reap the advantages of the euro (large common market, relatively low currency, low export and transaction cost) while weaker economies carry the burden of uneven development. Concealing or turning to advantage (of Nordic banks and enterprises) European North-South uneven development is embedded in the Maastricht Treaty. Schäuble’s threat of Grexit, a political ploy, serves to discipline unruly eurozone economies—follow the rules, or you’re out.

Mediterranean capitalisms are distorted (patronage state, oligarchies, clientelism, social spending unrelated to productivity, tax evasion), but so is the Germany economy—with wage repression to boost exports and a growing precariat. In Germany worker wages have risen by no more than 1.4 percent since the early 90s, in a policy initiated after reunification. With the help of Bild and other media, German workers now take their frustration out on the Greeks.

Compare the world’s two leading export economies, China and Germany. Both hold vast external surpluses. By buying US Treasuries China boosted American debt; Germany bought Greek debt. China has since changed gear from export-led to investment-led growth and is now externalizing its investment-led approach in One belt, One road projects, the Asian Infrastructure Investment Bank, the Silk Road Fund, the BRICS’ New Development Bank and loans to and investments in developing countries. This is China’s surplus recycling mechanism. Germany, by contrast, lacks a surplus recycling mechanism (as Yanis Varoufakis notes in The Global Minotaur). The European Investment Fund (€315 billion over three years from 2015) is puny compared to China’s expansive investment projects.

There’s no class analysis in the austerity picture—or rather, the project is recovery of the strong on the backs of the weak. There’s no class analysis of Greece either—bailouts went to banks, and then back to German and French banks, not to the Greeks. Missing in the picture is historical awareness—Germany has received debt relief more than once (as Piketty and several others point out). Missing in the picture is awareness of how Germany has benefitted from the euro—enormously, so giveback or at any rate surplus recycling is appropriate, also as an investment in future common prosperity.

Structural adjustment and conditionalities only affected indebted developing countries (surplus economies such as China were never affected). Likewise in Europe externally imposed austerity programs only affect indebted countries. Scandinavia, the Netherlands and other Nordic countries are not affected, other than by ‘creeping liberalization’. The alternative of Nordic capitalism (combine economic dynamism with social policies) can remain intact; yet in following Germany’s lead in the EU it is losing rather than gaining ground.

Along with Greece, this puts several cards on the table. The euro as a scrooge’s currency, tied to structural adjustment, isn’t sustainable and will unravel at the edges because over time it deepens and doesn’t solve uneven development. The EU as Germany writ large, short of reflexivity and awareness, inward looking and bumbling in relation to Ukraine, Russia and Turkey, is losing legitimacy.

The EU was about achieving scale and leverage by burden sharing and development (as in the infrastructure fund). The Maastricht Treaty and the euro are the opposite of the EU. They push the eurozone into the cul de sac of the banker’s paradigm (sound money, never mind the economy), enhanced by risk-free banking (with politically enforced bailouts). Having made a comeback after 2008, the IMF is back with conditionalities (as if the 90s never happened) while it is hostage to the American veto and the Republicans in Congress.

The euro is no help in debt and recession, but renegotiating the Maastricht Treaty isn’t a realistic option (also in view of ‘Brexit’). Europe as an alternative to Anglo-American capitalism is losing ground. The Maastricht Treaty, creeping liberalization and austerity, in overdrive since the 2008 crisis, slowly eviscerate social market economies. The upshot is that the international field shifts more and more to emerging developing countries.



Jan Nederveen Pieterse is Duncan and Suzanne Mellichamp Professor of Global Studies and Sociology at University of California Santa Barbara. He holds the Pok Rafeah Distinguished Chair at Malaysia National University, 2014-2015. He specializes in globalization, development studies and cultural studies. He is the author/editor of 22 books. https://www.jannederveenpieterse.com


Banner image: European map on broken Euro coin (editor).

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