THE BLOG
of John Gelles
April 13, 2006At a rally for the President in fall of 2003, Karen Loberg (of the Ventura Star) took this picture. It made the front page. I was famous for a day. Topic:
A GRAND BARGAIN BETWEEN UNIONS, GOVERNMENT
AND THE RESPONSIBLE CENTRAL BANKComment from Fix Government and Victory Over Want discussion forums is to be added here. Meanwhile, please read the major article below --- and comment via the reply link at the end.
John G.
Copyrighted work reprinted here is for educational non profit purposes --- and at the teachable moment. It was offered free to me on the internet (as a member of a wide audience) and is copied here free to others adding to its value) --- it is fair use of the work.
Copyrighted or other imported essay --- or if none then main body of blog: A grand bargain against unemployment
By Christopher S. Chivvis
THURSDAY, APRIL 13, 2006
WASHINGTONThe French protests of recent weeks should make even the most dyed-in-the-wool neoliberals accept that that market liberalization alone will not solve Europe's unemployment problems.
Reform along the current course is impossible. Doing nothing is unacceptable. The only solution is a grand bargain between unions, national governments and the European Central Bank.
The crux of the current problem is that job creation is, paradoxically, a prerequisite to overcoming political resistance to labor market reform.
In circumstances where long-term unemployment is a major possibility, high anxiety about losing a job is to be expected. Hence workers resist legislation that would make layoffs easier.
This creates a vicious cycle. Anxiety about unemployment contributes greatly to resistance against changing current laws governing layoffs.
Targeted government spending in specific sectors might help to reduce unemployment. But a more active Keynesian policy can only succeed after labor market reform has been accomplished. Government spending on its own could easily result in a return to stagflation, a deterioration of Europe's external balances and a crisis of the euro.
Thus the only way out is a grand bargain.
The first part must still be labor market reform. Current law clearly makes it too risky for firms to hire new labor in many situations. Unions should stop thinking in terms of Malthusian, "insider-outsider" dichotomies and recognize that lower unemployment is good not just for the unemployed, but also for those who already have jobs.
The second aspect of the bargain must be an active government policy aimed at creating jobs in specific areas. This will make it easier to convince unions that reform is aimed at increasing, not decreasing, worker security.
Neoliberal orthodoxy, of course, assumes that the desired increase in employment will come about naturally through the market once the barriers to hiring are removed. This may be so in the long term, yet there is no reason to think that the increase would come about in and of itself without a major fall in wages, which would create political problems of its own.
The third, and most important aspect of the grand bargain follows from the fact that increased government spending will not be easy when many European budgets are already in deficit. The ECB must support the efforts of national governments both by adopting a somewhat looser monetary stance and by tolerating further infringements on the Stability and Growth Pact, which restricts deficits to 3 percent of GDP.
Europe's central bankers must consider that the greatest threat to the stability of the euro, now that it is a well-established global currency, is not inflation and massive capital flight, but a political disintegration of the consensus on which the euro rests. Unemployment is one of the key factors that threatens that consensus.
Reducing unemployment would in itself do away with a major cause of the deficits by reducing the various burdens governments face in paying for unemployment. A little fiscal laxity, in other words, supported carefully by monetary policy, is needed to get Europe's largest continental economies back into structural fiscal balance.
Such a bargain is no doubt easier to wish for than to accomplish. The benefits, however, would he enormous both for the European project, currently in a state of crisis, as well as for the euro-zone nations, and by extension the global economy as a whole.
(Christopher S. Chivvis teaches European history and political economy at the Johns Hopkins University, Paul H. Nitze School of Advanced International Studies.)
