Plan for Growth

Professor Wolfgang Streeck is Director of the Max Planck Institute for the Study of Societies in Cologne and Professor of Sociology at the Faculty of Economics and Social Science at the University of Cologne.

Regarding Greece, Spain and Portugal - I will turn to Italy shortly - it is not that there hadn't been "plans for growth" for them in the past. Accession to the European Union gave them access to a huge international market, in fact the largest in the world. EU regional and structural funds were to help them build the infrastructure they would need to make use of their new opportunities. And the euro, once introduced, combined with comparatively high national inflation, made for very low real interest rates.

In fact in the years before 2008, Spain and Portugal especially were booming (while Germany, incidentally, was stuck in stagnation and high unemployment, due to low inflation and, as a result, high real interest rates). But as we now know, the money that was flooding the GIPS countries (Greece, Ireland Portugal and Spain - the ed.) and that could have prepared the ground for sustainable growth and long-term competitiveness, went into the wrong channels.

Low interest rates and European-funded infrastructures, rather than attracting investment in internationally competitive manufacturing or services, went mostly into speculative ventures in real estate. The experience does not exactly bode well for another round of "planning for growth."

Why was the window of opportunity in the 1990s and early 2000s missed? It seems that even the best macroeconomic conditions and the most generous infrastructural support must fail to kick off development unless there is a domestic middle class of entrepreneurs willing to make long-term investment in local industrial progress, throwing in their own fate with that of their country or region. (Ireland, because of its English language and its patriotic expatriates everywhere in the world, may be an exception.)

Social compact gone wrong

Foreign direct investment is apparently not enough as there are almost always opportunities elsewhere for footloose capital to make more money faster. What is needed is a patriotic business class willing to tie their fortune to that of their local society - which is a tall order in a world reshaped by globalization and financialization.

Not that there was no patriotic local entrepreneurship at all in the Mediterranean. There is, for example in regions like Catalonia and the Basque country (as well as in Northern Italy, see below), and indeed these are least affected by the crisis. But where the money has remained in the hands of an oligarchy of aristocratic and pseudo-aristocratic families, very little happens.

It is not all true that there is no money in Greece. Quite to the contrary, the Onassis and Niarchos family clans rank high among the world's superrich. The problem is that they do not want to invest in their country and that they are freer today than ever to take it abroad.

There are also good reasons to believe that the Mediterranean superrich pay even fewer taxes at home than their counterparts in Northern Europe. In an interesting way this seems related to European integration. European Union structural funds, later low interest on government borrowing under European Monetary Union, and now the transfers that are being paid in various forms to refinance the Greek and the Portuguese national debt, compensate for Mediterranean countries' inability to tax their money aristocracies.

At the same time, they make it unnecessary for governments to invest in more effective tax collection. Northern economic aid has filled and still fills the gaps in public coffers caused by national money migrating abroad or avoiding to be taxed. It thereby in effect subsidizes a latent social compact under which post-Fascist Mediterranean democracies left pre-democratic quasi-feudal elites alone to allow for national reconciliation, instead of expropriating them one way or other in favor of, for example, a new entrepreneurial middle class. Note bene that Greece is among the countries with the highest concentration of wealth, in the hands of a very small number of old families.

The Italian way

Does this seem far-fetched? Take Italy, which is a country consisting of two countries. Northern Italy is part of the Western European heartland, in the same league as Bavaria, Austria, Switzerland or the Rhone Valley. The Mezzogiorno (Southern Italy - the ed.) is Italy's Mediterranean, much like what Greece and Portugal and large parts of Spain are to the European Union. Note how long the Mezzogiorno has had the same currency as Northern Italy, access to the same markets, the same interest rates, and in particular extensive structural aid, far above in fact what Greece and Portugal and Spain and Italy as a whole can ever hope for to receive under even the most extensive and generous European "plan for growth."

All to no avail because of an archaic, pre-capitalist social structure that for political reasons was left essentially unchanged. In fact, in a complicated story that could, however, easily be replayed elsewhere, Northern Italian support for modernization in effect enabled the old elites of the South to make sure that they remained in control and everything remained as it was, in the famous Gattopardo way. (di Lampedusa's book "The Leopard" which examined Sicilian life and society - the ed.).

Since there was money flowing in from the outside, nobody in Rome needed to pick a fight with those diverting the money from the inside into unproductive luxury consumption or even more uncouth activities. In fact increasingly, the outside money was diverted to buying political support for governing parties in a socially unchanged and economically stagnant Mezzogiorno, with cynicism over "growth" plans that were in reality corruption schemes growing from year to year.

Who's paying for what?

It is interesting to see how categorically Northern Italians today object to further transfers from North to South. Quite a few - see the enormous electoral support for the Lega Nord - are even willing to let the Italian national state break up so they can keep their money for themselves. If Northern Italians don't want to pay for Southern Italians any more, having given up hope after so many years that a "plan for growth" can be devised that really works, how can one expect German or Dutch or Danish taxpayers to agree to an institutionalized transfer-cum-economic development regime for Greece and Portugal and, very likely, others?

Remember that one reason why the Italian Southern experiment with accommodating a pre-industrial power structure was for a long time politically acceptable in Italy was that it was subsidized by Northern European countries, in the form of European Union regional aid (which originally went almost exclusively to Italy). As this ran out, in part because after 1989 so many other countries began claiming assistance, the Italian North-South social compact began breaking up. Currently the hope is that Europe will pay, not just for Sicily, but for the Italian state as a whole. But unlike Northern Italy paying for the Mezzogiorno, there is no third party helping Northern Europe pay for the Mediterranean.

Economic growth is not just about macroeconomics but also about social structure. Mediterranean countries may, some nationally and some only regionally, have missed the opportunity to acquire a class structure conducive to industrial competitiveness in a post-Fordist world. (Fordism is named after Henry Ford's economic and social model of industrial mass production - the ed.).

Too little, too late?

Now it may be too late, both because the local money, which is still largely preindustrial money, can more easily than ever exit, and because building post-Fordist competitiveness may simply take too much time in a world whose markets are already divided up between economic power houses like Germany and China.

Perhaps when Spain, Portugal and Greece broke free from fascist dictatorship in the 1970s, they would have been better advised not to follow the Social-Democratic recipes offered by the European Community: of liberal democracy rather than social and political revolution (land reform!), economic growth through admission to international markets and assisted by subsidized infrastructural investment, and in particular exclusion from power of the radical Left, Euro-communist or not, in the postwar Italian model.

With respect to the latter, it may help to remember the peculiar starting point of the trajectory that has now come to a climax: the 1970s, when Enrico Berlinguer, leader of the Italian Communist Party, under the impression of (Henry) Kissinger's coup in Chile in 1973 (The Nixon government and the CIA were suspected of implicit involvement in the overthrow of Allende - the ed.), abstained in the middle of the decade from joining the Italian government, afraid that the same could happen to him that had happened to Allende, when the Revolution of the Carnations (1974) brought a Communist group of military officers to power in Portugal; when the best-organized opposition at the end of the Franco regime (1976) were the - Communist - Commissiones Obreras; and when it was not clear at all who would take power in Greece after the military junta had to give up in 1974.

Promising post-Fascist transition governments accession to the European Union was above all a tool for containment: for preventing a (Euro-) Communist Mediterranean from happening. The hope was for a Social Democratic kind of progress: for class compromise, liberal democracy, a social market economy reinforced by European integration, and a slowly rising middle class modernizing the new Mediterranean, while the old elites would slowly wither away.

Having lured post-Fascist Mediterranean democracies onto the Social Democratic path to stabilize their Southern rim, Germany, France and the others now have to pay the bill, in the form of unending transfers supporting ever new "plans for growth" that will again and again turn out to be, at best, plans for keeping the Mediterranean poor house of Europe from exploding.

Editor: Rob Mudge