Download Mainstream explanations

International Initiative for Promoting Political Economy
5th Annual Conference in Political Economy
“The Crisis: Scholarship, Policies, Conflicts and Alternatives”
September 16-18, 2014, Naples, Italy
Stavros D. Mavroudeas
Dept. of Economics
University of Macedonia
e-mail: [email protected]
Structure of the paper
Part I: Competiting explanations of the Greek crisis
(1) Mainstream explanations
(2) Radical explanations
(3) Marxist explanations
Part II: Alternative strategies for surpassing the crisis
(1) Restructuring within the EMU/EU
(2) Restructuring and exiting the EMU/EU
Part I: Competiting explanations of the Greek crisis
•
•
•

Mainstream: N-C or N-K perspectives
Heterodox: PK and Radical PE perspectives
Marxist: classical Marxist perspectives
Some overlapping in the margins:
e.g.1: non-OCA & non-rectifiable close to PK financialisation
e.g.2: class struggle & financialisation and financial expropriation refer to
Marxism
 Distinctions not out of intellectual sectarianism but for reasons of
analytical clarity:
 Mainstream: emphasis on policy errors, no systemic causes, no
consideration of the productive structure, OCA, TDH, no relation with
global crisis (external influence).
 Heterodox: emphasis on ‘weak’ structural problems (EMU,
neoliberalism), no consideration of the productive structure, taking one
side or other of the TDH, weak relation with global crisis (external
influence).
 Marxist: emphasis on ‘deep’ structural problems (CMoP), part of the
global crisis, LTV, twin deficits are a result, ‘financialisation’ not a cause
Main groups of explanation
Mainstream
Greek disease
Non-OCA &
non-rectifiable
Non-OCA &
rectifiable
Heterodox
Underconsumption
& financialisation
Minskian
disinflation
Class struggle &
financialisation
Financial
expropriation
Marxist
TRPF
TRPF &
imperialist
exploitation
TRPF &
underconsum
ption
Global
crisis
Causes of
crisis
Analytical PR
focus
OCA
TDH
Mainstream
No,
external
impact
Policy errors,
some Greek
structural
problems
Exchange
relations
no
yes
yes
Heterodox
Mixed
answers
Weak structural Monetary
problems
relations
(neoliberal
policies)
no
yes
no, FD
vs CAD
Marxist
Yes,
internal
dimension
‘deep’ structural Productive
problems
relations
(systemic crises)
yes
dispropor no, twin
tionality deficits
are
results
Type of explanation
CONJECTURAL
STRUCTURAL
[emphasis on policy errors
(national or supranational)]
[emphasis on the structure of
the economy]
Mainstream
explanations
WEAK
STRUCTURAL
[emphasis on mid-term
features (neoliberalism,
EMU)]
Radical
explanations
STRONG
STRUCTURAL
[emphasis on long-term
systemic features]
Marxist
explanations
MAINSTREAM EXPLANATIONS
 3 versions:
1) a special Greek historical accident (Greek ‘disease’)
(EC(2010), (2012), Gibson, Hall & Tavlas (2012),
greekeconomistsforreform.com (Azariadis (2010),
Dellas (2011), Ioannides (2012), Meghir, Vayanos &
Vettas (2010))
2) the Greek ‘disease’ exacerbated by EMU’s
unrectifiable structural deficiencies (not-OCA)
(Feldstein (2010), Krugman (2012))
3) a ‘middle-of-the-road’ blend: the Greek disease and
EMU’s deficiencies are rectifiable (De Grauwe
(2010), Lane (2012), Botta (2012 ))
RADICAL EXPLANATIONS
 4 versions:
1) Inequalities, latent undeconsumption and
financialisation (Tsakalotos & Laskos (2013), Varoufakis
(2012))
2) Disinflation and financialisation a-la-Minsky (Argitis
(2013))
3) Class struggle and financialisation (Milios &
Sotiropoulos (2013))
4) Financial expropriation (Lapavitsas (2012))
MARXIST EXPLANATIONS
 3 versions:
1) TRPF (Maniatis & Passas (2013))
2) TRPF and imperialist exploitation (Mavroudeas &
Paitaridis (2013))
3) TRPF and underconsumption (Androulakis, Economakis &
Markaki (2013))
Mainstream explanations: A Critique
• Mainstream explanations of the Greek crisis evolved
from monistic to a more eclectic mix. The more
articulate discern two sets of causes:
(a) internal causes: exorbitant public expenditure, weak
tax collecting mechanism, corruption and clientelism
(even cronyism), over-regulated labor and product
markets, high wages, non-market friendly institutional
environment, deteriorating competitiveness etc.
(b) external causes: EMU’s deficiencies, repercussions of
the 2007-8 crisis etc.
Behind this eclecticism hide versions (or combinations)
of the three previously delineated explanations.
The analytical backbone of the mainstream
explanations is the TDH: FD → CAD
 Consider the Greek case as simply a debt crisis
Augmented version:
exorbitant wage increases (ULC)
↑FD (public sector)
↑ trade deficit (private sector)
↑ CAD
 Keynesian argument (vs N-C Ricardian Equivalence).
Mainstreamers surpassed this, with some grudges
 Greek TDH empirical studies do not verify it or at least
offer mixed and inconclusive results: Vamvoukas (1997) confirms vs
Katrakilidis & Trachanas (2011), Nikiforos et al. (2013): confirm for the pre-accession to the EMU
period (1960-80), reject for the post-accession period (1981-2007), where the opposite is
confirmed: trade (and thus current account) deficit has caused increasing FD.
• Wages are posited as the cause for both FD and CAD.
• They could be other analytical choices: FD can be
rightfully attributed to upper-class’ notorious tax
evasion (↓ public revenues) and cronyism (↑public
expenditure). Mainstreamers, for obvious reasons to
the supposedly high wages causation.
• Well-established critiques of this argument:
(1) (nominal) ULC is a non-convincing measure of
competitiveness.
(2) Kaldor paradox: competitiveness depends not only on
costs competitiveness but also on qualitative factors
(structural competitiveness).
(3) ‘Race to the bottom’: A decrease in wages aiming to
restore competitiveness presupposes that rival economies
will maintain their wages stable or, at least, will reduce
(4) Greek wages have been constantly lagging behind
productivity (which increased faster than that of
Germany). Thus, real ULC (i.e. the wage share) have been
falling continuously for several decades.
• Mainstreamers’ wider problems:
(a) Totally underestimate the role of the 2007-8 capitalist
crisis (unanimously considered as a mere financial crisis
without origins and causes in the sphere of real
accumulation). However, if this crisis is so significant and
lengthy as it appears to be, it must surely have some basis
on the main sphere of economic activities (the sphere of
production).
(b) Consider the Greek crisis as independent of the 20078 crisis. The 2007-8 crisis has only an exogenous impact
on the Greek economy by worsening the international
economic environment and setting off grey expectations
about sovereign debts.
(c) Fail to appreciate the fundamental structural
dimensions of the problem and relegate it either to
policy errors and/or to weak structural origins.
1st perspective: considers the Greek case a national
specificity created by bad policies
2nd perspective: recognizes a weak structural cause
concerning the sphere of circulation (i.e. how the
common currency is related to diverse national
economies
3rd perspective: also attributes the structural problems to
the sphere of circulation (with the additional argument
that, contrary to the second perspective, these problems
can be surpassed) and neglects the sphere of production
RADICAL EXPLANATIONS
• Main features:
(a) Emphasize the crisis-prone nature of capitalism,
thus focusing on its world structure and the 2007-8 crisis
(b) Critical of neoliberalism
(c) Criticize EMU’s neoliberal architecture and
argue either for its dissolution or for its radical
overhauling
(d) Shy of recognizing systemic deficiencies of the
capitalist system; although several of them do mention
them but in a rather implicit of disguised manner. They
do not think that the immediate problem is capitalism as
such but rather its forms of management.
• The more popular Radical explanations are based on
the ‘financialization’ thesis, which argues that in
modern capitalism finance (i.e. the operation of money
capital) assumes an increasing primacy in relation to
other capitalist activities.
• Other versions exist: e.g. as a fiscal crisis caused by the
tax-evading and crony nature of Greek capitalists
and/or adding the EMU trade imbalances (3rd variant of
mainstream explanations). The more traditional
underconsumptionist explanations of crises (either of
the Marxist Monthly Review (MR) or the Keynesian
variant) are not popular as they do not fit to empirical
data (the period preceding the crisis’ onset was
characterized by a spectacular growth of consumption).
In the end they usually add a ‘financialisation’ aspect.
‘financialization’: a problematic theory
• Capitalism returned to a pre-capitalist stage: banking in
feudalism was based on unequal exchange. Once
primary accumulation of capital took place the
monopolistic feudal rules were abolished and capitalist
competition ruled. ‘financialization’ argues that there is
a return to the pre-capitalist modes of operation.
Interest ceases to be a part of surplus-value and
acquires an independent existence. Concomitantly,
money capital is autonomised from ‘productive’ capital
but also dominates the latter. If the latter is the source
of wealth, this entails a stifling of productive
investment and thus of the accumulation of capital.
How is it possible in the long-run such a deformed
capitalism to exist?
• Regarding the 2007-8 crisis, ‘financialization’ argues
that it is not an a-la-Marx crisis but a financial crisis (a
crisis of financialised capitalism). They agree with
mainstream theories. If the current crisis is so deep and
prolonged as the ‘financialization’ theories accept then
how it cannot be based on the fundamental economic
sphere (the sphere of production)?
• 3 ‘financialization’ explanations of the Greek crisis:
(a) Minskian inflation-disinflation, e.g. Argitis
(b) ‘financialization’ in the context of the North – South
divide (imbalances that caused the Greek crisis stem
from the EMU), e.g. Lapavitsas.
(c) ‘financialization’ in the national context; the North South divide is an erroneous dependency argument,
e.g. Milios & Sotiropoulos.
Empirical problems of the ‘financialisation’ thesis
Its main conduits (or channels) are very weak and short-lived in Greece:
1st problem: Greek relatively low household debt
New phenomenon (from 2004 and onwards)
Lower than in most western economies
The crisis ended it (banks do not offer private loans, households cannot pay)
2nd problem: Greece’s low financial leverage
Banking sector: relatively low leverage
Non-financial corporate debt: relatively low
MARXIST EXPLANATIONS
 3 versions:
1) TRPF (Maniatis & Passas (2013)): the 1973 crisis
(profitability crisis) led to a period of ‘silent depression’/
financialisation artificially prolonged it/ overaccumulation
reappeared in 2007-8 as PR started falling again and the
crisis erupted/ productive-unproductive labour
2) TRPF and imperialist exploitation (Mavroudeas &
Paitaridis (2013)): similar plus imperialist exploitation by
the euro-core countries (‘broad’ unequal exchange because
of the difference in OCC)/ productive-unproductive labour
3) TRPF and underconsumption (Androulakis, Economakis &
Markaki (2013)): falling profitability and
underconsumption alternate as causes of crisis/ in any case
either OCC or underconsumption affect PR (which is the
crucial variable)/ no productiv-unproductive labour
distinction
Mavroudeas & Paitaridis:
A MARXIST STRUCTURAL EXPLANATION
• A strong structural explanation of the Greek crisis:
the fundamental causes in the sphere of production.
• 2 structural components:
(a) ‘internal’: the 2007-8 economic crisis is an a-la-Marx
crisis (tendency of the profit rate to fall) which rocked
the Greek economy (and the other developed
ecconomies),
(b) ‘external’: imperialist exploitation (i.e. ‘broad’ unequal
exchange) within the EU (between North and South)
worsened the position of Greece and aggravated the
crisis
Part II: Alternative strategies for surpassing
the crisis
Basic alternative strategies
Restructuring within
the EU & the EMU
Memoran
da
Renegotia
tion
Restructuring outside
the EU & the EMU
Exit from
EMU
Exit from
EU
1. Memoranda strategy
 pro-Κ
 systematic failures (not because it is erroneous from its
perspective (destruction & rebuilding) but because it is very
ambitious and rushy and violates dangerously the given
social, economic and political limits of Greek capitalism
 Special modification of IMF’s structural adjustment austerity
programmes:
 Longer (4 years)
 Pro-cyclical and front-loaded
 Lacking initially a debt restructuring mechanism
 Lacking an exchange rate devaluation mechanism
 2 aims:
 Short-term: debt viability
 Long-term: transform Greece to a european ‘special economic
zone’ (low cost export hub for EU’s multinationals specialised
in low technology goods)
 Systematic failures: 1st EAP failed (milestones, loan amount,
time horion), 2nd EAP is also failing (the 2020 target of 120%
debt/GDP ratio seems unachievable, given that it is also
illogical)
 Causes of systematic failures:
 Wages must be pushed to at least Balkan levels
 Assets costs must be further diminished
 A big part of the Greek economy has to be dominated by EU
multinationals (esp. banking sector, tourism)
These aims imply that:
(a) Workers must be pressed more
(b) The massive middle strata (a traditional systemic support)
have to be proletarianised
(c) Greek capital has to be subordinated further to EU capitals
and lose control of several critical sectors (esp. banking)
These cannot be easily accomodated and a political and/or
social eruption is possible.
2. Renegotiation within the EU
2 pillars:
(1) keep one part of the Memoranda (loans)
(2) renegotiate austerity and structural part for an anti-cyclical, less
austere, more developmental policy
 Loan agreements: a short-time pause in servicing them (until the
Greek economy returns to positive rates of growth) while their
tranches will continue. It is not clarified if the accumulation of
interest (and thus the augmentation of debt will continue during
this pause). Reprofilling of the Greek debt. More radical versions:
consensual haircut of Greek debt.
 Keynesian anti-cyclical policies with (a) limited amelioration of
workers position: increase of minimum wage, reregulation of the
labour market (firings etc.), nothing concrete about
unemployment and work-time and (b) a measured increase of
public investment.
 Structural changes but the different versions of this strategy are
both vague and differ wildly (from acceptance of Memoranda’s
structural changes to radical alternatives).
 A European aid framework (either grandiosely called an EU
Marshall Plan or, moe bashfully, a wider use of existing fund
 A non-compatible compromise: Logic of pro-cyclical supply-side
restructuring incompatible with anti-cyclical demand
management. The latter requires more time (than EU is willing to
concede) and is unrealistic in a overaccumulation crisis (a huge
devalorisation of capitals is required). Pro-cyclical restructuring is
closer to capital’s internal logic. Anti-cyclical expansive
restructuring was implemented in Greece after the 9733 crisis with
dismal results.
 The only case that there can be a policy mix is if pro-cyclical
restructuring has got hold and proceeds and some measured
interval is deemed necessary.
 Several technical miscalculations:



Aid framework: ESPA’s rules are already very lax but Greek capitals are
afraid to participate because of the recession
Pro-cyclical restructuring is organised around the EU ‘special economic
zone’ model: this is incompatible with a rapid revitalisation of internal
demand
The euro-bond proposal (a mechanism for common cheap borrowing)
does not make practical sense.
3. Exiting EMU (within the EU) and restructuring
 versions: (a) conflictual Grexit, (b) consensual
Grexit
 Short-sighted view: Grexit returns monetary and
currency autonomy but that does guarantee the policy
instruments for a radical productive restructuring
(discreet industrial policy, protectionism etc.).
 Import substitution and export increase cannot proceed
rapidly solely through devaluations and if so possibly
lead to rampant inflation. Private initiative cannot
achieve them adequately and in time.
 A wide and concise plan for the productive restructuring
of the economy requires a very heavy handed and
expansive state industrial policy and other policy
measures that are prohibited by the Common Market
 This strategy disregards the deep structural character of the
Greek crisis and tries to confront it only through the
monetary mechanism.
 In its consensual version it faces the institutional and vested
interests’ prohibitions of EU.
 In its conflictual version it cannot proceed unless coupled
with the exit from the Common Market and the institutional
framework (that is from the EU altogether).
 A special problem: consensual Grexit and relegation of
Greece (and other euro-periphery countries) to a currency
one depending on euro (e.g. the pre-euro situation) is the Bplan of the dominant EU powers. It can be implemented if
the current A-plan goes astray. This is disastrous for
workers’ interests (double devaluation [internal + external],
more severe transformation to a ‘special economic one’).
4. Disengagement from the EU
Recognises
 the deep structural character of the Greek crisis
 the incompatibility of an ascent of the Greek economy within
the EU because of the ‘special zone’ mechanism
Proposes:
 A self-centered growth model (with strong backward and
forward intersectoral linkages) benefiting the working class
and integrated in a socialist transition programme
It is organised in a programme of short-term, mid-term and
long-term measures
 Short-term and mid-term measures:
(1) Exiting EU
(2) Debt default
(3) Capital controls
(4) Nationalisation of the financial system (and especially banking)
(5) Heavily progressive tax system
(6) A managed exchange rate coupled with special instruments (e.g.
a multiple exchange rates system, international barter agreements,
currency swaps etc.)
(7) A price control system
 Long-term measures:
(1) An extensive productive restructuring plan organised by the
state and with state control on the basic and strategic sectors.
This implies an extensive and heavy-handed industrial policy
(2) An autonomous international economic policy.
Abbreviations
OCA: Optimal Currency Area
TDH: Twin Deficits Hypothesis
FD: Fiscal Deficit
CAD: Current Account Deficit
PR: Profit Rate
TRPF: Tendency of the Rate of Profit to Fall
LTV: Labour Theory of Value
PK: Post-Keynesianism
N-C: Neo-Classicism
N-K: Neo-Keynesianism
PE: Political Economy
CMoP: Capitalist Mode of Production
EAP: Structural Adjustment Programme (troika)
MAINSTREAM EXPLANATIONS
Greek ‘disease’
• Expressed by: EU, ECB, think-tanks of the euro-core
countries, Greek politico-economic establishment.
• First version (1st EAP): focus on public sector and FD
(SAP’s piecemeal application).
• Second version (1st EAP’s reviews): added focus on
falling competitiveness and private sector measures.
• 2 major Greek deficiencies: (a) large and persistent FD
financed through borrowing (leading to large external
debts and CAD) and (b) falling competitivess.
• These deficiencies caused by nationally-specific policy
errors, i.e. it is a Greek ‘disease’ (e.g. Greece is a special
type of economy prone to fiscal profligacy, clientelism
and relatively high wages. Structural deficiencies are a
mere consequence of these errors.
• First version
Greek economy:
low productivity, relatively high wages and big public
sector.
Big public sector (because of clientelism)
+
High relative public wages (because of clientelism and low productivity)
+
Reduced tax-collecting ability (because of clientelism)
↓
Increasing FD
↓
Financed via external borrowing (facilitated by low euro interest rates)
↓
Increasing CAD
Additionaly: ‘Greek statistics’ & violation of EMU rules
The 2007-8 crisis revealed the problem: international financial
markets focused on FD and CAD → non-viability of Greek debt →
eruption of the crisis
• Second version
1st EAP started failing → austerity applied to the private
sector also
To justify it the problem of competitiveness was
surfaced: not only the public but also the private sector is
characterized by low productivity, high wages and rigid
labor market regulation culminating in a falling
competitiveness.
Public external debt
+
↑ CAD
Deteriorating trade account
High relative wages fueled consumption which was
directed towards imports, since domestically produced
goods were uncompetitive. Thus, Greek workers
collectively (private and public sector) are overpaid and
inefficiently working.
• The Greek ‘disease’ suffered a hit when other EMU
countries required bail-out. The initial reaction was to
attribute the expansion of the problem to contagion
from Greece. This, rather weak argument, was
supplemented by collectively branding these countries
as EMU’s outcasts: economies prone to fiscal and
banking profligacy. Instead of a Greek a South ‘disease’
was discovered.
• In analytical terms, the Greek ‘disease’ explanation
hinges upon the Keynesian TDH:
FD
CAD
EMU is not an OCA and cannot be one
• expressed mainly by Anglo-Saxon commentators either
N-C or N-K.
• Main argument: EMU is a non-OCA which is prone to
asymmetric shocks that exacerbate national ‘diseases’.
• This view centers only in passim on the Greek case per
se. It takes it, as well as those of the other PIGS, as a
springboard to spearhead its main criticism: EMU is
inherently faulty.
• It does not absolve Greece from being responsible for
the problem. Particularly the neoliberal accounts
reiterate the Greek profligacy argument. But the crux
of their argument is against the EMU: ‘It can’t happen,
it’s a bad idea, and it can’t last’ (R.Dornbusch).
• This anti-EMU emphasis has a twofold explanation:
(a) geopolitical: ‘lead to increased conflicts within
Europe and between Europe and the United States’
(b) academic: theory of Optimal Currency Area (the
closest thing mainstream economics have to the Marxist
disproportionality (or uneven development) thesis).
• This mainly Anglo-Saxon explanation of the Greek
crisis while sharing the fiscal profligacy argument of
the first explanation recognizes a rather weak
structural cause. It concerns mainly the sphere of
circulation (i.e. how the common currency is related to
diverse national economies) and has not much to do
with the sphere of production per se.
Greek disease cum EMU’s rectifiable flaws
• Expressed mainly by European analysts in favor of
European unification but with ideological or practical
reservations regarding its actual process (neo-liberal
etc.). Predominantly N-K (or mild PK) origins.
• Main argument: the Greek crisis has been caused by a
combination of national policy errors (high fiscal
deficits and debt) coupled with problems created by
the incomplete economic unification of the EMU. A
deepening of the economic and political unification of
the EU (fiscal and banking union, political union) will
solve these problems.
• Emphasis on EMU’s imbalances and particularly those
associated with the balance of payments (hence the
current account). As such it points out to a structural
characteristic of the EMU which sometimes it has been
branded as neo-mercantilism: the Eurozone is
structured in such a manner as to merit the trade
surpluses of the Northern countries against the trade
deficits of the Southern countries. This argument is
close to the more radical PK ‘financialization’
explanations. On the other hand, the current account
imbalances argument has been taken up by more
conservative theorists that do not ascribe to the
‘financialization’ thesis but aim for a more unified
European integration.
• It offers a weak structural explanation: structural
problems derive from the sphere of circulation but not
the sphere of production. It agrees with the 2nd
mainstream explanation regarding OCA theory. But it
believes that a more unified economically and
politically EU can overcome them. In this belief it
departs from the harder versions of the 2nd explanation
which argue that an economic and political unification
of the EU similar to that of the US is impossible. This
is the second major problem of this perspective: Its
political and economic voluntarist faith in European
integration goes against historical wisdom. European
national political and economic identities are deeply
entrenched and the crisis emphasized them.
Argitis: Minskian disinflation
Greek capitalism:
 technological weak
Structurally uncompetitive, creating chronic CADs
(because of imports)
cronyism
Greek capitalism’s viability depended on ‘strong state’
(and central bank): they managed debt inflationdeflation process by using FD (not mainly as anti-cyclical
tools but as redistributional).
EMU kept the ‘strong state’ but without strong bank (the
debt management function unfunctional) and
financialisation of the economy (growth based on
leverage)
The 2007-8 crisis broke this circuit.
A critique of the Minskian view
It is rather phenomenological:
•
•
The crucial factor is the break up of the ‘strong state –
strong central bank’ duo and the subsequent inability to
manage functionally the debt inflation-disinflation process.
Presumably because ECB’s monetary policy followed the
euro-core’s prerogatives and failed to accommodate Greek
specificities. But that is a reason to argue for leaving the
EMU that Argitis rejects. Moreover, why Greek capitalism
did not got accustomed to the new functions?
Here comes the second problem. Although Argitis gives a
characterisation of Greek capitalism as inherently
technologically backward, uncompetitive etc. (reminiscent
of Dependency th.) he does not show why it remained so
within the EU and the EMU. This requires a more thorough
study of its productive structure that is missing.
Lapavitsas: imported ‘financialization’?
• he argues that the Greek is a debt crisis (agreeing with
the mainstream) but he adds that its roots lay in:
(a) financialised capitalism (that caused the 2007-8 purely
financial crisis in which PR has no role)
(b) the neo-mercantilist character of EMU, which is not an
OCA and is based on three pillars:
(1) the ECB which follows euro-core’s prerogatives
(2) fiscal austerity
(3) relentless pressure on wages to ensure
competitiveness
Point 3 agrees with the mainstream arguments on
competitiveness. Indeed from here (the CAD) begins
Lapavitsas’ explanation.
• Euro-core pressurized wages more and got a permanent
competitive advantage against the euro-periphery. This
is the mainstream argument in reverse: not the lazy
South but the over-prudent North caused the problem.
• Eurozone was polarized in a North with trade surpluses
and a South with debts: the North gave loans to the
South in order for the latter to buy its products.
• The 2007-8 crisis disrupted this structure as
international financial markets questioned the
creditworthiness of South’s sovereign debts.
• Eurozone’s crisis began as EMU transmitted the world
crisis in Europe because of the imbalances that were
latent within it.
Essentially, Lapavitsas’s analysis is identical to PK analyses
which accept a North – South divide argument.
His main differentiation are the marxisant overtones
about ‘financial expropriation’.
Lapavitsas’ policy proposals:
• EMU cannot be rectified.
• Greece’s only solution is Grexit.
• Regarding the relationship with the EU (i.e. in
economic terms basically the Common Market) he
remains agnostic.
• Lapavitsas explanation suffers from the general
weaknesses of the ‘financialization’ thesis:

No reference to the production structure of the
Greek and the other EMU economies.

Unable to see the existence of relations of economic
(imperialist) exploitation between the North and the
South (or else relations of ‘broad’ unequal exchange)
and he understands only a reversed and problematic
version of the ‘narrow’ unequal exchange.

Uncritically accepts the mainstream arguments
about Greek relatively high wages being the cause of
Greece’s deteriorating competitiveness.
 Analytically, he remains within the problematic
mainstream framework of TDH. He posits its one side
(CAD) as the cause of the other (FD) and the crisis.
 A marxisant rather than Marxist explanation.
• Lapavitsas’ ‘financialization’ suffers empirically:
The Greek financial system was significantly less
leveraged than the Western ones.
Greek workers’ high debts: a new phenomenon
(began with EMU), short-lived and smaller than in the
West.
Thus ‘financialization’ cannot be discovered inside
Greece and has to be imported (through EMU’s neomercantilist structure).
• Also problematic policy suggestions:
If this is a debt crisis, it can be solved not by exiting
EMU but making it a full OCA. If is deeper (grounded to
the sphere of production) then exiting the EMU and
remaining within the Common Market want suffice. A full
exit from the EU is required.
Milios & Sotiropoulos: ‘strong Greece’?
• Contra to Lapavitsas, it was not the loss of
competitiveness that gave rise to high indebtedness,
but the other way around. Thus, analytically, they
remain within the bounds of TDH: it is the FD that
caused the problems. But FD is attributed not to wages
but to capital’s notorious tax evasion and cronyism.
EMU (bringing together countries with very
different rates of growth and profitability) gives rise to
high levels of borrowing for the euro-periphery (because it
has higher PR which attract euro-core capital).
This was facilitated by euro’s low interest rates.
Foreign loans boosted euro-periphery’s domestic demand,
therefore giving rise to increasing inflation and the
deterioration of competitiveness.
• Reject the North - South (as problematic dependency
theory):
Foreign loans boosted growth (agree with the precrisis mainstream argument that CADs were good
imbalances because euro-periphery countries with
relatively low levels of real GDP per capita were catching
up with richer north European economies).
This is problematic: Sustained CADs did not finance
productive investment but imports from euro-core.
Greece’s productive structure instead of being developed it
was actually eroded.
Thus, Milios & Sotiropoulos implicitly accept the
mainstream convergence thesis which has been fully
disproved.
• Milios & Sotiropoulos replicate the mainstream success
story (‘the strong Greece’) presented before the crisis.
Then they add ‘financialization’:
Modern capitalism is
financialised (extreme
leveraging and financial bubbles). With the 2007-8
‘financial’ crisis the till then malevolent euro-periphery’s
CADs were blown apart. In order to sustain them FDs were
augmented and this led to the euro-periphery’s collapse.
EMU played only a peripheral role in this affair
(although they accept that it not an OCA and it is a
neoliberal project). The crisis exposed its weaknesses and
its class nature. However, the solution is not the exit from
the EMU but the progressive restructuring of the EU.
• Milios & Sotiropoulos ‘financialization’ explanation
suffers from the general deficiencies of this approach
already mentioned above. They share also the
particular errors characterizing Lapavitsas’ analysis and
criticized above. On the points that they differ they err
on the other side. For example, instead of Lapavitsas’
reversed version of ‘narrow’ unequal exchange they
throw out any theory of unequal exchange. Their
analysis of the EMU and the EU cannot see the
relations of economic (imperialist) exploitation that
exist within them (being afraid of ending up with a
dependency argument).
• In toto, ‘financialization’ explanations have a weak
structural emphasis by not considering the problems
in the sphere of production. For this reason they fail to
account adequately for the Greek case.
The ‘internal’ cause: a falling rate of profit
• A strong structural explanation of the Greek crisis:
the fundamental causes in the sphere of production.
• The crisis is a consequence of the imperfect resolution
of the 1975 structural crisis.
• 2 structural components:
(a) ‘internal’: the 2007-8 economic crisis is an a-la-Marx
crisis (tendency of the profit rate to fall) which rocked
the Greek economy (and the other developed
economies): crisis of overaccumulation caused by
falling profitability due to the increase of the OCC.
‘Financialization’: a consequence not a cause
(b) ‘external’: imperialist exploitation (i.e. ‘broad’ unequal
exchange) within the EU worsened the position of
Greece and aggravated the crisis
1973-5 crisis:
• 3rd global crisis
• crisis of overaccumulation of capital caused by a falling
profit rate due to the increase of the OCC
• structural crisis: requires a restructuring of the internal
and external (international) systemic architecture
►
►global waves of capitalist restructuring :
(1) conservative Keynesian policies
(2) monetarism (national economy)
(3) open-economy neoliberalism (‘globalisation’)
However, there are national differences and variations to
the global trends.
►
Successes and failures: ‘silent depression’
• Partial recovery of profitability & accumulation via
increased exploitation
• Reinvigoration of absolute surplus-value extraction
• ‘Globalisation’
• Failure to solve the systemic problem and
overaccumulation/ the flight ahead: ‘financialization’
►The 1973 crisis and capitalist restructuring in Greece
• a doubly onerous crisis: overaccumulation crisis plus
post-dictatorship radicalism
• Contrary to international trends, the belated
implementation of progressive Keynesian policies,
‘social-mania’ and the creation of welfare state/ growth
and progressive income redistribution
• Failure: a successful prescription at a wrong time
►Neoliberal restructuring policies
• 1990 ND government: mixed introduction of
monetarist and neoliberal measures/ catching up with
the international trends
• Restrictive macroeconomic policies and regressive
income redistribution/ privatizations, opening of the
economy, deregulation of labour relations, welfare cuts
etc.
• PASOK Simitis’ governments: continuation plus
religious adherence to the EMU requirements/ the two
‘robberies’: (a) stock-exchange, (b) post-euro mass
consumption goods’ inflation
• The Balkan ‘Edorado’ and the artificial growth of the
2004 Olympics
►Conservative Keynesian capitalist restructuring
and the shift to neoliberal directions
• 2nd PASOK governement’s 1985 stability programme:
decisive conservative turn→conservative Keynesian
restructuring reinforced subsequently
• EU accession: promises & dangers
• From 1985: gradual increase of actual work-time
(broader phenomenon reinforced by Southern
specificities)
►Ambiguous esults of Greek capitalist restructuring
waves:
A partial recovery of profitability (mainly through
increased exploitation).
An insufficient devalorisation of capital
►Conservative Keynesian capitalist restructuring
and the shift to neoliberal directions
• 2nd PASOK governement’s 1985 stability programme:
decisive conservative turn→conservative Keynesian
restructuring reinforced subsequently
• EU accession: promises & dangers
• From 1985: gradual increase of actual work-time
(broader phenomenon reinforced by Southern
specificities)
►Results of Greek capitalist restructuring waves:
Ambiguous as elsewhere
The ‘external’ cause: EU ‘broad’ unequal exchange
► Greece: from the EEC to EU and the EMU
• Securing the system after the dictatorship
• Imperialist upgrading & the vital space
• Danger of the opening the economy and dismantling a
coherent productive model
• Accession at a lucky moment: political willingness and
sweeteners (aid packages etc.)
• Grey times: faltering of capital accumulation,
expansion to the East and the beginning of troubles
► EU and the EMU
• regional imperialist bloc with pyramidoid structure
• Competition with the other major imperialist blocs,
internal rivalries and co-operation, exploitation of
other countries
• Internal hierarchical pyramid: North and South
►EU’s North-South divide:
• Competition on the basis of absolute advantage
• ‘broad’ unequal exchange: capitals from more
developed economies (i.e. higher OCC) competing
within the same market with capitals from less
developed economies (lower OCC) reap extra profits
through unequal exchange with the latter.
• The ‘commanding heights’ (EC, ECB etc.) follow the
prerogatives of the dominant Northern economies to
the detriment of the South. Thus, the conduct of
crucial policies (monetary, trade, exchange rate etc.)
and the institutional arrangements favor the North.
► Greece in the EU: Greek capital’s modern ‘Big Idea’
• Loss of competitiveness within the EU (competition
with more developed capitals without protectionism)
• Erosion of Greece’s productive structure: Greek capitals
could not compete with Western ones since accession
to the Common Market. Several industrial sectors hit
hard. The agricultural sector was irrationally
restructured via the Common Agricultural Policy
(CAP): initially thrived through subsidies and then was
shrink abnormally. Greek capital’s retreat to the quasiprotected area of non-internationally tradable goods
and creation of oligopolistic structures.
• 1990s - a period of grace: the Balkan ‘Eldorado’: the
collapse of the Eastern bloc and the imperialist
expansion to the Balkans and Central and Eastern
Europe
• entrance to the EMU (2001): celebrated as the ‘national
goal’ of participation in the top EU league. However,
underneath the euphoric accounts structural problems
continued to amass and worsen (e.g. trade and current
account balances). The strong Euro diminished further
Greek exports, increased import penetration and
weakened domestic production. These were covered
through the cheap credit gained because of the EMU.
• the 2007-8 global crisis and the subsequent EU crisis
blew this house of cards apart.
► The eruption of the crisis
• The 2007-8 crisis in the developed economies triggered
the latent structural problems of Greek capitalism: the
unresolved profitability and overaccumulation
problems re-emerged and the imperialist ‘subsidies’
from the Balkans diminished rapidly.
• State subsidization of faltering capital accumulation
(and not excessive wages) → FD/ the current crisis
increased the need for such counter-cyclical measures
but made them more expensive (because of the
upheaval in finance)/ competition with other
capitalisms over the burdens of the counter-crisis
measures → fiscal crisis
• FD financed through external debt (because EMU
effectively prohibits internal borrowing, e.g. national
bonds etc.)
• The loss of competitiveness aggravated both
Figure 1. Surplus value, net operating surplus, and
unproductive activities
140
Surplus Value
100
80
60
40
Unproductive Activities
120
20
0
Net Operating Surplus
1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008
In figure 1 we observe a constant rise on the unproductive activities which is estimated as
the difference between surplus value and net operating surplus (net profits).
Figure 2. Productivity and Wage
80
Productivity
70
60
50
40
30
Real Wage
20
10
0
1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008
In figure 2 we observe a vigorous increase in productivity for the period 1960 - 1973 . After
1973, the growth of productivity retards whilst during the decade of 1980s remains stagnant.
In the beginning of the 1990s productivity rises again till the middle of 2000s when starts to
decline bearing similarities with the 1970s’. Turning now to the real wage, we can observe
that for the whole period it follows productivity but it never gets higher.
Figure 3. The rate of surplus value
2.4
2.2
2
1.8
Rate of Surplus Value
1.6
1.4
1.2
1
1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008
In figure 3 we observe an increase in the rate of surplus value during the period 1960 - 2009
which is characterized by ups and downs. during the 1960s the rate of surplus value
increases. At the beginning of 1970s till the early 1980s declines and then it is upturned.
Finally, at the middle of the 2000s, the rate of surplus value reaches its highest peak and then
it sharply drops indicating the predicament of capitalists to extract more surplus value.
Figure 4. The value composition of capital
10
Composition of Capital
9
8
7
6
5
4
3
2
1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008
Figure 4 depicts the evolution of the value composition of capital (C/V) as this is captured by
the ratio of gross fixed capital stock (C) to variable capital (V). As we can see the value
composition of capital steadily increases for almost the whole period. But at the beginning of
the 2000s it stagnates; which can possibly be attributed to the ‘deindustrialization’ of the
Greek economy with the massive escape of Greek manufacturing enterprises to the East.
Figure 5. The general PR
0.5
0.45
0.4
0.35
0.3
General PR
0.25
0.2
0.15
1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008
Figure 5 depicts the evolution of the general PR and from its trajectory we can discriminate
three phases before the onset of current crisis. The first one is the period 1960 - 1973 where
the general PR is at a high level though with a small decline. The second one is the period of
crisis (1973 - 1985) when the general PR falls dramatically. The third period is that of
capitalist restructurings (1985 – 2009) when the general PR displays a slight recover and then
remains stagnant.
Figure 6. Net PR
0.12
0.1
0.08
Net PR
0.06
0.04
0.02
Counterfactual Net PR
0
1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008
In figure 6 we can similarly discriminate three phases for the net rate of profit. The first one
is during the ‘Golden Age’ which is described by a high level of the net rate of profit. The
second one is the period of crisis when the net rate of profit declines sharply and the third
period is the one of neoliberalism which presents an anemic recovery of the net rate of profit.
This recovery is mainly attributed to the implementation of neoliberal policies which were
introduced by reforms on the labor market
Figure 7. Real GDP (2005) and real unit labor cost
2.5
0.9
Real Unit Labor
Real GDP
0.85
2
0.8
0.75
1.5
0.7
1
0.65
0.6
0.5
0.55
0
0.5
1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008
The argument concerning reforms on the labor market which contributed to the slight
recover of the net rate of profit becomes more eloquent in figure 7 where we present the real
GDP and the real unit wage cost. Without a doubt from the early 1990s, GDP exhibits a
positive growth whilst the real unit wage cost declines.
Figure 8. Net operating surplus and net investment at
2005 prices
35000
30000
Net Operating Surplus
25000
20000
15000
10000
Net Investment
5000
0
1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008
In figure 8 we can observe that net investment measured at 2005 prices reveals a
considerable growth at the mid of 90s’ reaching its highest peak at 2007. At the same time an
analogous growth is exhibited by the net operating surplus measured at 2005 prices.
Eventually, net investment falls in 2007 and it is associated with the stagnation on the mass
of profits. Concluding, a fall in the net rate of profit is not enough to cause crisis but it must
be combined with a falling general rate of profit.