Book Review, Yanis Varoufakis, Adults in the Room (London: Penguin, 2017)

On May 4, 2015, I had argued (Liu 2015) that Yanis Varoufakis was the best finance minister in Europe, as he was one of the few people in political power that knew that continuous extend and pretend policies of the troika (European Central Bank, European Commission and IMF, along with the powerful Eurogroup) would wreck Greece further while ensuring that the creditors would never get their money back. I had argued that it was a mistake that prime minister Tsipras had on April 27, 2015 decided to sideline the only person in the cabinet who was so committed to the ending this extend and pretend, hoping that by being somewhat more conciliatory to the troika he would be able to get a better deal. It was all for naught. What I wrote back then, is as true as ever, having now read Varoufakis 500 page memoir, recounting his experiences as Greek’s finance minister from January to July 2015. On the back of the book, Jeffrey Sachs, one of Varoufakis key foreign advisers, had called him the “Thucydides of our Times”.

Just a comment on the style of his writing: Varoufakis writes in a very unpretentious style, explaining the complex economic relations between his bankrupt state and the intransigent negotiators at the troika such that even people without a PhD in economics can grasp the fundamentals. He includes rather entertaining episodes of personal encounters he had with European and international officials, revealing how the powerful were very reasonable and made intelligent comments about the Greek debt crisis, while in public statements they would shoot down any proposal that Varoufakis and his team had put forward.

Unlike normal political autobiographies which are self-congratulating acts of self-vindication, Varoufakis does not have the pretentiousness of a typical politician, and has retained the honesty of an academic, who wants to debate ideas and defend views as he sees fit. He also tells very little about his personal life or some other Oedipus complex that normal politicians suffer from, but focuses entirely on the fate of his country’s economic and political situation. That makes his memoir infinitely more valuable than what can be expected from a normal politician’s memoir.

The book read like a political thriller and ultimately like a Shakespearean tragedy with enough hints at foreshadowing of a bad ending. It unfortunately is not a novel, though it took such style, but the very sad reality of Greek and ultimately European political economy of the last 2 years, and a reflection of the last 20 (at least since the euro was introduced). His witty analogies range from John Steinbeck to Aesop to George Orwell, and his political economic insights are lucid with no obfuscation.

As Varoufakis himself portrays it, the tragedy comes precisely from the fact that all the actors that were putting stones on his way and wanted to force the Greek government into capitulation were at the same time quite reasonable in personal dialog with the finance minister. There were always some people that really wanted to be hard on the Greeks and force them to accept the bailout-cum-austerity (extend and pretend), while there were other people, who probably would have relented, but thought that they could not speak up for fear of being shot down by the other actors.

There is a really deep web of individuals that were in positions of power, which made it impossible for Varoufakis and his government to get the debt restructuring he thought that his country needed. Before naming names (which is the heart and the meat of the tragedy/ memoir) and how each of these actors within the troika interacted with Varoufakis (only told from his point of view, obviously) to produce the sorry outcomes, the reader will likely benefit from a brief summary of how Greece ended up being boxed up by the troika, how Syriza got to power and how they were defeated.

How the Greek Crisis Started

It all began with Greek membership in the eurozone in 1999. Hitherto Greece had a weak export economy, which was reflected in a weak currency and repeated rounds of drachma devaluation to restore competitiveness. Greece really wanted to be part of the eurozone, but Germany would only agree to a common currency if all member states bring their public budget deficits and debt down. Greece was not capable to do it in such a short period and instead took advantage of the Italian and, of all cases, German accounting strategy to shift the deficit off the books into the future. Greece was subsequently included into the eurozone, even as it did not fulfill the financial convergence criteria.

What followed was about 10 years of increasing capital imports, which Greece had never experienced before. The export-strong Germans had their products made more competitive by the euro that was weaker than the D-mark and could sell many more products into Greece and other parts of the peripheral eurozone countries clustered in the Mediterranean. The swelling profits among German manufacturers (and to smaller extent French) was converted into loans of German and French banks given to the Greek government (to some extent Italy and Portugal, and the private real estate market in Ireland and Spain). Greece could now consume above its means (while Germany kept wage rises in check, which was made simpler by cheap East German labor and the Hartz IV reforms), and wages could be inflated by the expansive fiscal policy made possible by the greater loans from northern Europe.

The party came to an end in 2008 when Lehman Brothers went bust. The German and French banks were facing financial abyss as they were sitting on toxic (non-performing) loans, so their governments generously bailed them out. The ripple effect on Greece was that the northern European banks called in their loans, while demand in the economy and national income was shrinking amid the recession. The Greek government could not pay up, and the northern European banks were facing an abyss again.

But instead of agreeing to a second direct bank bailout, German chancellor Merkel and French president Sarkozy convinced the IMF and the EU to organize a bailout of Greece, selling it to the public as a solidaristic bailout for their Greek brethren. It was a sham operation because the IMF got involved when Dominique Strauss-Kahn, a potential French presidential contender, wanted to bail out Greece, even as a bailout to a bankrupt country without restructuring violated the IMF statute. Greece at that point was clearly bankrupt, and so were the exposed French and German banks, but Merkel and Sarkozy wanted to save the latter, so that all states paying into the IMF (most countries in the world) and the eurozone (27% stake for Germany, 20% for France, and smaller stakes for other countries) had to come up with the first bailout for Greece in 2010. Germany and France were able to force smaller eurozone economies (like Slovakia and Latvia) plus world economies via the IMF to pay for a Greek bailout out of which almost the entire proceeds went to bailout the German and French banks! By 2015, the private creditor (non-troika) share of Greek government debt was lowered to 15%, and the German and French banks with the biggest debt exposure were basically of the hook.

Bailing out a bankrupt country now created a follow-up problem of how Greece can manage their new debt to the troika creditors. What is worse is that the troika demanded rapid privatization of Greek public goods (at firesale prices!), massive cuts to social programs such as pensions and health care, layoff of civil servants, VAT tax rises and greater efforts toward tax compliance (which most Greek governments and later even the troika ignored!). We’ll give you a bailout, but only if you perform austerity and continue paying us back the loans. But the government saving money during an economic crisis, when the private actors are pulling back on spending merely exacerbates the public debt problem.

The principle of why austerity is self-defeating can easily be illustrated by an example: imagine a country with a debt of 60 dollars and a national income of 100, which creates a debt-to-GDP ratio of 60%. We also assume that 50% of the national income comes from government spending, which is not an unreasonable assumption in most European economies. Now, imagine you force down austerity, which would slash government spending in half. Government spending is reduced from 50 to 25, total national income decreases from 100 to 75, thus the debt-to-GDP ratio has gone from 60/100 to 60/75 or from 60 to 80%. The debt load here has not increased (unrealistic assumption given the expected interest payments that accumulate as the country is incapable of paying even just the interest on the debt), but the debt burden has increased as income decreases.

Soon enough the Greeks after having been on the verge of default in 2010 nearly defaulted again in 2012. By that time, the German and French banks were already off the hook, but after having committed the first crime, the EU leaders had to come up with a second crime to cover up the first crime: pass a second bailout, not out of solidarity but to allow the Greeks to repay the old loans, and tie them down with even more austerity. Varoufakis claimed, rightly, that the extend-and-pretend loans kept the Greeks in a debtors’ prison, and it was time to leave this prison.

At the same time, many southern European economies could not allow relenting on the Greeks and give them a much needed debt restructuring because it could empower the political left in Spain, Italy or Portugal, who can overthrow their political leaders by accusing them of having sold out to the troika while the Greeks have gotten a nice deal for themselves. France was cautiously interested in debt restructuring, but could not offend the Germans, whose cooperation was needed to support the French banking system (p.519, F11). The Germans simply did not want to own up to the fact that they were bailing out their banks, and Angela Merkel also refused a Grexit option, which would have gone along with debt restructuring (while Schauble was notably open to Grexit). Only the IMF noted in internal reports and discussions (including Poul Thomsen, see pp.482-3) that debt restructuring in Greece was unavoidable, but in practical discussions always deferred to the Eurogroup. Strange political calculations were thus blocking good economic solutions.

While the political situation did not favor debt restructuring, Syriza led by Alexis Tsipras won the election on 25 January, 2015. This was the first time that a party of the left, consisting of socialists, social democrats and communists, won the plurality of the vote. PASOK (social democratic) and ND (conservative) had been in power for most of the post-dictatorship democracy since 1974. But PASOK destroyed itself with the acceptance of the first bailout-cum-austerity in 2010, and ND was demolished after first campaigning against the first bailout and then accepting the second bailout with the associated austerity. Had there been an earlier opportunity for elections, Syriza would have won big beforehand, though they blew their first real chance in 2012.

Varoufakis had attacked Syriza at the beginning for their lack of economic competence. He had been advising Syriza’s economic policy during the 2012 elections and saw them essentially ignore his disciplined message to negotiate for a debt restructuring with the EU partners. Instead Syriza had campaigned on expanding popular social programs that the incumbent government had savagely cut.

But in January 2015, it became serious. Tsipras and his team were capable of convincing Varoufakis to become finance minister in the case that Syriza got elected (as the polls suggested), and Varoufakis had accepted the offer but only when he could run for a parliament seat himself. He was invited to run for a parliament seat and won it with the biggest vote for an MP.

Some cynics abroad claim that Greece had been on an economic recovery trajectory before Syriza got elected and their daring negotiation stance had threatened such recovery. But the small increase in GDP was hiding the fact that prices were shrinking faster than nominal incomes such that the economy did not recover. The lower prices did not help the Greeks given that the debt repayments continued to suck income from the Greeks. The other counterargument is that austerity pushes down labor unit costs and makes Greek exports more competitive, and with a positive foreign trade balance they could pay off the debt. However, while labor costs were coming down, it was not exports that increased but imports that decreased.

The Home Front

Alexis Tsipras became prime minister. Yannis Dragasakis, became deputy prime minister. Minister of state was Tsipras confidante Nikos Pappas. Influential was also the cabinet secretary Spyros Sagias, and Varoufakis chief ally Euclid Tsakalotos, who became deputy foreign minister for economic relations. Stathakis became economy minister, and George Chouliarakis became chair of the Council of Economic Advisers. All these people formed the inner circle of the “war cabinet”, which met daily to discuss the next step forward in the economic negotiations with the troika.

Photos: Inaugural ceremony for the Greek cabinet in January 2015. Pictured below at the center in the front is prime minister Tsipras, to the left of him stands Dragasakis, the vice premier, and the bald guy on the very left in the second row is Varoufakis.


Source: Irish Times (2015)

This war cabinet, if we are to believe Varoufakis narrative, was initially nearly united in their negotiation stance. On their first day in office, Varoufakis had visited Tsipras, who told his inaugurated finance minister. “Listen! Don’t get comfortable in here. Don’t learn to love the trappings of office. These offices, these chairs, are not for us. Our place is out there, on the streets, in the squares, with the people. We got in to get a job done on their behalf. Never forget that this is why we are here. For no other reason. And be ready. If the bastards find a way to stop us from delivering what we promised, you and I must be ready to hand back the keys and get out on the streets again, to plan the next demonstration.” (pp.147-8)

Photo: Tsipras (left) and Varoufakis (right). Varoufakis’ wife, Danae Stratou, assured him in a phone call, “If Alexis and you stick together, you can do it.” Varoufakis remarks in his memoir, ‘To this day I think she was right’ (p.172).

Alexis Tsipras, Yanis Varoufakis

Source: Financial Times

The determination at the beginning was huge, especially among Tsipras, Pappas and Tsakalotos. Dragasakis, the deputy was wary of supporting a too aggressive stance against the quasi bankrupt Greek banks, which is the approach that Varoufakis would have favored. Chouliarakis, the economic adviser, was the most concessionary and had been temporarily removed by Varoufakis only to be restored at the end of April at the behest of the troika. Chouliarakis agreed with the unrealistic growth targets that the IMF and the troika had proposed, thus giving a blank cheque to the bailout-cum-austerity packages.

Varoufakis went to the European capitals to negotiate debt restructuring for Greece, but as the situation became more and more hopeless and the pressure against the Greek government increased substantially, Syriza’s high leaders gradually gave up. Tsipras, Pappas and Sagias backed Dragasakis and Chouliarakis in demanding a full-scale surrender to the bailout demand (the third one). Varoufakis still believed in getting a debt restructuring deal, and if threatened by the shutdown of the Greek banks (by the ECB refusing to release euros to the Greek banks) he would have liked to activate a parallel payment system, which works like an IOU for the duration of the bank shutdown. He would have also demanded the non-payment of the SMP (Securities Market Program) loan to the ECB. With such a tough negotiating stance he was hoping to avert a Grexit and get debt restructuring, though Grexit was still better than the Memorandum of Understanding (MoU, i.e. continue bailout-cum-austerity).

But as the political pressure on the Greek cabinet continued, Tsipras and his colleagues sidelined Varoufakis in favor of Tsakalotos to the relief of the Eurozone partners around April 27. (Ironically, Tsakalotos was the only major cabinet member to side with Varoufakis on policy, though he rarely spoke out in cabinet meetings and when he became finance minister he faithfully did his party’s bidding of surrender.) The final gamble happened as the Greek cabinet agreed to a bailout referendum to be put in front of the Greek people in July 5. The ECB, thus, shut down the banking system as the loans became due and as a political warning to the electorate that they should vote ‘yes’ to the referendum. The political leadership was fairly restrained (likely hoping to “lose” the referendum, i.e. a yes vote), though Varoufakis campaigned on a no vote. The voters voted no with 61.5% of the vote, thus defying the troika once again despite having gone through a week of closed banks.

Varoufakis pressed for the implementation of the parallel currency and cutting the ECB loans, but Syriza leaders would have none of it.

Tsipras and his inner circle panicked and decided to ignore the referendum results and sign the bailout agreement regardless. What a sham to call the referendum, when Tsipras did not care about the result except if he had “lost” it with a yes vote, which would have been easier on his conscience. But given that voters rejected the extend and pretend, the Syriza government was now in a position to openly have to betray the electorate that had put their trust in them. Tsipras noted in a conversation with Varoufakis that he was scared of a coup d’etat (p.469). But the more likely explanation (and here Varoufakis offers no more than speculation given that he can’t look into the mind of his boss) is that Tsipras and the inner circle were simply tired of half a year of bad news from the overpowerful troika, which seemed to hold all the cards in their hand. Better to capitulate and not face pressure from an intransigent troika and hope that the voters will put them back to power given that the political alternatives are even worse. Varoufakis compares his Syriza colleagues to Orwell’s 1984 character, who came to love Big Brother regardless of how oppressive he is (p.461).

Tsipras reasoning is quite bad because a Greek pensioner, who had seen his pension cut by 40%, will not care whether it is a Syriza or ND or PASOK or technocratic government which had imposed these cuts. It’s all equally bad. Unbelievably, when Tsipras called out snap elections in September 2015, his party was returned to power with the loss of merely 4 seats. There just wasn’t any alternative, but they had 300,000 fewer voters, which reflects a voter turnout that was 7 points lower (56%) than in January (63%).

Furthermore, Tsipras had offered Varoufakis another cabinet position (while pushing him out of the finance ministry), which Varoufakis rejected as he was no longer interested in participating in a government that would agree to extend and pretend, violating the original mandate of why voters would support Syriza. This is the final reasoning for Tsipras’ U-turn. While at the beginning he was skeptical about power, after having sat long enough in the prime minister chair he was beginning to become comfortable in power and did not want to leave. I doubt that if the elections were to happen again, he could rely on such broad electoral support. With the removal of Varoufakis, the prison rebellion was over.

Varoufakis has bitter memories of his Syriza colleagues, largely welcoming the hatred of the European establishment, but not easily accepting the self-undermining disunity of his own government. Martin Luther King said, “The ultimate measure of a man is not where he stands in moments of comfort and convenience, but where he stands at times of challenge and controversy.” We are all left-wing revolutionaries in our dream, but when David is fighting Goliath, will David hold onto his dream or surrender in the face of adversity?

The Foreign Front

Varoufakis at the beginning had the thankless task to negotiate with the Eurogroup finance ministers and the troika to get debt restructuring. Thanks to his rich account (again, very one-sided by definition as it is a memoir), we can paint the colors, i.e. who plays an important role in the negotiations and how could the troika view prevail?

I begin with Varoufakis’ allies, who used to work for the other side, and were thus steeled in their negotiation strategy: Elena Panariti, a former World Bank economist, who opposed the bailout and had experience in imposing austerity on other countries, thus being especially resistant to the ways of the troika (p.119). Natasha Arvaniti, a Greek civil servant and EU technocrat, who also gathered experience with the devastating troika policies. Glenn Kim was a banker, who was involved in the bond deals between Greece and the eurozone (p.120). The French investment bank Lazard led by Daniel Cohen and Matthieu Pigasse, who had charged the Greek state enormous sums for consulting on the second bailout, had a guilty conscience and lent a helping hand to Varoufakis (p.121).

Other useful friends were the former UK conservative Chancellor of the Exchequer, Lord Norman Lamont; Columbia University economist and World Bank economist in the 1990s when pushing for rapid privatization in Russia, Jeffrey Sachs; Thomas Mayer from the Deutsche Bank (one of the big beneficiaries of the bailout); former US treasury secretary and economic adviser, Larry Summers; US senator from Vermont, Bernie Sanders (who wrote letters to Fed chair Janet Yellen to demand an easing on austerity); and Texas economist and friend, Jamie Galbraith. Sachs accompanied Varoufakis to many meetings with high officials, and so did Galbraith. In addition, Galbraith also helped Varoufakis draft a parallel currency program, which ultimately was not activated.

There is another peripheral actor that is worthy to mention:

Emmanuel Macron, France’s economic minister, now president of France, made a very positive impression on Varoufakis, understanding the Greek plight and similarly advocating for an investment program that could help Greece and Europe end the financial crisis, regretting that he was the economy minister as opposed to the finance minister, where he could have done more to help Greece (p.191). In another important intervention in June 28, Macron wanted to travel to Athens to consult with Varoufakis and his government directly, and also tried to get president Hollande to intervene on behalf of Greece to avoid the bank shutdown. Hollande and other higher circles shut him down and cancelled his planned trip.

At a summit meeting he had argued that the troika deal with Greece was a “treaty of Versailles”, which resulted in Merkel calling on Hollande to neutralize Macron (pp. 453-4). Macron subsequently resigned from the socialist government in 2016, decided to run for president himself, won the election this year, and is slated to gain a landslide from the French parliamentary elections. Now, being on par with Merkel, it is questionable whether he can pursue such an aggressively pro-investment, anti-austerity agenda, especially given that his agenda is about slashing public employment, loosening labor protections.

Photo: Varoufakis (left) and Macron (right) meet a year after the end Varoufakis tenure, Macron running for president of France. Macron had a sympathetic ear to Varoufakis cause, but was rebuffed by Merkel after calling the troika agreement a “treaty of Versailles”


Source: Le Parisien

Now for the opponents among the troika (even as individuals within them were sympathetic to the Greek position):

The first part of the troika Greece faced was the International Monetary Fund:

Photo: Christine Lagarde (left), Yanis Varoufakis (center), Poul Thomsen (right): Lagarde was conciliatory in personal conversations but toed the line during the crucial Eurogroup meetings to demand more austerity, even as IMF-internal reports warned against it. Thomsen was less conciliatory, even though Wikileaks revelations show his own skepticism against the unrealistic growth target assumptions of Greece

Source: Aripaev

Christine Lagarde, leader of the IMF, former French finance minister, succeeded the disgraced Dominique Strauss-Kahn (at the IMF), who fell after a sex scandal. Lagarde had some sympathies for Varoufakis and Greece during their meeting, but was shot down by Thomsen. She was personally quite skeptical about the Greek ability for meeting its financial obligations and paying off the debt, falling in line with many IMF internal assessments that said the same. But, more importantly, during the negotiations, she deferred to the Eurogroup and the ECB. There is also incongruence in the IMF, namely that internal reports criticize bailout-cum-austerity while the IMF staffers on the ground promote it insistently. Lagarde only wants “adults in the room”, i.e. sign the MoU, give up, Yanis.

Poul Thomsen, director of IMF’s Europe department, was very strict in the personal conversations with Varoufakis and Lagarde, but in their first encounter, he was surprisingly open to lower primary surplus targets (which would make it easier for Greece to budget). He also favored debt cancellation and targeting tax evasion (pp.183-5). Though this never came through in the decision-making. He was responsible for creating unrealistic economic projections, which assumed high growth rates and thus make harsh austerity technically feasible. According to Wikileaks tapes, Thomsen has admitted to other staffers that the third bailout is not economically sustainable, and that the IMF’s economic projections were fallacious.

The second group included the Eurogroup, consisting mainly of finance ministers of the eurozone countries

Photo: Thomas Wieser (left), Jeroen Dijsselbloem (right). Varoufakis claims that Wieser was the real power broker making up policy in the background, while Dijsselbloem led the Eurogroup meetings and did the bidding of Wieser and Schauble (p.135).


Source: TV News Room, Eurogroup

Thomas Wieser is the president of the Eurogroup Working Group. The Eurogroup Working Group is an advisory body to the Eurogroup finance ministers and is very influential in formulating policies. Wieser is an Austrian Social Democrat, but having worked in the banking sector most of his life has developed quite a favorable view toward repaying loans to the creditors in full. One exchange between Wieser and Varoufakis is noteworthy: Merkel had dispatched Wieser to chat with the Greek officials in Athens. Varoufakis noted that without EU funding, Greece would have to default on debt repayment, to which Wieser replied that Greece could last longer by plundering the reserves of pension funds, universities, utility companies and local authorities. Thus, more austerity please.

Jeroen Dijsselbloem is the president of Eurogroup finance ministers and Dutch finance minister. He has become well known for his encounter in February 2015 with Varoufakis in Athens. Dijsselbloem thought that he could bring the newly elected Syriza government to immediately cave in and accept the Memorandum of Understanding. “The current program must be completed or there is nothing else.” (p.162) During the press conference, Dijsselbloem insisted on the current program, while Varoufakis insisted on renegotiating the deal. Dijsselbloem then took of his translation device, leaned over and whispered in Varoufakis ear, “You just killed the troika.” (p.170)

Photo: Jeroen Dijsselbloem (left), Yanis Varoufakis (right): Dijsselbloem walks out of the press conference after whispering, “You just killed the troika.” Varoufakis replied, “Wow, this is an unearned compliment.”


Source: Zero Hedge

Wolfgang Schauble, the German finance minister, is the most powerful finance minister in Europe. He is from the conservative CDU and the southwest German province of Baden-Wurttemberg, where Merkel’s famous and proverbial Swabian housewife lives and saves diligently. He is a lawyer rather than an economist and enjoys being the bad cop (p.210). The Eurogroup meetings are dominated by Schauble, who disciplines Greece and other peripheral Eurozone countries to keep their deficit in line and enforce austerity. His natural allies are the Austrians, Dutch, Maltesians, Belgians, Luxembourgians, Finns, Latvians, Estonians, Lithuanians, Slovakians, Slovenians, Porguguese who agree with Schauble on all policy statements. The recipients of discontent are the Irish, Italians, Spanish, Greek, Cypriots and to a smaller extent the French. The latter group, however, rarely dared to speak up for Varoufakis, because they feared rebuke from Schauble and were also concerned that if the Greeks got a debt restructuring the left in their own country would throw them out of office for not having gotten such a debt restructuring themselves.

Varoufakis writes,

While some, including the Lithuanian, Slovakian and Slovenian finance ministers, clearly believed Schauble’s pronouncements on economic policy to be sound and self-evident, it became apparent that even those who disagreed with the economics of austerity would support him- in the case of Italy, Spain and Ireland out of fear that upstart Greece might escape having to do what they had been forced to do already, in which case their own people might demand to know why they had not resisted austerity too- and in the case of a small but significant group, with France at its centre, out of fear that Schauble would force austerity upon them in the future if they undermined him. (p.237)

I quote Varoufakis on the seating arrangements in the Eurogroup meetings:

At one end, to my left, sat the Eurogroup president, Jeroen Dijsselbloem. On his right was Thomas Wieser, the Eurogroup Wirking Group president and the real power at that end of the table; on his left were the IMF representatives, Christine Lagarde and Poul Thomsen. At the other end of the table was Valdis Dombrovskis, commissioner for the euro and social dialogue, whose real job was to supervise (on behalf of Wolfgang Schauble) Pierre Moscovici, the economic and financial affairs commissioner, who sat on the Latvian’s left. On Dombrovskis’s right, meanwhile, sat Benoit Coeure and beyond him Mario Draghi representing the ECB.

At the same corner of the table as Draghi, but on the longer side at at right angles to him, sat Wolfgang Schauble. Their proximity would on occasion give rise to intense heat, though never any actual light. Along the same side as Schauble were what I came to see as his cheerleaders: the Finnish, Slovakian, Austrian, Portuguese, Slovenian, Latvian, Lithuanian, and Maltese finance ministers. My seat was almost diagonally opposite Schauble’s, alongside the other profligates, nicely lined up together: to my left was Ireland’s Michael Noonan, to my right Spain’s Luis de Guindos, and next to deGuindos was Italy’s Pier Carlo Padoan. France’s Michel Sapin also sat on our side, next to Padoan. (p.232)

When Varoufakis proposed the debt swap agreements to lighten the Greek debt, Schauble did not even consider this proposal deferring to the “institutions” (troika). Schauble in a personal meeting with Varoufakis, however, noted his preference to solve the Eurozone crisis and end the extend and pretend primarily via a Grexit. Varoufakis opposed Grexit because the reintroduction of the drachma would be like announcing a currency devaluation a year before it happens, giving Greeks enough time to withdraw all their euros and keep them in a northern European bank account.

The chaotic shift of currency would require the Greek government to impose stringent capital controls, which would create a painful short-term economic uncertainty. Though he also thought it was better than the alternative of continuing extend and pretend. Schauble would have favored a little break for the Greeks, leave the currency for a while, get their household finances in order and then return back to the euro at a later point. When Merkel had heard of Schauble’s plans she immediately rejected it. Schauble, thus, had his hands tied and ultimately pressed Varoufakis for the signing of the MoU. In a notable exchange between Schauble and Varoufakis the latter asked whether Schauble would have signed the MoU as Greek finance minister. “As a patriot, no. It’s bad for your people.” (p.413)

Photo: Varoufakis (right) visits Schauble (left) in Berlin in February 2015. Schauble- the most powerful European finance minister- said, “We agreed to disagree.” Varoufakis replied, “We didn’t even agree on that.” (p.213) Schauble favored Grexit, but was overruled by his boss, chancellor Merkel.


Source: Zimbio

Michel Sapin, the French finance minister, was ideologically siding with Greece, but only behind closed doors. In a personal meeting with Varoufakis, Sapin confided, “Your government’s success will be our success. It is important that we change Europe together; that we replace this fixation with austerity with a pro-growth agenda. Greece needs it. France needs it. Europe needs it.” (p.188). But when Sapin and Varoufakis appeared for the press conference, Sapin’s tone changed and he admonished Greece for not being earnest enough in applying austerity. Varoufakis was shocked. Sapin did not want to cross the Germans by being too helpful to the Greeks.

Photo: Varoufakis (left) visiting his colleague Sapin (right) in Paris, heading in brotherly connection to the common press conference, where Sapin surprised Varoufakis with calls for austerity contrary to what he said in their tete-a-tete conversation. “Who are you and what have you done to my Michel?”, Varoufakis asked his colleague after the press conference. “Yanis, you must understand this. France is not what it used to be.”


Source: LeMonde

Sapin also confessed to Varoufakis that he did not know much about economics and wrote his postgraduate thesis on the “numismatic history of Aegina” (coins in ancient Greece). During Varoufakis’ first Eurogroup meeting, Sapin briefly defended the Greek proposals, but then was shut down by Schauble, who replied, “Elections cannot be allowed to change economic policy.” (p.237)

Angela Merkel, the federal chancellor of Germany, is not a member of the Eurogroup and is hereby listed as the only head of government in Europe, because of her influence and power. The Eurogroup finance minister meetings are led by her colleague Wolfgang Schauble, but given that the two disagree on the handling of Greece, she deserves a special mention. It was her intervention that ensured a February 20 agreement to extend the Greek loans (which would otherwise have resulted in bank closures in February as opposed to July) and blocked Schauble’s Grexit proposal, as she was more concerned about holding the currency union together at all political/ economic costs, even if it meant more bailout-cum-austerity. Varoufakis claims that Tsipras became too overreliant on Merkel’s help, though it can ultimately not be established what happened in the interactions between Tsipras and Merkel, as he only had personal dealings with Schauble. Even today, with Varoufakis gone and replaced by Tsakalotos the same pattern emerges: Tsipras intervenes personally to get Merkel to make concessions to Greece while she defers to her finance minister (Spiegel 6/14/2017).

Photo: “Will she give us a good deal?, ” PM Tsipras might wonder, expecting favorable treatment from the most powerful European leader, chancellor Merkel. While considering an alliance with Merkel crucial to overcome Schauble’s intransigence in the Eurogroup, Varoufakis also viewed Tsipras overreliance on Merkel problematic, which Varoufakis also partly blamed for Tsipras surrender after the bailout referendum (see p.250).


Source: Wall Street Journal

The second part of the troika consist of the European Central Bank:

Photo: The official photo of the European Central Bank Executive Board. Front row from left: Sabine Lautenschlager (Germany), Mario Draghi (Italy; President), Vitor Constancio (Portugal; Vice President). Back row from left: Yves Mersch (Luxembourg), Peter Praet (Belgium), Benoit Coeure (France). In Varoufakis’ account, only Draghi and Coeure figure prominently, with the former being stiff, formal and dismissive, and the latter being warm and sympathetic, at least behind closed doors


Source: ECB

Mario Draghi, chairman of the ECB, former Goldman Sachs banker and chairman of the Bank of Italy, presented himself as a technocrat, who was not making political decisions which would be left to the Eurogroup, when in fact his decision to launch the QE bond-buying program and the refusal to extend liquidity to Greek banks, which forced the shutdown of their banks, due to the unwillingness of Varoufakis to sign the MoU, are deeply political interventions. Draghi had no interest in debt swaps, and when pressured deferred to the ECB Governing Council which tied his hands in making decisions.

While going out for dinner with two German officials, Varoufakis received a phone call from Draghi. “Hello Mario, what can I do for you?”

“I wanted to let you know, Yanis, before you learn it from the media, that as I foreshadowed this morning, the Governing Council voted to withdraw your banks’ waiver [which foreshadowed a bank run]. But this does not mean much since your banks will continue to be supported by your central bank via emergency liquidity assistance, ” Draghi reported on the phone (p.207). The waiver was restored after the February 20 agreement, which continued liquidity and continued financing until the July shutdown of the Greek banks.

Benoit Coeure, is the French member of the ECB executive board, and in private meetings was very “mild and agreeable” (p.185). He also entertained the debt swap proposal that Varoufakis put forward in a private meeting (p.186). During the meeting with the ECB board, Coeure also lobbied Draghi to take seriously the debt swap proposal, which Draghi ignored by changing the subject (p.204). In another personal encounter, Varoufakis told Coeure that he would activate the parallel payment system in case of the ECB denying liquidity to the Greek central bank, and Coeure thanked him for telling him this and promised to ask the EU council to push for more favorable monetary action to give the Greek government more breathing room (pp.382-3). It went nowhere because even as the Greek banks were denied liquidity, the Syriza government refused to entertain the parallel payment system and instead capitulated to the demands of the troika.

In the decisive Eurogroup meeting on 18 June, Draghi and Coeure both conspired to worsen the bank run that was building up in Greece.

Nothing speeds up a bank run more effectively than a central banker [Draghi] reciting its progress while his deputy [Coeure] signals their intention not to intervene except perhaps by closing the banks in three days’ time. (p.430)

A minor set of actors were the EU commissioners, as they had very little practical input in policymaking, and their conciliatory tone with Greece was overruled by the more powerful Eurogroup (p.262). (Ironically, the EU commission is counted as third part of the troika, though in Varoufakis’ account it is the Eurogroup which holds the practical power.)

Photo: Jean-Claude Juncker (left) greets his commission colleague Pierre Moscovici: both commissioners favored a conciliatory approach with the Greek government, but were shot down by the Eurogroup that called all the shots whenever they tried to be of help.


Source: Daily Express

Jean-Claude Juncker, the president of the European Commission, was personally very sympathetic to Syriza’s cause, having issued a draft communique, which read that “the economic and social impact of the crisis on Greece and its citizens has been immense” and that “there is a need to move to a new relationship based on a mutually beneficial agreement for Greece and for Europe as a whole” (p.257). Juncker’s message also demanded a restoration of liquidity for the Greek banks and an end to troika officials unilaterally imposing humiliating policies as if Greece were a minor colony. In late June, right before the bailout referendum and the bank shutdown, Juncker issued another communique, which approved of the Greek debt swap proposal, but that was shelved either by the Eurogroup or by the Greek government ministers willing to capitulate (pp. 452-3).

Pierre Moscovici: The Frenchman is the EU commissioner for Economy and Finance, and has also been sympathetic to the Greek cause, endorsing the Juncker communique. Varoufakis was gleeful, but soon realized that without Dijsselbloem’s and especially Schauble’s support the communique is as valuable as a white paper in an obscure academic journal. Moscovici and Varoufakis took the communique into Dijsselbloem’s office, who had no interest to entertain the commission communique and instead submitted the MoU proposal to Varoufakis. The following scene is best quoted in full,

Turning to Pierre [Moscovici], who was already looking downcast, I asked what was going on. “You just showed me a draft communique that I was happy to sign on the spot. You are the EU’s commissioner for economic affairs. I am the finance minister of a stricken EU member state. Can I please have some clarity from the only person in this room that has official status to represent the EU.”

Without looking at me, Pierre turned to Jeroen and made his first and last attempt to salvage the European Commission’s dignity. “Can we combine some of the phrases in your draft and this?” he implored in a broken voice, pointing at the draft he was holding in his right hand.

“No!” Jeroen cut him down with what could only be described as controlled aggression. “Everything that could be taken from the draft has been taken”, he stated categorically.

“Pierre”, I asked, “are you just going to submit to the enforcement of this totally one-sided communique against the commission’s views and the draft that you prepared?”

Avoiding eye contact and in a voice that quavered with dejection, Pierre responded with a phrase that might one day feature in the European Union’s tombstone: “Whatever the Eurogroup president says.” pp.260-1

Moscovici also assured Varoufakis to speak with Coeure to find a more conciliatory position on ECB liquidity, which resulted in a phone call between Coeure and Varoufakis, promising potentially some higher intervention favoring Greece (p.382). Varoufakis ultimately compared Moscovici with Sapin: sympathetic but helpless and without ideas themselves (p.404).

Declan Costello: EU commission mission chief for Greece did not figure prominently in Varoufakis’ account, but was described as a hardliner on indebted countries. He was in charge of drafting the Memorandum of Understanding, or the pretend and extend list.


Varoufakis’ memoir is a true tragedy, as many political actors, especially the French ones (Lagarde, Sapin, Moscovici, Macron, Coeure) were rather favorable to the negotiation position of his government, which was made abundantly clear in tete-a-tete exchanges behind closed doors. But none of these actors could dare to go against the overarching logic of the troika, and the politically short-sighted logic that ending the bailout scam could reveal the stupid criminality of officials, who had decided to save their banks and cover it up from their own taxpayers. Ending the austerity scam could have also exposed countries that have undergone harsh austerity or might face it in the future as too weak to resist the unreasonable demands of the troika. In a true tragedy, the outcome is not only bad, but the actors in it know the consequences of their actions, but still can’t depart from the already reached consensus.

If there is to be any realistic hope to resolve the Greek debt crisis the leaders will be forced to accept a different paradigm, revolving around either a painful Grexit or debt restructuring. We might hope that another political faction rises up in Greece to replace Syriza, which is rather unlikely, and the Greek suffering had increased in the mean time such that it will be harder to face another period of financial uncertainty for pensioners, workers and unemployed Greeks that had lost so much. The uncertainty in Greece, which the bailout-cum-austerity agenda enforces, is also applicable for the Eurozone taxpayers, as Greece will be expected to request a fourth bailout with which to repay the loans from the third bailout that they were in no better position to afford back then.

Varoufakis has gone on to help found his own left-wing political party (DiEM25), which is designed as a pan-European movement to demand an end to austerity, debt restructuring in the weak economies, a new investment agenda, better social and workers’ rights, higher taxes on companies and the wealthy and, most importantly, democratic accountability and transparency for the ruling political class. With this book Varoufakis has made a contribution to the latter demand to an extent that is unusual for a person who had been in power. He also shows that it is possible for a political outsider to be in a position in power, even though the actual policy changes are not there. While participation in the levers of power for the good has to be lauded and encouraged, Varoufakis ultimate political failure rests from the inability of the political left to mobilize on a united front to challenge the European technocrats, who have made a sham out of democracy, and made the Brexit decision even somewhat plausible. One can only wish the best to DiEM25.

As my book report has taken on mostly positive tones (as I don’t hide my left-wing sympathies), I have to address an important and valid objection: how can one make valid conclusions about the actors in the Eurozone tragedy when these descriptions all come from one person’s account? To make valid statements for scholarship or even investigative journalism one has to corroborate these accounts by reading all the accounts, including from people that were described by Varoufakis and may appear in a very negative light. That would certainly be a worthy project and would require me probably to devote an entire career to study the Eurozone crisis as opposed to reading a book in a few days. I certainly don’t deny that the Varoufakis story has to be read with a grain of salt.

But to be fair there are not many comprehensive accounts of the Eurozone crisis. What we have instead are the purely academic perspectives that are focused on broader political economy patterns (as opposed to the daily minutiae of actors making political decisions) or are only relevant in econometric, economic and finance journals, or the journalistic encounters with meaningless statements of political leaders made in rehearsed press conference settings. In the absence of having a ubiquity of smart people within the circles of power narrating how the architecture of power works (think of John Perkins “Confessions of an Economic Hit Man”) while eschewing the unreasonableness of a conspiracy theory, Varoufakis’ account remains an important contribution to the public understanding of the Eurozone crisis.

In a telling encounter, Larry Summers told Varoufakis that he better choose whether he wants to remain a political outsider, where he can say whatever he wants but does not get heard by people in power, or a political insider, who will get heard by the powerful and might be able to change the outcomes, but cannot tell on insiders or criticize them behind their back. For six months of his life Varoufakis accomplished the rare feat of being a political insider while having been a political outsider all along. Government insiders are trying all they can to squash any attempt to inform the masses about what’s happening inside the circles of power, see the continuing prosecution of Wikileaks founder Julian Assange. As Congressman Charles Binderup (1937) said in a paraphrase of Henry Ford, “It is perhaps well enough that the people of the Nation do not know or understand our banking and monetary system, for if they did I believe there would be a revolution before tomorrow morning.”

Assange and Varoufakis are radicals to the extent that their efforts are reducing the distance between the rulers and the ruled, thus making the distinction between the political insiders and outsiders less relevant (for how could there be insiders if governance is made transparent to the public). That is a threat to any ruling class. We owe individuals like Varoufakis or Assange a great deal of gratitude for insisting on leaders to be accountable to a public that has confided in its leaders to watch over it.


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May’s Sad Face, Corbyn’s Happy Face

The SNP and Conservatives are losing seats, Labour is winning seats. The Tories will likely form a coalition government with DUP from Northern Ireland, but May will go into Brexit negotiations weakened. I am waiting for the overthrowers in the Tory ranks, though I suspect they have not nurtured a real political talent in their own ranks (Boris Johnson, seriously?). With 29 seat gains, the Labour backbenchers will have a hard time unseating Corbyn and I suspect a longer campaign would have given him an outright majority given May’s unpopularity and disastrous campaign.

But politics is after all also about emotions. Collins (2017) analyzed campaign photos of Donald Trump on the election night. Everyone in his family and political circle is visibly elated and looking forward to the presidency, except Trump. Trump was looking serious, and actually was sad for leaving behind his business empire. He visibly had fun while giving his half-sentences and audience-irritating statements on the campaign rallies, but was sad that he now had to take the reins of a very powerful political office, where he could no longer keep things as secret as in his business empire.

For the seasoned politician Theresa May the insight is precisely the opposite. She was banking on snap elections to increase her majority in the House, and the polls were telling her a 20-25 point landslide against the Labour Party, which she hoped was thoroughly discredited by a left-wing leader, who did not fit the ruling opinion of Rupert Murdoch and his media empire. Naturally, the strategy did not work out for her, and her own personal incompetence at the campaign brought about her downfall based on: (1) disingenuity about cuts to the social care and pension budget (hitting her old voter base), (2) disingenuity with a hard Brexit being better for Britain (“no deal is better than a bad deal”), (3) refusal to participate in the leader TV debate, (4) the repetition of empty platitude without positive messaging (in contrast, to the social justice plank of Jeremy Corbyn).

If we only read May’s press statements, she says that she wants to have a period of political stability in Britain and that would require a coalition government with the DUP (unionists in Northern Ireland), many of which favored terror campaigns against Irish nationalists in the past. That is not really a harbinger of stability. Given the Tories lost more seats than the DUP has in total, the governing majority for May is also less than it is pre-election. This is everything but stability, which shows again that we can’t trust anything that comes out of her mouth.

So let’s turn to her face.


Source: Sky News

The first remark is that May is not a very good actor, and she does not hide her feeling of sadness. She looks down. Her mouth is pulled down on the sides. There is perhaps some embarrassment. She is not pleased about the election result, having clearly failed in her gamble to generate a bigger majority in parliament. Not even the pro-Conservative right-wing papers deny it, and say it as is:



In the next photo, May is looking up, but the expression is very grave. Examining other photos of her, she usually does not have a double chin, and this suggests that her head is tilted forward permanently on that election night, at least in front of the cameras. Again the lips are together and tilted downward on the sides. Even though she has enough votes to form another government, what matters in politics are also the overall impressions or the optics, and they look bad for her. She might continue to govern but with a lack of credibility. Whatever Brexit deal she will want to put together, what will haunt her is the lack of legitimacy that she has, having gone to the voters and not receiving a majority for her party.



May’s sadness stands in contrast to Corbyn’s relief and happiness. In the next photo, he is posing next to another Labour candidate, he pointing at her and she pointing at him.


Source: Telegraph

In this photo, he is smiling, and facing a cheering audience. The smile is genuine, because the eye lid is folding as well. He is quite exhilarated after gaining 29 seats for his party.

Britain Election


What is remarkable is that the overall power constellation is not really changing, as May remains PM, while Corbyn will likely remain opposition leader. There is still a 57 seat margin between Conservative and Labour, and so Conservative has the best claim to power. After people no longer have reason to support UKIP after Brexit, the LDP (the only pro-EU party) not having recovered from their coalition experience with the Tories, and the SNP losing seats after continued insistence on a new independence referendum (which scared many Scots people), the vote share for Conservative and Labour has increased to old levels, suggesting a consolidation of the established party system.

Source: BBC

What matters above all else is not just the facts on the ground but the optics. May wanted the increase in seats, but was not able to get it. The Labour leadership suggests that the hung parliament creates an opportunity for the Labour Party to run the government and replace the Conservative government, though if the DUP backs the Conservatives, then this constellation is very unlikely. An anti-Tory block in parliament would have to consist of all the other political parties, including Greens, SNP, Plaid Cymru and LibDems, which will be very difficult.

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Is Neoliberalism a Useful Word?

In one of the many heated Facebook debates I have had with friends the major question arises whether it makes any sense to use the word “neoliberalism” to describe anything. It is naturally important to define in each case what we mean by neoliberalism and if it is clear in the mind of the readers and discussants what is meant by neoliberalism in each case, we can make an authoritative statement about whether we should use the terminology.

But first to directly answer the question: ‘yes’, for me personally, and ‘it depends’ for whether it is generally useful. The usefulness of the term neoliberalism depends entirely on the political perspective of the person. People, who hate neoliberalism, use the word all the time (just do a Google Scholar search and get 253,000 results), while people, who like neoliberalism, hate the word. Thus, we have an interesting distinction between the word, the meaning and political perspective.

A normal word has a close association to its meaning and ideology often plays no role. If I say ‘table’ and assuming your knowledge of the English language, you will likely think of an object made out of wood, plastic or metal with a flat surface and one or a few legs to hold it up. We can have a different viewpoint around how many legs an ideal table should have or what the best material is, but we would not politically contest the basic definition I have given here. But in neoliberalism there is a clear distinction between word, personal ideology and meaning. Liking the ideology reduces one’s liking for the term, while hating the ideology increases one’s liking for the term.

Is neoliberalism a scientific term? People with a more natural scientific inclination would frown and dispute that a term that is so laden with personal feelings and ideological background can have any usefulness in science. If the theory of relativity were not E=mc2, implying E=Energy, m=mass and c=speed of light in a vacuum, because we have different political ideologies, then we don’t have a useful concept. Observations in nature that follow a particular rule have to be summarized in a theory that makes sense to all individuals and by replication of experiments can be repeated precisely.

Clearly, another important scientific domain- where we need to have full agreement over the content regardless of political ideology- is climate change. Here it is superbly difficult given that there is an extreme political faction in the United States that denies the existence of climate change, claiming that there is a political ploy to reduce US competitiveness (see President Trump and the Republican Party). The lack of deference to climate scientists, who have devoted their careers to study these very questions, creates the dilemma that we are ineffectively doing things to tackle and counteract climate change.

But let me just make the statement here that neoliberalism can be used as a term in the social sciences regardless of the diversity in views on its usage. My argument here is that we are naturally not applying the standard of the hard sciences, which says that all people regardless of political ideology have to agree on its meaning. For neoliberalism to be made social scientifically useful, all we have to do is to find a definition in a given article that can describe social phenomena of interest and is clearly communicated to the reader. In the most ideal case, this means that at least among the neoliberalism-haters or anti-neoliberals, mostly on the political left, who are throwing around the term like we regularly gulp down water to quench our daily thirst, we all agree on what it means. This does not necessarily happen, so the only way how we can keep the term in our daily discourse without losing scientific credibility is if we rigorously define it in the context that we are using it.

So after beating around the bush, I have arrived at the hard question at the heart of the matter. What is neoliberalism? It may be described as

  • a political ideology (the glorification of markets, the individual, the private entrepreneur, the investor, the capitalist; the detestation of government regulation of business and the welfare state; the penetration of the market logic/ consumerism in all elements of life, such as family, religion and social relations) and
  • an economic practice (promotion of free trade, deregulation of firms and financial institutions, privatization of public goods, tax cuts for the affluent, the creation of winner-take-all markets, the growth of technological forces favoring the capitalists, the shift of risk from the society, government and firm to the individual, the weakening of social welfare services, the precarization and insecurity of employment relationships in the labor market, the growth of income and wealth inequality and the degradation of the natural environment, especially in the form of climate change).

Also see Harvey (2005); Saad Filho and Johnston (2005)Dumenil and Levy (2011)Centeno and Cohen (2012)

Naturally, neoliberalism-concept-supporters or neoliberals (who are neoliberalism-word-haters) will focus on the political ideology, which like the belief in any religion revolves around some desirable features that have to be taken on faith (i.e. ideology), while discussions on economic practice remain by nature fragmented. Surely, free trade and privatization sound good, but precarization of the workforce and concentrating wealth at the top are undesirable, so they either remain silent on it or claim that neoliberalism or obsession with ‘free’ markets favoring the capitalist class have nothing to do with these undesirable social developments. Or they might acknowledge these social developments but accept it as a cost of an “innovative” society.

Conversely, neoliberalism-concept-haters or anti-neoliberals (who are neoliberalism-word-supporters) will focus on the economic practice, especially where the evidence for socially nefarious consequences is the strongest. But even where the neoliberals think they have a strong hand, there is criticism from the anti-neoliberals, e.g. free trade is criticized as not as desirable as ‘fair’ trade, or privatization benefiting a few big owners is not as desirable as state or worker-owned enterprises. Politically moderate anti-neoliberals (e.g. of the Keynesian social-democratic variety) might be inclined to be silent on the political ideology element, and good examples here is the Third Way of the 1990s led by people like Blair, Jospin and Schroder. “We are not against the market, and we are for labor market activation and an inclusive economic policy” etc. Left-wingers will attack both economic practice and political ideology at the same time, as a more communitarian, solidaristic ideology is incompatible with the principles of neoliberalism.

We may conclude that the social sciences are deeply political and that our own personal viewpoints pierce through every element that we analyze. For those, who have been socialized in Marxist thinking, this is the nature of the game. Social science is the analysis of social phenomena at the same time as it is the advocacy of social change based on underlying moral-political desiderata. For those, who want to hold onto the Weberian ethics of value-free science, we are still salvaged by my definition rule, i.e. define the word neoliberalism in the context of the argument/ article in which it is used to give readers a clear idea of what it means. It is only for natural science standards, which wants to eradicate all ambiguity in meaning and political intention, that neoliberalism cannot hold up to strict scrutiny. Too bad.

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British Election Tragedy (?)

Theresa May had set an election on June 8, and the polls indicate that it could very well backfire for her. When she had announced the election in April and had the parliament vote for it on April 19, the Tories were leading by 20-25 points. Now the polls narrowed to 5-10 points, and some polling agencies would go as far as predicting a hung parliament. The gap had narrowed as the electorate is searching for a political alternative amid the turbulent Brexit negotiations. It still takes some time for people to link their political dissatisfaction with the Tory policies of austerity, especially for local, social and health services. In this article, I claim that the British people are better off voting for Labour and have them negotiate the Brexit than the Conservatives.

Needless to say, it would be a tragedy for the Conservatives to win re-election (and they might given that polls tend to skew Labour, while election results favor Conservative), but there is now mounting evidence that May had miscalculated and that the expected expansion of a Tory majority was too ambitious. May had thought she could wing the elections and be guaranteed more support in the current leadership, so she “can negotiate a good deal for Britain” amid Brexit. Part of the challenge for her comes from the poor handling of the conservative campaign. Because she thought that she would win by a landslide, she refused to participate in a leadership debate, which to her is not as useful as “being quizzed by the British people”, even as she cancels the last interviews right before the election. May is clearly not a seasoned politician, as she excels better sitting behind closed chambers as opposed to performing in public and debating with an opponent that has better arguments than her.

Her second mistake was that her smug attitude had emboldened her party to put forward a draconian social agenda, which revolves around reducing social care and pensions spending, both areas hitting the core Tory voters (senior citizens) really hard. Will her loyal voters call out the Tories for their stupid austerity? The conservatives backtracked on these cuts, but who will believe them?

Relatedly, the third problem is a matter of credibility. It was the Conservatives, who called for the EU referendum, hoping to undercut the EU-skeptic Tories and the UKIP, which had much more support back then (now no longer, because the independence desires of the Independence Party are realized by the Brexit, so what’s the point of voting for them now?). Blaming EU migrants was also a convenient way to cover up the folly of austerity. (“You lose your pension because of the benefits for EU migrants and the EU contributions.” No, because of Tory austerity!) Then they (both David Cameron, then-prime minister, and Theresa May) had campaigned for remain, but now that the narrow Brexit vote was realized, Cameron retreated and May announced to carry out the Brexit, even as she was opposed to it.

How are people going to trust the Tories when they are so unreliable, and with the full extent of the Brexit might have caused the greatest economic calamity in recent British history? Also, why does May first say she does not want to vote until 2020, and now says that this is what she will do? Her reasoning was that there are some people in her own party and in the opposition that want to undermine her political position (and she really trusted the polls to get the landslide).

The political weakness and lack of credibility of the May administration is counter-balanced by the growing popularity of her nemesis, Jeremy Corbyn’s Labour Party. Having been shouted down by the Blairite centrists, who are only different from conservative policy in that they support moderately greater social spending, but otherwise support the same neoliberal initiatives, Corbyn had risen to the Labour leadership since the last parliamentary elections two years ago to return to a more classic social democratic agenda. Corbyn is not a charismatic figure, as his speeches appeal mainly to more intellectual audiences, who rightfully attack austerity policies.

The Blairites were in the Parliamentary Labour Party (PLP) and fought back against Corbyn by pushing for a second leadership election after the Brexit referendum. The Blairites were represented by Owen Smith, who ironically supported a similarly populist agenda to Corbyn, claiming that he would be taken more seriously by the mainstream media, i.e. he will fake left (for the public) and act right (for the media and the powerful), the oldest trick in the hat. Corbyn’s party supporters were not fooled and mobilized for a second time to re-affirm Corbyn at the party leadership, but this time all of the attempted caesar-murderers in the PLP resigned their positions, and Corbyn had to fill the shadow cabinet positions with younger and less experienced allies.

Corbyn is not only opposed by his own party but also by the entire business community and the powerful media conglomerates, who control the political discourse in Britain (some newspapers like Independent and Guardian have exceptionally pro-Corbyn coverage). No wonder that Corbyn had been viewed so negatively by the public. But the election campaign changes the picture, as Labour more successfully mobilizes in their campaign trips. The young voters are overwhelmingly favoring Corbyn, though they are not voting in the same numbers. Now the older voters will have to recognize their self-interest and give their vote for the Labour Party, which could create a political upset. Further, the higher the vote participation rate the better for Labour.

On the other hand, the overall strategic position for the Labour Party is less favorable than for the Tories, because the Tories rely on the English heartland, which has the most amount of seats. Labour is fighting off Plaid Cymru in Wales and, more importantly, was literally wiped off the map in Scotland after the SNP had won most of the Scottish seats. It would be big if Labour could even receive some more seats and thus undermine a possible new Conservative administration.

There is a genuine choice for the British electorate, though I am not so sure whether the short amount of time that is given to the campaign (less than two months) will give people enough time to think about their choices. To some extent, that is what the Tories think will directly benefit them. The short campaign will lower the public exposure that the destructive Tory agenda will receive and time for the public to recognize the utter incompetence of the May administration. Also, Labour benefits from a high voter participation, while the Tories want a lower voter participation, because in that case it tend to be the older Tory voters, whose vote carry the biggest weight.

More importantly, the May administration justifies the short campaign with the 2 year time frame that Britain has to negotiate a Brexit deal with the EU. Article 50 was triggered in March, so March 2019 is the deadline for the Brexit negotiations. May argues that she needs to have a big majority, so she can negotiate the Brexit and have it be rubber-stamped by the parliament. But why is she the person and the party that should have the majority? Further, what can the UK expect from a Brexit?

The downside risk is substantial, because losing access to the single market will force the British to potentially pay tariffs for exports and reduce overall trade as parts and goods that seamlessly cross the channel are now subject to border checks. The UK government prefers access to the single market, but knows that it probably won’t work without guaranteeing the right of all EU nationals to stay, live and work in Britain. May can’t bring herself to sell it to the voters given that the sentiment for Brexit derives from the angst and anger against EU migrants taking British jobs. The fear has no basis in reality, and, in fact, by making it harder for qualified EU migrant workers to enter Britain, the health or transportation service will face shortages that can’t be filled by British nationals.

Within the EU there is not much of an appetite to be lenient on the British, given that the Eastern Europeans have sent a large contingent of their people to Britain, and the Poles are not really keen to welcome all of their compatriots back given that they have more opportunities and income in Britain. Poland is thus unlikely to back a weakening of the free movement of people within the EU. But even other EU countries are unwilling to grant a generous Brexit deal, given that they all belong to the pro-EU political establishment and are unwilling to have more countries leave, thus resulting in a full implosion of the EU. That’s where we would be had Marine LePen won the French presidential elections.

The European leaders, who want to maintain the EU, therefore, have every interest to make it as difficult as possible for the British to leave the EU to discourage more countries from taking that step. But that is really a reflection of the failure of the EU at the present moment. The EU used to inspire people based on the idea of peace and unity, but they have now gotten to a stage to have to defend a construct by the barrel of a gun. “We are bad, but the alternative is worse.” If the EU leaders can’t come up with better ways to address dissatisfaction (e.g. by easing on austerity, promoting eurobonds, and a new Marshall plan), the EU will fall apart in a matter of a decade or two.

British nationalists will latch onto the apparent crisis of legitimacy of the EU, and merely state that they are about to end a project on which they had always been quite lukewarm. But the death of the EU is a long-term process of decline, while the immediate pain to the British population is acute and might not be worth the sacrifice. To be quite frank, I thought the worst thing that would happen with Brexit was that Britain would become another Switzerland or Norway. Naturally, given the relative size of the British economy (second largest behind Germany), they would get some nice deal, such as perhaps a British negotiator working in “consultation” with EU negotiators for international trade deals, but the four freedoms would remain untouched (including access tot he single market and free movement of people). But that’s not the intention of the May administration.

“No deal is better than a bad deal”, says Theresa May over and over again with little regard for the negative repercussions for Britain. May has no basis on which to walk out from negotiations given that its economic fate is so closely linked to what happens across the channel. And how is Britain going to negotiate the over 700 trade treaties that the EU currently has across the world? It is another empty bluff, or let’s call it a lie.

Now the relevant question for the British electorate (given that the EU-internal issues can’t be solved in the next few days) is whether prime minister Corbyn would produce better results for Britain in a Brexit negotiation? Corbyn clearly backs the Brexit, having himself only lukewarmly endorsed the remain campaign. Corbyn’s reservation is similar to my own position, which is that EU workers rights do make sense, but that when it comes to the essential topics of public interest the EU is incompetent at best (no common social policy) and harmful at worst (permanent austerity and pro-business “competition” policy).

We can’t know whether Corbyn will be a skillful politician, and I suspect that a left-wing leader leading the Brexit negotiations is in no more of a desirable position than Syriza when it won elections the first time in 2015 and having to negotiate with hyenas at the IMF and the EU without pity or economic foresight. The only thing that would endear a Corbyn premiership to the electorate is that he would argue for a soft Brexit, which would be in line with what I had proposed. The Tories will put him up as a sell-out, and any residual dips in the economy in the form of a recession will be blamed on him, yet the Tories would have to account for a counterfactual of even more economic deterioration under a hard Brexit.

A soft Brexit may also allow the Corbyn administration to promote a greater investment agenda, higher taxes on corporations and high-income earners, and a needed shoring up of university and health care funding. That in turn will make the British people more relaxed, and I subsequently wish the Labour Party the best in the general elections.

On a final note, will the three recent terrorist attacks (two in London and one in Manchester) swing the vote either way? One might think a terrorist attack helps the governing party, but one does not get the feeling in the polls, which means that either voters are more concerned about other issues or that voters realize the gross incompetence of the Tory government, which has slashed public security and police spending amid these terrorist attacks.

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The Ideal Academic Adviser

For those of us, who are trapped in the academic treadmill and just getting our feet wet in the world of research, it can be quite a nerve-wrecking process to just get familiar with our area of research and write papers, let alone develop the good relationships with academic advisers that are crucial for our success. As a sociologist myself and leaning on my grand teacher in undergrad, Randall Collins, I can say with full assurance that one’s academic success depends not only on one’s independent intellectual interests, but also the network support that comes from a helpful academic adviser. This network has to be face to face and contains a charismatic element.

Collins says,

Ancient philosophers and mathematicians had to meet face to face. You had to be there in Athens or wherever in order to have that network connection. But as printing came in, the network patterns didn’t change. Jean Paul Sartre could have dealt with people in South America by mail, but meetings in cafes were still at the core. The networks around Steve Jobs and Bill Gates were still face to face networks. Even when long-distance media exist, the advantage is in dealing with key people face to face. It is faster as well more intuitive and emotional.

Creative people put a lot of emotional force into their ideas. [Steve] Jobs is a terrific example of that. Einstein and other intellectual heroes tend to be emotionally overpowering and you can’t get that just by reading their writing.

Margonelli (2017). Also see Collins (1997)

Here are three features of the ideal-type academic adviser (and just to be clear we are in the Max Weber world of ideal-types, which is about the analytical categories that are an approximation to reality, while they are not necessarily found in the real world; in other words, we might not find such an academic adviser in the real world and will have to do without or with only 1 or 2 of these features fulfilled):

1. Mentor

It goes almost without saying that the first precondition for being guided in the right direction is to have a professor who is concerned about your success. This tends to be easier with more senior professors, whose status and tenure allow them to scope for talent that they find worthwhile supporting. I like to call mentors ‘talent-spotters’, i.e. graduate students are like college basketball players to be spotted by the NBA talent scouts (and are supported intensely upon hire). Mentors are generally interested not merely in your ideas, but also where you might be able to have your work published, where job openings might be, and what you might want to do with yourself. They must also have an interest that you develop your skills as a researcher and put you in touch with the right contacts that help you in your research project. They will write your reference letter, and informally put out a good word about you in front of other scholars. They will want to write a paper together with you, knowing not only your talent but also the usefulness to your academic career path.

2. Technically competent

In a sense, it is insufficient to have an adviser, who is not so different from a personal career adviser. The adviser also has to be technically competent in the positivistic or humanistic enterprise in the natural and social sciences and the humanities. They have to be well-read in their subfield, and share specific readings that are helpful for you to think through your project. They have to know the methods (quantitative, qualitative?) that help you answer your research questions. They have to provide detailed or general comments on your paper drafts to make them better polished. They will tell you which journals or academic presses take your article/ book. They will evidently leave the grunt work of your own research to you, but they will share their insights that help you in the process.

3. Bon vivant (big thinker)

The French bon vivant denotes a very well-nourished person, who enjoys good food and wine. It would be nice to have an academic adviser like that, but that is naturally not often feasible… But what I mean by the bon vivant is someone, who doesn’t only know the methods and the literature very well and apply it with great rigor to get published to survive in the academic enterprise. The academic rat-race with the lack of tenure-track positions and increasing methodological sophistication is scary enough. We want to have an adviser, who also enjoys discussing big ideas that tend to get shoved into first-year graduate theory courses in the social sciences and never to be pulled out again.

Whether it’s hearing anecdotes of Charles Darwin’s sources of his theory of evolution or exploring the differences between Aristotelianism and Confucianism or the value of Diamond’s Guns, Germs and Steel thesis, what’s wrong with discussing those big ideas? What’s the point of being part of the academic enterprise if we can’t have fun engaging in the big ideas? By only having technically competent mentors as advisers, we are merely technicians, and for that there are other professions that pay a lot more to be like that. The adviser meeting has to be more than just another dentist appointment. We want to live and not merely survive in the academic enterprise. The renewal and regeneration of emotional energy, in Collins’ (2004) framework, or what I would call ‘intellectual energy’, has to happen within the context of interacting with big thinkers, who then also help us to think differently or have new insights within the context of our own research. Great ideas come from great thinkers (within networks!), while bad ideas come from… you know how to complete the sentence.

To illustrate the big thinker, I want to bring up the example of Barrington Moore, the towering figure, who has single-handedly defined the field of historical sociology (having influenced scholars like Theda Skocpol and Charles Tilly). Moore was of aristocratic background, but his research interest was about how various forms of class struggle create modern political configurations (dictatorship, democracy). He also took some of his graduate students at Harvard to his boathouse and on a little boat ride to talk historical sociology and whatever his students wished to talk about. (This story was told to me by one of his students, the late Ivar Berg, when he was 85 years old!) What can be more bon vivant than that?

It won’t be easy to find the right adviser, but it’s good to know what it means to have a good adviser, and perhaps it encourages some of us as future scholars and advisers to aspire to be like that. In Confucius’ own words,

When you see a good person, think of becoming like her/him. When you see someone not so good, reflect on your own weak points. (Wikiquote)

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Herrmann’s Thoughts on Capitalism

Herrmann (2015) discusses (in German) the history and trajectory of capitalism: capitalism is about the use of technology to augment labor productivity to accumulate capital, not the hoarding of money wealth. It began 250 years ago in Britain. The depressing insight is that there is no guarantee that really poor countries can catch up with the high productivity wealthy countries. The impetus behind economic growth is not low wages, but high wages, because that would encourage labor-saving innovation. A universal basic income could extend the growth model via higher reservation wages (wage below which workers don’t work). But there are still constraints to further economic growth: (1) demographic aging, (2) ecological limits and climate change, (3) monopoly of firms, (4) concentration of income at the top.

The technological primacy in the development of capitalism reveals its strength and its very vulnerability: because augmenting labor productivity pushes people from machine-intensive into labor-intensive, low-productivity, low-wage sectors, innovation, broadly shared gains and economic growth all decrease.

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Book Review: How Will Capitalism End?

Symptoms of Morbidity in Late-Capitalism

If we read Wolfgang Streeck’s (2016) most recent analysis, we might be inclined to think that the capitalist economy is about to collapse. The multiplicity of morbidity symptoms are too numerous to enumerate, but are well worth restating:

(1) declining economic growth

(2) rising inequality in income and wealth (as well as life chances)

(3) increases in money supply without much precedent from the central banks

(4) financial and economic breakdown as we had seen in 2008, and as becomes the norm with rising levels of overall debt

(5) decline of social democracy, i.e. collective state and trade union institutions to ensure economic opportunity to the masses, and the commensurate rise of the oligarchy, the power of the moneyed elites

(6) the rising commodification of labor, nature and money beyond what either nature or humans can tolerate

(7) corruption and associated winner-take-all rent-seeking

(8) declining public infrastructure, privatization and commoditization of public goods

(9) U.S. not providing the hegemonic world order, which creates geopolitical instability and economic uncertainty (p.15)

Post-Democratic Malaise

More depressingly, Streeck also notes that we lack the practical collective resources to mount a fightback against the current malaise (see p.20):

(1) Historically, the underdog workers would be able to strike against their employer to gain a wage increase, which was true until the mid-1970s, when the turn toward anti-inflation policies as well as capital and labor deregulation shifted the economic and political power back to the elites.

(2) The political struggle then moved from the economic to the political arena, because the European welfare state shouldered the larger social costs of international competitiveness and the growth of precarious employment (in the US, some share of the burden is carried by the criminal justice system but also a limited welfare state). People voted politicians, who would preserve the welfare state. Good old, power-resource theory (Shalev 1980; Korpi 1985). But public budget consolidation since the mid-1990s, coming on the heels of realizing rapid demographic aging, mounting public debt, joining of the European Union (and the European Monetary Union) with the cognitive turn to austerity, reduced the scope for welfare state expansion, which justifies the entire literature on retrenching the welfare state, which is still bigger than in the past, but no more growing at high rates.

(3) The rise of private indebtedness in many western countries as evidenced by rising student, car, house and general credit card loans has created substantial economic insecurity for the masses, who find themselves having to negotiate with the bank over the “fair” terms of lending, though the struggle is very much individualized and the ability for people to press their demands is substantially reduced compared to strikes and voting. That’s also the time when you see some vague attempts of general public protest, but struggles are interestingly quite local, while the locus of power is diffusely international.

(4) The latest phase of the struggle cannot even be defined as a struggle, namely with central banks. Can individuals struggle against central banks, when ordinary people have a scant understanding of what their own governments are doing, let alone their central banks? Central banks since 2008 have temporarily supplanted national governments, who were just quick to throw tax money after failing banks. Central banks did just the same, but they had way more leverage as they controlled the money supply and could endlessly expand their balance sheets via asset purchases. This so-called quantitative easing has the intent to expand lending in the real economy, as interest rates are also kept close to zero and in some cases are even negative. Savers are losing out under that model, and it is quite interesting that despite repeated calls by Janet Yellen to raise interest rate, it is still at 1%, having only been raised since late-2016. To me it seems like high debts overall make it difficult to raise interest rates, which make defaults increase, thus undermining trust in the financial system which could result in financial chaos.

I think Streeck is somewhat overdoing his emphasis on the financial overlords in the central banks, though their decision was doubtless influential in shifting a greater share of capital wealth onto the global oligarchy, who- in the minds of our wise leaders- are never supposed to lose their savings with a debt haircut. Instead, the cheap money flows shall enable them to further boost real estate speculation to line their pockets, while houses in prime real estate locations become unaffordable to the masses.

But his sentiment of the post-democratic malaise of globalized capital, who can undermine national taxation and regulation regimes, weak labor/ low wages, low growth and high profits in the monopoly sectors of industry (p.22) are absolutely correct. Specifically, the European Union is an entity that allows the unrestrained rule of the central bank and the European council, which consists of the heads of state of the countries that send them, in favor of empowering corporate interests, while neglecting a social policy agenda (p.56; p.158). Nation-states are powerless against international creditors, who demand budget consolidation on the backs of the working and middle class, even though the same creditors were partly fed by the trough of public bailout money, otherwise there will be a rise of the interest rate (p.93). A sad example is Greece, which is getting smashed with endless bailout-cum-austerity demands to pay off loans that everyone pretends to fully repay. Ironically, austerity hurts the capitalists themselves, because a lowering of social spending undermines the public legitimacy for the capitalist order and a lowering of public investment lowers long-run growth potential for the capitalists (p.137).


One might critique that Streeck focuses too much on the European example, but it would be simple to expand his crisis perspective to other countries that are also suffering from an unfavorable climate of economic growth. The Trump phenomenon derives from the dissatisfaction of the masses with a political system that is unresponsive to their needs. There is a veritable crisis of legitimation for the current economic order. It is the US, which also harbors most of the millionaires and billionaires in the world, largely because the US has become the international center of finance as well as high-tech, with the few oil magnates strewn in between. The massive ramp-up in the national fiscal deficit and debt creates the perennial call for austerity, which is made worse by the Republican agenda that illogically attempts to lower taxes on the rich, cut spending and balance the budget. Something will have to give, and I suspect that with small spending cuts (in the arts, sciences, humanities, foreign aid, environmental protection, housing and urban development etc.) and large raises in the military budget and a strong priority for tax cuts for the rich, the balancing budget agenda is out of the question, thus promoting imminent political struggles that either say to US, Chinese and other creditors that they either have to take a haircut, the US wealthy and corporations have to pay more taxes (instead of lending money to the government), or the people continue to bite into the sour apple.

The US is also unique in having the weakest collective buffers against economic insecurity for the masses, having drastically slashed the welfare program for the poorest during the conversion of AFDC to the more stringent TANF program; not indexed the national minimum wage to inflation (let alone national productivity); allowed lax regulation for financial institutions to raid businesses, lay off workers and strip their assets on behalf of a shareholder value maximization agenda; make the unionization of workers rather difficult; incarcerate a substantial portion of the poor (especially black) population; entrap countless millions of people under medical, education, consumer and mortgage debt, which even European countries are still somewhat reluctant to fully adopt.


In Japan, there is a unique combination of unfavorable demographic circumstances (declining population, rapid aging, high life expectancy, low fertility, low migration) on top of the economic and debt crisis that is engulfing the country. The Japanese have an unusually strong sense of national identity, which attributes characteristic traits to a certain group of people tied together by kinship and ethnicity (Lie 2001). The nationalist sentiment translates to a government policy that substantially restricts migration, which is unusual for a wealthy capitalist country that tends to develop labor shortage during early phases of rapid economic development. The labor shortage is apparently, in part, bridged by the overall high skills development in the Japanese labor force, which is then used to promote the export of high value-added goods like consumer electronics and manufacturing, which suggests a lesser need for lesser skilled laborers. Another peculiar feature is that the female labor force is only marginally attached to the workforce, thus allowing employers to draw on a pool of women as reserve labor.

The geographic feature of Japan being an island nation may also help the government to carry out isolationist migration policies, as migrants would have a hard time swimming across the sea to get to Japan. Of course, there are people that are flying in, but the lack of secure legal status, long-term history of immigration and good welfare benefits, there aren’t that many migrants. There are some Brazilian nationals in Japan, but most of them are of Japanese descent. There are some Southeast Asians, like Filipinos, who work as hospital nurses. The largest immigrant group are Koreans, which is a legacy from the Japanese empire, which ruled over Korea. Ethnic Koreans in Japan have not taken up Japanese nationality in large numbers and they receive employment discrimination, which suggests that there is a refusal to ensure the full integration even of immigrants that are culturally similar to Japan.

The foreclosure of the migration route increases the burden to accelerate economic development via increased birth rates, but the fertility rate has been below the replacement rate since the mid-1970s and has reached an all-time low of 1.26 in 2005, having stabilized to 1.41 in 2014 (World Bank). The expectation that women are supposed to be homemakers and raise the children cannot hold up in a world, where many men cannot secure the full-time, permanent jobs (sararaimen or salarymen) that allow comfortable, middle-class family life. Even worse, the disappearance of the Japanese salarymen is associated with a decline of marriage, household formation and childbearing, as women are unwilling to mate a man that does not bring home the bacon at a stable and high income (Piotrowski and Kalleberg 2015).

The result is rapid demographic aging, which creates practical fears for the extinction of the Japanese people. But before that happens, they will have to face constraining social and economic choices. The economic growth rate is structurally lower because of the demographic component. The Abe administration promised comprehensive economic reform, which involves further labor deregulation, fiscal stimulus (on overbuilt infrastructure) and monetary easing (very low interest rates). But there are limitations to fiscal expansion, because debt to GDP had reached 250% in 2016, though it has leveled off the last few years. There is some austerity that the government enforces via the increase in sales tax, which was hiked from 5 to 8% in 2014, which they had planned to raise to 10% in 2016, but was delayed now to 2019 because of “weakness in the economy”. It is difficult to bring the Japanese to spend more money on consumer items, as they already consume much of what people need, and the choices for greater consumption is limited already by the limited availability of good-paying jobs. But to raise the sales tax further will drag down growth even further.

How about the Emerging Markets?

It is usually much harder to prove the case that emerging markets like BRICS (Brazil, Russia, India, China, South Africa) suffer from a systemic economic crises, because their growth rates are higher, they are catching up with the west, benefiting from the demographic dividend (many young workers and few old), and receive foreign capital with their cheap labor force. But it would be erroneous to assume that emerging markets are buffered from a systemic growth crisis in the west. Let us not forget that the most successful economies are all dependent on the international flows of capital and investment.

China is the engine of much of global growth, and that was made possible by the export to western countries, especially the US. The US hegemon is no longer capable of importing all of the surplus cheap goods, as the minotaur is exhausted (Varoufakis 2013). That brings the Chinese growth model in trouble, which partially compensates by raising up ghost cities and overinvesting in fixed assets, which is enforced by the low wages, capital controls and high bank capital that administratively directs funds to state-owned enterprises and local governments to build different kinds of infrastructure projects, even at diminishing marginal returns. The rising debt of the local governments indicates a limitation to endless expansion, and the mounting oversupply of basic inputs like steel or coal already forces a cutback in investment and some limits to further credit expansion. China is, as of yet, in no position to displace the US as global hegemon, playing the second fiddle as the biggest hoarder of US treasury bonds (Hung 2017).

South Africa, Brazil and Australia are examples of countries that are highly dependent on Chinese import demand for copper, zinc, rare earth metals, soybeans, food stuffs etc. The political crisis in Brazil, where a right-wing leader displaced the ruling president, Dilma Rousseff, amid massive lack of popularity is a case in point for the economic dilemma plaguing South America. The official discourse revolves around the corruption scandal of Petrobras, the state oil company, but corruption usually is not an issue during good economic times, when everyone gets at least some bread crumbs from the generously decorated table.

Russia is also in no position to celebrate as their entire wealth is built on rising oil prices, which was capable of papering over the endemic corruption of the political class and the oligarchs that divided among each other the valuable state property in the post-Soviet era, while leaving scraps for common people. Russia is one of the few countries where male life expectancy faced reversals. People had it somewhat better under president Putin, but only because of the high oil prices. Then came the plunging oil prices, the covert wars in the Ukraine and Syria, the western sanctions and the big economic crash. Putin seems to think that military confrontation can buy continued political support, similar to what Bush had achieved at the beginning of his presidency fighting two major wars. Even the most successful emerging market economies cannot insulate themselves from what is happening in the core capitalist countries.

Conclusion: Schumpeterian Pessimism and Gramsci’s Dilemma

So what’s the conclusion? Can we expect a terminal decline of capitalism? A Schumpeterian interpretation of capitalist development allows both conclusions. Schumpeterian optimists would claim that the creative destruction of capitalism would imply that we will have new innovation, which will allow a productivity revolution, and the mass replacement of workers by robots might point us in that direction. There is naturally a limitation to such optimism, because a mass replacement of workers would reduce consumption, which feeds capitalist growth. And productivity data would suggest that the computer revolution has only briefly resulted in an increase in productivity, but this increase is fizzling off, because most businesses already have computers. Another pernicious insight is that mass labor displacement shifts the labor wage equilibrium downward, such that a growing pool of low-wage laborers successfully compete with expensive machines. If labor remains cheap because of abundance it slows down the adoption of new technology.

Schumpeterian pessimism looks more defensible to me. Schumpeter himself was quite a pessimist, because he believed that the long-term development of capitalism would be declining innovation as larger, bureaucratic businesses come to dominate the economy. In the pharmaceutical industry, it does not tend to be the big firms that are at the forefront of innovation but the smaller ones, who sell their patent to the big company that can scale production.

To return to Streeck’s discussion, he never really answers the ominous question in his title (how capitalism will end?), and that would certainly go beyond what can be expected of historical sociologists. We can predict the present malaise based on past patterns, but can’t really say much about the future. Marxism is often taken to be a faith, because there is this idea that not only is capitalism a historically-specific mode of production, but it will also end with the revolutionary takeover of the working class that will get rid of universal alienation and exploitation of man by man. Streeck is not a Marxist, but he agrees with Marxists on the decline of capitalism. Unlike Marxists, he does not believe that “no revolutionary alternative is required, and certainly no masterplan of a better society displacing capitalism” (p.13). The ruling class is confused about what to do: printing money to generate growth in the real economy; attempt to restore inflation with negative interest rates; the weakness of the US as a global hegemon (p.35), thus entrapping us in a Gramscian dilemma, where the old is dying but the new is not born.

Having been able to read Arne Kalleberg’s (labor sociologist) draft for his new book, one actually becomes even more pessimist, because he documents the rise of precarious labor. Stronger working class organization might keep this trend in check. But he does not even think that the energy for working class organization will come from within the working class, but instead comes as a result of a coalition with mass social justice movements, the street protesters and the ballot box. The foreclosure of a fight at the point of production shows that labor is structurally outmaneuvered, even though we will continue to see local insurgency on behalf of worker organizers in different parts of the world at different level of success. Michael Schwartz, another historical sociologist, told me that “the revolution is not going to happen in my own lifetime”.

I am very inclined to agree with Streeck that capitalism might implode before something new arises, because there aren’t any strong social forces that point to alternatives. History is a concatenation of improvising, muddling through, figuring things out as they come along, applying bandaids to cascading cancer and severe illness. It is the intellectual class that might recognize the dysfunctionality of the current order, but is least likely to be aligned with practical forces for social change, while the elites and the masses don’t know what they have to strive for. Bourdieu (1993), taking the cue from Weber, made us aware that history is about a series of endless struggles within the fields that we collectively create. Capitalism and its associated twin, rationalization (the growing means-ends calculation, profit orientation and bureaucratization of life), slot individuals into different ranks, and we have to live with the morbid outcomes as long as we allow it to happen and lack the vision and willpower for a different kind of future.

Streeck himself emphasized that we must not abandon concepts like socialism or communism.

“What other concept is there in any case for the more communal, more other-regarding and more collectively responsible way of life that we today seem to need more urgently than ever, a life with much less license to externalize the costs of private pleasure-seeking to the rest of the world? And how are we to name a social organization with much more shared control over the collective fate and with a strong collective capacity to avoid the unanticipated consequences of freely expanding market relations- consequences that unendingly mystify us today when as individuals we cause effects that we cannot possibly want, not just as a society but also as individuals?” (p.234)

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