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A Decalogue of alternatives to the crisis Destacado

José M. Mella, Full Professor of Economics at Autonomous University of Madrid and member of ECONO-NUESTRA and EURO-PEN.

There is a debate starting in Spain about the problems involved in the alternatives to the current economic crisis. They are seen not as any alternatives, but ones with social equity, gender equality and respect for the environment.

Many groups are showing up at the University and elsewhere to raise their voice looking for an exit to the crisis based on new ideas of progress and solidarity.

It is understood that a social solution to the crisis calls for analyzing it as a problem that affects men and women, nature and its limits, all areas of social life (workers, professionals, students, forces of culture and science, older and young people) and not just at a national level but also at an international level, specifically European.

Structural aspects of the crisis

We talk about the exit of the crisis, but it does not imply that we are emerging from the crisis as the Spanish Government advertises. The crisis has not ended yet and it is affecting structural aspects of the economy, which should be taken into account to achieve a social alternative.

First, a fundamental aspect that has contributed to the emergence of the crisis is a deep inequality in the distribution of income, which is expressed in a decrease in the share of wages in national income, an increase of corporate profits, a concentration of wealth in a minority and a growing increase in poverty levels. Inequality depresses consumption and investment, freezes the demand, and collapses the economy.

From an income functional distribution viewpoint, it is important to consider that wages are losing weight on the GDP. Because in average the created jobs are of low added value and their remunerations have increased below their productivity.

From an income personal distribution viewpoint, wage growth and wage differences, during the previous period of expansion to the crisis, have not allowed reducing the income inequality. And now during the crisis, the high proportion of homes in poverty risk, the high temporality rate of the created jobs, the low wages and the high unemployment provoke the increment of the levels of inequality.

Poverty risk has not stopped increasing in Spain during the crisis due to the continuous and fast growth of the number of homes with several or all their members in unemployment. And also by the fact that there are families that no longer obtain any additional income, due to the expiration of unemployment benefits. This phenomenon will worsen in 2014, by conclusion of the collecting period of the benefits of great number of unemployed people. 

Second, the measures of austerity in public spending (known as “cuts” in education, health, pension and social benefits, services, investments) have failed to significantly control the deficit and public debt (opposite the latter is increasing).

Apart from that, rises of excise tax, privatizations of enterprises and public services, payments of high interest to financial creditors by debt services - which include abundant rescue aid to private banking - have involved a huge socialization of private losses.

This public borrowing, created by an unsustainable accumulation of the private debt and the crisis, together with the loss of purchasing power of families and the precarization of work, the lack of credit and the absence of a significant expansion of exports have led to a decline in the economy. This implies a brutal rise in unemployment which is becoming longer and young people greatly affected for it.

Third, low-skill labor specializations of the Spanish production model are subjecting the country to a permanent process of de-industrialization. A lack of a significant scientific and technical component and knowledge and the inability of the system to generate goods and services with high added value are unable to overcome chronic external deficits. Additionally this production system is incompetent to meet the domestic demand of the Spanish economy and to supply jobs for qualified young people.

Fourth, the economic model includes an inefficient energy system, and it is highly dependent on expensive fuel imports that in turn raise foreign borrowing. This inefficient system is responsible for most of the emissions of greenhouse effect and climate change. And it is beneficiary of heavy subsidies from the public budget and price premiums borne by consumers, which prevents that renewable energy sources can have a favorable effect on costs and prices.

And fifth, the austerity policy also entails a privatization of people services and the redefinition of the role of women back to home "natural" order. Furthermore, that austerity policy implies the intensification of women's unpaid work and the exploitation of the paid, the destruction of public services (who the main users are the women of lower income) and the disappearance of public employments in which the presence of women is more intense (education, health, dependence, etc.).

These effects are also detrimental to the education of children, increase the rate of female unemployment (and underemployment and involuntary part-time work), aggravate the risk of women’s poverty due to lower pensions, and, in short, deepen gender inequality.

Decalogue of alternatives

A social solution to the crisis is urgent and involves a Decalogue of relevant alternative policies:

1.The implementation of an environmentally sustainable industrial policy focused on knowledge and innovation, renewable energy and productive diversification. The ecological transformation of our productive model is the best way for ending the economic, environmental and social crisis.

A sustainable power model will generate new jobs in emergent sectors (renewable energies and services of power efficiency) and in reoriented unsustainable traditional sectors like automotive industry and construction.

     Three important steps would be taken. A first step will be to obtain a power model based on the des-carbonization and denuclearization in the electricity production. A second step would be the strengthening of self-consumption and the distributed generation in such a way that the owners of means of energy production are the own consumers, reducing the power of the large companies of the energy sector. And a third step would be to impel a sustainable mobility, freeing to the maximum the transport from the use of oil and electrifying the transport (M. Garí et al.).

2.The creation of decent employment aimed at full employment, with the financial support of a European Development Fund backed by the European Investment Bank and the issuance of debt finalist. But it is considered here-according to J.J. Castillo- that a healthful job is the one which allows the worker a good standard of living, it prevents the sexual division of work, and it facilitates the distribution of remunerated and not remunerated work (including the co-responsibility of the domestic work).

Besides, it allows the reduction of the work day, the right of conciliation of labor and familiar or personal life, and equal remuneration for equal work; as well as, the respect of the right to housing, the right to health care and the right to decent pensions for all, independently of the employment conditions of people.

3. A solidarity and increased European budget. The European budget should follow the route of the federal budget of United States. It is critical that the EU budget is able to become indebted and to incur a deficit; aside from obtaining much more fiscal resources.

The European budget, manifestly insufficient by its resources-1% of the GDP of the UE-, is incapable to satisfy the economic needs of the EU member states. So they are being forced to reduce their public expenses when they need them the most, which it is indeed in the phases of crisis or recession.

       A tax reform based on criteria of adequacy, equity and progressivity is needed; as well as a fight against tax fraud and an international agreement against tax havens, and tax evasion by multinational corporations.

             In this sense, it would be urgent to propose (as “Economistas frente a la crisis”  does) a fiscal reform based on:

- A new income tax, incorporating the rents of capital in the general tariff of this tax so that they must pay just as the work income. This tax should also increase the progressivity of the tariff with an extraordinary type for the highest rents, it should include a rule of increasing imposition with the increase of the rent, and it should eliminate the multiple exemptions and deductions of regressive character.

- A new corporation tax that considers the progressivity of the tariff is absolutely necessary. This entails an approach of the marginal type to the paid effectively type and the elimination of the figure of the so called “Societies of Investment in Variable capital” (SICAV, in their Spanish acronym), which they are in fact a refuge of the great capitals to avoid the payment of taxes.

- An elevated value added tax (VAT) for the luxury goods.

- A tax on the great fortunes.

- A succession and donation tax with exempt minimums.

- European fiscality, that prevents fiscal dumping, must raise the rate on financial transactions to penalize speculative movements of capital, and must promote a green fiscality (e.g. taxes on pollution) to develop a more efficient green economy.

4. An audit of the debt for its effective restructuring is needed. It is necessary to consider the national debt derived from the banking rescues and, even, the resultant of the evasion and the fiscal fraud (it is estimated that are at least 550,000 million euros of Spanish origin in international fiscal paradises evading all type of taxation); as well as the waste of resources derived from regressive fiscal rebates made since the nineties.

It is also necessary to consider the mortgage debt of the families with abusive or deceptive clauses that cannot give their mortgages back to the banks of their first houses.

It would be possible to be proposed that the European Central Bank (ECB) injects money to the families to settle their mortgage debts and that the Spanish government reduces the face value of the mortgages to a reasonable level for the needy families.

The banking rescues of the Spanish government should impose conditions to the banks. For example, to put the houses in a public park of houses of social rent and to buy to the financial organizations the mortgages of families at ousting risk. These measures are crucial to establish moratoriums, reductions of interest rates and payment facilities according to the conditions of the families.

The platforms for the debt audit or the platforms of affected by the mortgages raise that debt restructuring process implies acquittals or selective non-payments.

5.It is also urgently needed an Independent European Public Rating Agency to finish up with the oligopoly of the three Credit Rating Agencies (Moody’s, Standard & Poors and Fitch) which control 95% of the market.

It is essential to increase the level of accountability in the Credit Rating Agency (CRA) market, to develop greater transparency by ensuring more competition, and calling for stricter rules on civil liability and conflict of interests.

Nowadays, their biased short-term profit-led judgment and their excess of power are overly influencing the economic policy of the EU Member States. This ends up causing yet further financial instability.

This proposal is a great opportunity to finally make the agencies accountable to people and their democratically elected governments.

6.A European Central Bank that buys debt directly from Governments, controlled by Parliament and belligerent against unemployment.

It is pertinent to introduce Eurobonds to finance public deficit and to create a European Agency of Debt, to avoid the resource to high interest rate capital markets of the indebted countries of the European periphery.

This proposal would have to be accompanied by a strategy of growth of the European economy financed by the European Bank of Investments. This strategy is the best via to reduce indebtedness, because without growth debts cannot be paid.

7.A significant presence of public banking and public banking supervision at European level. The rescue on the part of the State of banks and the saving banks in Spain must generate a new public bank.

It is not possible to continue applying the liberal principle of socializing losses and privatizing gains. It is relevant to regulate the financial system separating commercial and investment banking. In this sense, it will be necessary to create a public bank of investment by means of the extension of the Official Credit Institute (ICO, in its Spanish acronym) to finance an industrialization plan.

And it will also be necessary to create a commercial public bank with public money injected in banks and savings banks turning it in public participation in the social capital with full right of decision.

These measures will not be possible without at the same time the European Central bank is transformed into an institution under democratic control and to the service of the economic and social development.

8.The stimulus of the debate on the social function of science and technology, and the prioritization of the investment - that no expenditure - in science, technology and innovation.

Actually, the Spanish companies have serious difficulties to compete in activities of average and high technological content. Because, in the decade of economic expansion (1997-2007), the Spanish enterprise system reduced its capital intensity, by accumulating profits when productivity went down; that is to say, without mobilizing surpluses towards the reinvestment in technology to capitalize its companies.

Since 2010 the public budget dedicated to R&D underwent brutal cuts, basically focused on the financing of the public sector of the research. According to the National Institute of Statistics, in 2012 the total investment in R&D&i was reduced to the 1.3% of GDP, from 1.39% in 2010, opening the breach that separates the Spanish economy of the developed world and Europe, where this investment reaches 2.04% of GDP.

The research chapter of R&D&i personnel has been seriously reduced in the last years of “austerity”. But, in fact, the issue goes beyond figures. As the scientist A. Durán says, “Without jobs nor contracts, the drain of researchers and technicians mean that the situation will not be solved with money, but that will cost another generation to reconstruct the system”.

9.The empowerment of a broad market of rental housing, the promotion of social housing and the modification of the mortgage law and the Civil Code in accordance with the European standard on the dation in payment and against evictions.

In Spain, the access to the house has not been developed like an element of the welfare state, as it has happened in other countries of the European Union. The Spanish real estate market has a great number of vacated houses and a much reduced amount of social houses for families of low income.

The best option in Spain, to face that situation, is to develop the renting market by means of public management of the rent and the canalization of savings towards the renting house (like the real estate funds or “Real Estate Investment Trust”, that propose A. Estrada and other economists). Therefore, the traditional public policy would have to give in to stimulate with fiscal and financial benefits the purchase in property of houses.

While thousands of families are expelled from their houses due to not being able to pay the mortgage, it is still accumulated-six years since the beginning of the crisis-a stock of hundreds of thousands of houses without selling. Evictions neither stop nor are adopted effective measures to avoid them.

10.And, last but not least, a policy of equality of gender and creation of public services should be implemented sooner than later. Because, according to the Coordinator of Women for the Equality B. Sanjosé, the equality policies, that were the last ones in entering within the political agendas, have been first in leaving those agendas when economic crisis starts.

This has happened very specially in matters like care activities, female employment policies, cut of public expenses, and precarization of the feminine work. In addition, it has to bear in mind the smaller women’s unemployment insurance, the total de-protection against unemployment of household employees, and the smaller women’s pensions. All these aspects enhance the relevance to come to the fore the mentioned gender equality policy.

Ultimately, our societies as a whole (particularly economists, experts, policy makers, trade-unionists, associations, social movements, and politicians) have - in my opinion - the challenge of launching the debate.

And, above all, they must put on the table well based alternatives- which here I simply suggest some - in a comprehensive approach of the complexity of the crisis, an analytical and critical approach, based on empirical evidence and, of course, creativity. Creativity not exempt of imagination and new ideas for a change into a new era.

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