Ms Raworth,
Ms Bodewing,
Thank you very much for your invitation to this interesting event and for the opportunity to say a few words.
Your book is a plea to rethink economics. You make the case for consigning old economic theories to their proper place, to the history books of the 20th century.
You are rightly critical of neoliberalism – an economic theory that Marx described as ‘vulgar economics’. It benefits only certain groups, namely those who live from international trade and can therefore profit from unregulated markets.
Neoliberalism, which held the world in a tight grip from the 1980s on, breached the bounds of theory and became what it might actually have been all this time – an ideology.
It experienced its political golden age, of course, with Thatcher and Reagan. In your book you use the metaphor of a theatrical performance to describe that era; they teamed up, you wrote, to bring the neoliberal script to the international stage.
What looked like a farce was, in reality, high drama.
Capital, commodity and labour markets were thrown open without an adequate political framework, without establishing global rules for the market. Governments of all countries were deliberately pressurised by means of relocation and emigration threats.
Competition in the global marketplace is prevailing over democracy, driving and determining political decisions. First and foremost, globalisation means a massive shift in the balance of power between the market and democracy.
Only a few years ago, Federal Chancellor Angela Merkel spoke of a task which she called “making parliamentary co-decision market-compliant” – market-compliant democracy, in other words. Even today, many players in the higher echelons of political and economic leadership are still convinced that all problems can best be solved by the most unfettered possible market.
And yet no one nowadays wants to be called ‘neoliberal’ any more.
That is hardly surprising either in the wake of the Lehman Brothers disaster, the financial crisis and the use of tax revenues to bail out major banks. The state that the neoliberals maligned turned bank debts into sovereign debts. Its citizens were then forced to repay them. The bottom line is that, even today, neoliberalism is still setting the entire political agenda for many states on both sides of the Atlantic.
And yet the failure of the markets has manifested itself in two major global crises – the climate crisis and the financial crisis.
Climate change can be briefly described in economic terms as follows:
Market prices for energy, transport and heating are calculated without factoring in the cost that trade imposes on communal global assets, namely drastic environmental damage.
In the financial crisis that began in 2007, an internationally deregulated market in financial services plunged half of the world into an economic crisis. No one has been able to realistically assess its cost.
The past few decades have shown that globalised capitalism provokes massive upheavals.
To put it plainly, the fruits of that transformation have been staggering and stunning.
I am no advocate of planned economies, nor am I opposed to international trade. Entry into the global market on their own terms has brought huge gains in prosperity for many nations, turning developing countries into emerging economic powers and lifting millions of people out of absolute poverty.
We have seen the emergence of Chinese, Indian, Brazilian, Turkish and even Russian middle classes. And the greatest winners have been the traditional industrialised nations, including Germany.
But: purely market-driven change has two faces.
Its ugly face is seen in exploitation, environmental destruction, financial crises and debt-ridden states. Globalised capitalism creates prosperity and misery.
In this way it undermines its own foundations. It creates inequalities that gravely endanger the legitimacy of social systems.
We have not yet succeeded in finding a lasting satisfactory solution to this systemic problem.
The conflict between systems did not end when capitalism triumphed over socialism – on the contrary.
Victorious capitalism is now grappling with itself.
Humankind is confronted with the historic task of regulating, calibrating, rebuilding and reining in what is happening in the global marketplace today.
The aim is an economy that serves the people. The aim is a democracy-compliant economy.
And to that end, Ms Raworth, you made a visually rather unusual proposal in Doughnut Economics. But the substance of your pitch combines the environmental and social challenges of this age.
It is a proposal which gives the ‘planetary limits’ their proper place as an absolute red line beyond which the only path leads to the self-destruction of planet Earth.
When the Club of Rome presented the famous analysis by Donella and Dennis Meadows in the late 1970s, it became clear for the first time that growth has its limits. They predicted that the present form of economic activity would lead to the end of absolute growth within a hundred years.
Since then, we have been engaged in a debate on the limits of growth. Recently, we have come to the realization that the hundred-year prediction was too optimistic.
The Club of Rome assumed at that time that the supply of natural resources would dwindle drastically, by which they meant coal, oil and gas. But peak oil is not the limiting factor today.
If we want to tame the global climate crisis to any significant extent, if we want to halt the crisis by restricting the temperature increase to two degrees, more than 80% of all known mineral deposits must stay underground. We simply cannot afford to burn them.
You have rightly put that point at the heart of your proposals.
In the social context, you address the significance of inequality. Three years ago, Thomas Piketty produced an endless series of numerical data as empirical evidence that inequality within capitalism has not only endured but is widening, that this leads to the cyclical crises, I meantioned earlier. A kind of neo-feudal ruling class is taking shape.
This inequality is undermining democracy.
That is why your fresh perspective on 21st-century economics is so important.
Neoliberalism, in fact, was not only a dangerous economic aberration but has also had devastating social consequences. It is no coincidence, of course, that the best-known task force of neoliberalism, the Chicago Boys, were closely connected with a right-wing regime in Chile.
If we are observing and lamenting a resurgence of populist right-wing movements throughout the world today, we must be clear about its causes.
Neoliberalism has driven more wedges through societies. It has produced inequalities and cut entire social classes adrift. What was its prescription for the financial crisis?
Spending cuts, reduction of the expenditure-to-GDP ratio, cuts in welfare benefits, etc. Austerity was the antidote recommended by the business elite, neoliberal economists and the governments of the strong eurozone countries, especially Germany.
Investments in the future, wealthy elite groups sharing the cost of the crisis: none of this has happened.
It is in the light of this experience that the rise of right-wing populist nationalist forces in Europe must be seen. The father of this populism is neoliberalism.
As you see, I would agree with you: it is truly high time to throw old dogmas overboard and to focus on an economy for the 21st century.
I look forward to your presentation.