Africa and Europe at the Crossroads
2. EUROPE: The crisis of the euro. 3. AFRICA:- Africa's urban revolution.
PART TWO: EUROPE
The ongoing euro crisis
In January 2002, an editorial under the heading ‘Rubicon’ in a Paris left-wing newspaper celebrated the launch of the euro as a revival of the spirit of the Roman Empire:
“Caesar’s march on Rome launched an empire that guaranteed Europe peace and civilization. Europeans have never forgotten that golden age. The euro, true icon of the European dream, resurrects the eternal idea of union in an old continent haunted by its long history of bloody conflicts.”
Whatever we may think of Rome’s political system, the promise of overcoming fragmented European sovereignty inherited from feudalism did at first seem to be the huge symbolic prize conferred by monetary union. But Julius Caesar made his bid for power with an army. The euro’s premise was that politics, far from being a precondition of economic integration, would follow free market logic. This fantasy still grips Europe’s politics, bureaucracy and banking; and the ongoing euro crisis is a result.
I published “A tale of two currencies” in 2002, *the same year as the euro’s launch, comparing the euro with the Argentinian peso which was then in meltdown. The Argentinian default was subsequently celebrated as a success; annual growth rates of 8% were common for a while. Distressed national economies like Greece, who lacked significant international commodities to sell, were encouraged by this example to follow suit. Here is an excerpt:
“The euro’s management is likely to be less democratically accountable to the public even than its national precursors. The euro may not be a national currency, but it does aim to be a federal state currency, like the US dollar. The essence of national money is when a state issues currency of little or no worth to their citizens as the sole legal means of exchange within the territory, and with the obligation to pay taxes on all transactions using it. Central banks jealously guard this national monopoly, policing the banks who create most of the money through lending, while restricting the circulation of rival currencies to narrow spheres of exchange.
“The economic destiny of 300 million Europeans is now tied to the fortunes of a single currency whose management cannot possibly meet their varied needs and interests. The euro is in principle a throwback to the Breton-Woods era of fixed-parity exchange rates, and it does not take much imagination to figure out that the deflationary consequences for parts of the European economy could be unpleasant. Before long the constituent governments of the European Union will come under pressure from their own people for more flexible instruments of economic management. The euro cannot do the job all by itself.
“The euro involves only a limited break with the territorial principle. Its logic is still central bank monopoly within an expanded territory. Europeans may not yet be reduced to the desperate measures of the Argentinians, but they have some way to go before they can rest content with the money at their disposal.”
The apparent triumph of the free market at the end of the Cold War induced two huge political blunders, both based on the assumption that society should be shaped by market economy rather than the other way round. Radical privatization of Soviet-bloc public economies ignored the history of politics, law and social custom that shore up market economies in the West. As a result, the economy was delivered into the hands of former spies, gangsters and oligarchs. The European single currency was supposed to provide the social glue for political union without first developing fiscal institutions or economic convergence between North and South.
There were two unresolved flaws in its formation: Germany’s export surplus and failure to regulate the banks. An even bigger mistake was to replace national currencies with the euro. An alternative proposal, the hard ECU (European Currency Unit, named after a medieval coin), would have floated politically managed national currencies alongside a low-inflation European central bank currency. Countries that didn’t join the euro, like Britain and Switzerland, enjoyed the privilege of this plural option in practice. Retention of a national currency outside the EU did not preclude participation in euro-based markets, but it added political flexibility to the economic crisis. The EU’s countries cannot devalue and so must reduce their debts through deflation or default. The euro was invented two decades after money was already breaking up into multiple forms and functions. The Americans centralized their currency after a bloody civil war; the Europeans centralized theirs as a means of achieving political union.
The infrastructure of money has already become decentralized and global. Issuing money is no longer a monopoly of the national capitalist compromise between governments and banks. Rather a distributed global network of corporations issues a plethora of confusing money instruments. Where are the levers of democratic power now that globalization has exposed the limitations of national economic management? The cultural logic of national capitalism leads the political classes who got us into this mess to repeat the same mistakes. Politics is a dialogue of the deaf, between deniers of the need for any political regulation of markets and a dwindling band who remain trapped in the outmoded model of state-made money.
It is obvious that member states have been denied the option of devaluation, the fairest means of reducing distributing the pain of excessive debt and losses. Their only options are deflation or default. In an echo of the Great Depression, when Britain left the gold standard, before mainland Europe and had a more lenient depression as a result, it now took advantage of an early 30% devaluation, while EU countries did not have that method at their disposal. The lessons of the interwar period and knowledge of Keynes’s remedies recommend reflation of demand, not the deflationary austerity policies that are almost universal now. The only explanation for this is that the ruling alliance of politicians, bureaucrats, and large corporations has only one focus—to consolidate their class power at the expense of the citizen body. Keynesian economists argue that deficit financing linked to public expenditure would avoid recession. But he has no political explanation for why Europe’s rulers are doing the opposite.
The dominant social interest today is finance. Politicians are addicted to money; it is hardly surprising that their policies favor the money men at the expense of voters. They can discount voters with impunity, as when the French and Dutch rejected the Lisbon Treaty and the Troika (European Commission, European Central Bank and International Monetary Fund) told Southern governments what to do or else. Only a few benefited from the credit boom and they would sacrifice the rest of us to retain their power. Austerity is good for disciplining the masses and keeping them cowed, certainly better than undermining the monetary basis of power through inflation and regulating capital flows. It should be no surprise that nationalists who are hostile to globalization and foreigners have increased their appeal to the disenfranchised masses.
Managing internal and external forces together is particularly difficult in Europe since the accountancy techniques that would help the EU to correct its internal trade imbalances are simply absent. Germany’s status as a heavy net exporter has deflationary consequences for the rest; yet it is impossible to measure positive and negative trade balances between member states. The key problem for Europe therefore is the democratic deficit when governments are accountable to the creditor class rather than their own people. It was not so in the post-war period of developmental states and social democracy. If we ask what the 1980 counter-revolution was about, we need not look further than to this shift in power. It is not as if alternative trajectories are hard to find, even close to Europe.
Iceland suffered more than most from the financial crisis since three banks yoked their small island economy to the credit bubble. A new government, dominated by women, rejected British and Dutch pressure to repay bad debts incurred in those countries. They let the banks and the currency fail; limited household debt to a proportion of their members’ assets; and put the former prime minister and several bankers on trial. Their economy soon grew at 3% a year (compared with less than 1% in the EU) and the country’s sovereign debt rating was soon raised, with the IMF’s approval.
The Scandinavian countries and Switzerland have shown in the last century that democratically accountable political elites can engineer the highest rates of economic growth in the world. But the European Union is incapable of moving in that direction. The EU’s economic stalemate has political causes and remedies, but it cannot be resolved if public debate steers resolutely clear of contemporary social realities. The ruling elites who were responsible for the financial crisis, however, are only concerned to save their own skins and to limit the damage to their backers’ assets. Europe’s geopolitical position, internal divisions, external threats and irrational political economy all point to the fragility of the peace. The EU led the way towards a new political order based on a regional customs union. But its monetarist premises had no room for economic democracy.
The euro crisis pushes Europe’s rulers inexorably along a path of social polarization, between corporate bureaucracy and populations rapidly being stripped of the political, legal and economic powers that they won after 1945. Just as it was always wrong to imagine that a single currency would lead to political union, so too attempts now to prevent the crisis from unraveling focus on the euro. The problem is the political union itself. Europe’s rulers have grown so accustomed to hiding behind economic fiction that they have no political solutions. The European Union itself, designed to address global economic problems through federation, will inevitably fail and the euro with it. The resulting disaster just might lead to a reconfiguration of world power. But don’t hold your breath.
The euro is a Greek tragedy in both ancient and modern senses. Aristotle’s concept of hamartia—an irreversible mistake—refers to errors people made in the past that come to haunt them later. These are often unconscious, as when Oedipus kills a man whom he later discovers was his father. Saving the euro hinges on identifying the original mistakes and asking if their victims can do anything to remedy them now. The hamartia in this case was supposing that a single currency could contain the economic diversity of such a region without being unevenly deflationary. The idea that money could forge political union by itself was fed by the dogma that markets can and should trump politics. Hence the failure to account for unequal trade balances between member states, the excessive bets made in credit markets by the French and German banks, the democratic deficit and so on and on.
These errors are still hardly understood, even less acted on in Brussels, Frankfurt and Strasbourg. Taken together, they reveal that the EU’s original big mistake is inexorable, whatever tinkering the bureaucrats come up with. This is why I suggested that Europeans’ confidence in their new money might be as misplaced as Argentinians in their peso. In the current world crisis, Europe seems likely to be the main loser.
PART THREE: AFRICA
Africa’s urban revolution in the last century
Africa has seen extraordinary urban growth in the last century and this, rather than a focus on exports of raw materials, should now take precedence in thinking about future development. Indigenous commerce has so far mainly been approached in terms of an “informal economy” that is estimated as 70-90% of African national economies.
The modern world economy was constructed along racial lines at a particular historical conjuncture. The “Gilded Age” ended in the First World War. The resulting division of the world into countries with dear and cheap labor had profound consequences for their development. Demand in high-wage economies was stronger than in their low-wage counterparts. World trade has been organized ever since in the interests of the better-paid, with tax-rich states subsidizing their farmers to dump cheap food overseas at the expense of local agricultural development, while preventing the poorer countries’ manufactures from undermining the wages of industrial workers at home. South Africa and the United States encouraged heavy immigration of working-class Europeans while retaining a reserve of unfree African and Asian labor. This underpins their shared modern history of racist urbanization.
The period since 1945 has seen a widening gap between Africa and the rest of the world based on massive extraction of debt interest and the undermining of weak states in the name of “structural adjustment”. The world economy has been depressed since the seventies. Under these circumstances, aid is inadequate and resented by its donors, while ‘development’ is just sham rhetoric rather than the concerted attempt to reduce inequality after 1945.
In 1900, Sub-Saharan Africa had 2% or less of its inhabitants living in cities. In the last century, an urban revolution has taken place. This did not just entail a shift of population out of the countryside. The whole package of pre-industrial class society was installed there for the first time outside North Africa: states, new urban elites, intensification of agriculture and a political economy based on the extraction of rural surpluses. Africa made this transition to agrarian civilization after Europe and America had moved on to industrial capitalism, while the Asians followed suit later. Any strategy for African development must start from acknowledging the predominance of nominally independent nation-states whose economic base is pre-industrial agriculture and dependence on foreign powers.
The anti-colonial revolution, beginning in Asia after the war and continuing in Africa, unleashed extravagant hopes for the transformation of an unequal world. Most Africans are still waiting for political forms to guarantee their full participation as equals in world society. The model of development they were expected to adopt was national capitalism. In the first half of the last century, African peoples were shackled by colonial empires, and in the second their new nations were forced to keep afloat in a world economy organized by and for the major powers.
Africa’s new leaders thought they were building modern economies, with public expenditure to match, but they were erecting fragile states whose economic base was the same backward agriculture as before. This weakness led them to exchange the democratic legitimacy of independence for dependence on foreign powers. These ruling elites first drew on revenues from agricultural exports, then on loans contracted under dubious circumstances, at last on the financial monopoly that came from being licensed to supervise their country’s relations with global capitalism. But this bonanza was switched off after 1980, when western capital dispensed with the mediating role of local states and concentrated on collecting debts from them. Many governments were bankrupted; some collapsed into warlord regimes and civil war.
Hopes for African democracy flew out of the window, to be replaced by a norm of dictatorship, whether civil or military. The growth of cities should lead to an expanded level of rural-urban exchange, as farmers supply food to city-dwellers and in turn buy the latter’s manufactures and services with the proceeds of their sales. But this progressive strategy was strangled at birth by imports of subsidized cheap food from North America, Europe and Southeast Asia, and of manufactures from East Asia. African economies now had no protection from the strong winds of world trade.
A peasantry subjected to political extraction and violence at home could only migrate to the main cities and abroad or stagnate. Somehow the cities survived on informal markets that emerged spontaneously to recycle the money concentrated at the top and to meet the people’s need for food, accommodation, clothing, transport, and stimulants. These markets are the key to the potential of Africa’s urban revolution.
The informal economy was promoted at first as a means of employment creation to lift poor countries by the bootstraps. Development was the state’s responsibility. “Structural adjustment programs”, administered by the International Monetary Federation and World Bank, opened countries to global capital flows and scaled down their public expenditures. Now the engine of development was “the market” and the informal economy was encouraged. If governments could no longer support public services, Africans would have to supply their own needs for health, education, transport and utilities. These services would be paid for directly and constituted a major boost for the “free market”—free because largely unregulated.
By promoting deregulation and lawless money flows (“the markets”), neo-liberal policies fostered massive growth in informal, often illegal economies everywhere. War-zone economies such as Eastern Congo—where four million people have been killed in the last half-century—became almost wholly informal. There is a gender component to the informal economy too, in that men have a disproportionate share of formal employment and women’s work is mainly informal.
Continued in the next section